Oracle Applications

White Paper

Bank Charges in R12

Contributors:

Sanjay Prasad / Sriram Ramanujam

Versions:

1.0

Create Date:

01-APR-2012

Update:

25-MAY-2012

Bank Charges in R12 Doc ID 1461830.1

Table of Contents
INTRODUCTION ....................................................................................................................................................3
Objective .........................................................................................................................................................3
Scope ..............................................................................................................................................................3
Overview .........................................................................................................................................................3
Terms Used .....................................................................................................................................................4
BUSINESS SCENARIO ...........................................................................................................................................5
BANK CHARGE SETUPS .......................................................................................................................................7
Enable Operating Unit to Use the Bank Charge Feature...............................................................................7
Define Bank Charges ......................................................................................................................................8
Enable Bank Charges for Supplier .................................................................................................................8
PROCESS FOR TESTING BUSINESS SCENARIO ..................................................................................................... 10
Step 1: Create 2 Invoices .............................................................................................................................. 10
Step 2: Create PPR to Pay Invoices ............................................................................................................. 13
Step 3: Review Payment Created .................................................................................................................. 15
Step 4: Review Payment Accounting ............................................................................................................ 16

Bank Charges in R12 Doc ID 1461830.1

Introduction
Objective
In this white paper we provide an overview of the Bank Charges feature in Oracle
Payables, Release 12. We also included step-by-step instructions to configure the
Bank Charges feature.

Scope
This paper includes the setup steps, transaction flow, and relevant accounting for
the transactions.

Overview
Banks can impose fees for different activities and services, such as:

Interest on overdraft
Monthly charges
Other service charges, and
Charges levied on funds transfer requests to other banks

In this document we will discuss bank charges for Fund Transfer Requests.
You can pay your suppliers for their goods and services in many different waysi.e.,
issue a check, pay by money order, credit card, or cashiers check. You can also
transfer funds from your bank account to your suppliers bank account.
For the service of transferring funds between the two bank accounts, your bank may
impose bank charges.
The bank charge may depend on several factors, such as:
a) Transferring bank: From where the funds will be disbursed
b) Receiving bank: To where the funds will be transferred
c) Transfer priority
d) Currency
e) Payment amount, and
f)

Bank charge typesuch as Standard or Negotiated

Bank Charges in R12 Doc ID 1461830.1

Terms Used
Transferring Bankthe bank from where the funds will be disbursed
In Oracle Payables, this is your bank account
Receiving Bankthe bank to where funds will be transferred
In Oracle Payables, this is your Suppliers bank account
Transfer PriorityBank charges levied may depend on the transfer priority. For
example, a Normal Transfer Priority may be cheaper in comparison to an Express
Transfer Priority.
Bank Charge TypeBanks may also provide differential rates, such as a Standard
Rate vs. Negotiated Rate for Fund Transfers. Negotiated rates are often lower than
the standard rate.

Bank Charges in R12 Doc ID 1461830.1

Business Scenario
In this business scenario, the bank charges a fee for transfers between two different banks.
The Bank Charges are based on the payment amount and bank charge rate (i.e., Standard vs.
Negotiated). In our example, if the payment amount is between 1 and 5000, the bank
charges $10 for the Standard rate and $7 for the Negotiated rate. Payment amounts over
$5000 are charged $12 for the Standard rate and $8 for the Negotiated rate.
Payment Amount Range
Payment Amount
Payment Amount
From Range
To Range
1
5000
5000

Bank Charge Rate

Standard
Negotiated
10
12

7
8

Priority: Express
Currency: USD
Transferring BankBank Name: SANBANK1, Branch: SANBRANCH1
- This is your bank account
Receiving BankBank Name: SANBANK, Branch: SANBRANCH.
- This is your Suppliers bank account
To test the Bank Charges feature, we will use the following example:
1. Initiate a Funds Transfer Request (i.e., a Payment) from the Transferring account
(Bank: SANBANK1 and Branch: SANBRANCH1) to the Receiving bank account
(Bank: SANBANK and Branch: SANBRANCH).
2. In our example, the payment will be applied to two invoices for the amounts of
$3000 and $6000
3. Because the total payment is more than $5000, the system will calculate the bank
charge for the amount of $12, as per the setup under the Define Bank Charge
Calculation section of this white paper.
4. The $12 will be deducted from the payment of $9000. The bank charge is pro-rated
based on the payment amount for each invoice.
Invoice#1
Invoice Amount: 3000
Amount Paid = 3000 (12*3000/(3000+6000)) = 3000 4 = 2996
Invoice#2
Invoice Amount: 6000
Amount Paid = 6000 (12*6000/(3000+6000)) = 3000 8 = 5992

Bank Charges in R12 Doc ID 1461830.1

In order for the system to calculate and apply the correct pro-rated bank charge to each
invoice, the following configuration must be completed.
1) Enable the Operating Unit to use Bank Charge
2) Define Bank Charges
3) Enable Supplier Site to use Bank Charge
To create the above scenario, you must have the following transactions:
1) Create two invoices
2) Create a Payment Process Request (PPR) to pay the two invoices
3) Review the Payment amount
4) Review the accounting entries

Bank Charges in R12 Doc ID 1461830.1

Bank Charge Setups

To set up Bank Charges, you must do the following:

Enable the Operating Unit to use the Bank Charge feature

Define Bank Charge Rates between the Transferring Bank and Receiving
Bank
Enable Supplier Site to use the Bank Charge feature

Enable Operating Unit to Use the Bank Charge Feature

Bank charges must be enabled at the Operating Unit level.
Navigation: Set up > Options > Payables Options > Payment

Select the checkbox Enable Bank Charge Deduction from Payment and select the
respective value for Deduct Bank Charge from Payment.
Applicable Values are:
1. NoNo bank charges will be deducted
2. Supplier/Standardbank charges will be paid by the Supplier and the bank
charge will be deducted at the Standard Rate.

Bank Charges in R12 Doc ID 1461830.1

3. Supplier/Negotiatedbank charges will be paid by the Supplier and the

bank charge will be deducted at the Negotiated rate.
The same setup will default on the Supplier Site Definition form, but it can be
overridden.

Define Bank Charges

The bank charge rate is dependent on the Transferring Bank (i.e., your bank), the
Receiving Bank (i.e., your Suppliers bank), and the Transfer Priority. This
information is entered on the Bank Charge Calculation form.
Navigation: Set up > Payments > Bank Charge Calculation

Enable Bank Charges for Supplier

You must enable the Bank Charges feature at the Supplier Site. You can complete
this task under the Invoice Management tab by accessing your suppliers bank
account information.
Navigation: Suppliers > Entry Query/Enter Supplier
1) Navigate to the Invoice Management Tab

Bank Charges in R12 Doc ID 1461830.1

If the Supplier Site is already defined, then select the appropriate value for
Deduct Bank Charge from Payment.
If a new Supplier Site is defined, the system will default the values from the
setups completed at the Operating Unit level.

2) To define the Suppliers bank account, navigate to the Banking Details tab

The Suppliers bank account defined here should belong to the Receiving
Bank details mentioned in the Bank Charge Calculation window.
This completes the Setup required.

Bank Charges in R12 Doc ID 1461830.1

Process for Testing Business Scenario

Complete the following steps to test the business scenario:
1) Create two invoices
2) Create a Payment Process Request (PPR) to pay the two invoices
3) Review the Payment Amount
4) Review the Accounting Entries

Step 1: Create 2 Invoices

Invoices created in Batch Name TR220112-01

Bank Charges in R12 Doc ID 1461830.1

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Invoice#TR220112-01
Invoice Amount: 3000
Status: Validated and Approved

The Remit to Bank account in our example is bank: SANBANK and

branch: SANBRANCH. This is the Receiving bank or the Suppliers Bank. For
more information, refer to the Enable Bank Charges for Supplier section of
this document.

Bank Charges in R12 Doc ID 1461830.1

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Invoice# TR220112-02
Invoice Amount: 6000
Status: Validated and Approved

Remit to bank account is bank: SANBANK and branch: SANBRANCH.

This is the Receiving Bank or the Suppliers Bank. For more information,
refer to the Enable Bank Charges for Supplier section of this document.

Bank Charges in R12 Doc ID 1461830.1

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Step 2: Create PPR to Pay Invoices

PPR#TR220112-02

Transfer Priority: Express

Bank Account: SANACCOUNT
--This is the Transferring bank or your bank account
--Bank: SANBANK1 and Branch: SANBRANCH1.

Bank Charges in R12 Doc ID 1461830.1

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Complete the PPR

PPR created payment# 6

Bank Charges in R12 Doc ID 1461830.1

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Step 3: Review Payment Created

The remittance was applied to the invoices and the payment amount was as
expectedi.e., 2996 and 5992, respectively.

Bank Charges in R12 Doc ID 1461830.1

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Step 4: Review Payment Accounting

The bank charge was prorated as expected and the accounting was as
follows:
Liability for Invoice# 1
Liability for Invoice# 1
Liability for Invoice# 2
Liability for Invoice# 2
Cash Clearing
Discount

DR
DR
DR
DR
CR
CR

2996
4
5992
8
8988
12

The $12 was recorded as a discount in the General Ledger because the
Supplier paid the bank charges.

Bank Charges in R12 Doc ID 1461830.1

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