How Deductions and Settlement Works with Receivables and Payables

Receivables Analyst Claim Creation

At the end of the day, a short pay or deduction represents any kind of dispute or misunderstanding between you and your customer. These disputes manifest themselves as short pays in customer remittances, and can take multiple forms:

Customer Action	Action Taken by Customer Analyst or Lockbox Integration	Claim Source in Channel Revenue Management
Customer short pays a receipt while marking invoices as paid in full	Create Claim Investigation	Deduction
Customer overpays a receipt on account	Create Claim Investigation	Overpayment
Customer short pays a specific invoice	Create Channel Revenue Claim	Invoice Deduction
Customer overpays a specific invoice	Create Channel Revenue Claim	Invoice Overpayment
Customer communicates a dispute	N/A	Manual Claim

Based on the action of the customer, the Receivables analyst in the Edit Receipt UI or through the lockbox integration, will behind the scenes, initiate the creation of a customer claim accordingly in Deductions and Settlement. This typically defaults to a deduction claim type and an unknown claim reason. It's part of the resolution process to determine the true claim type and reason.

For a non-invoice based deduction or overpayment, a Receivables activity is applied to the receipt in the amount of the short pay or overpayment. The receipt is updated with a reference to the created claim number.

For an invoice specific deduction or overpayment, claim details are applied to an invoice application line of the receipt in the amount of the short pay or overpayment, and the invoice application line is updated with claim details. The created invoice claim takes on the amount outstanding, the currency, and the business unit of the invoice.

Note: Claim creation will fail if a default claim type and default claim reason isn't specified in the claim source setup.

Claim Creation Through Lockbox

Many enterprises leverage lockbox banking services for the receipt of payment from customers. Create claims automatically for deductions and overpayments from the Process Receipts Through Lockbox process in Receivables. This reduces deduction creation time and improves processing efficiency. The lockbox receives payments and automatically creates an invoice-related claim in Channel Revenue Management for underpayments and overpayments to the invoice's outstanding balance and non-invoice related overpayment claim for any remaining unapplied amount on the receipt post applications.

Claim Settlement

After a channel manager resolves the deduction and it's approved, the Settle Customer Claims process can be run to create the artifacts of settlement in Receivables. A deduction can encompass one or multiple settlement methods. The process is typically scheduled by the Channel Operations user.

During the settlement of a claim, the schedule process:

Creates credit memos in Receivables with applicable taxes, if credit memo lines are present in the resolution of the claim. Credit memos on account are then applied to the receipt. Credit memos on invoice are applied to the invoice. Similarly, for an overpayment, an invoice is created and applied to the receipt.
The Fusion Tax application or supported partner tax applications are supported.
Reverses the original claim investigation activity in the receipt.
Applies any open transactions that are part of resolution to the receipt if settling on account or to the invoice if settling on invoice.
Auto write-offs are only applicable to short pays. If the entire short pay wasn't resolved, and the remaining amount is below the write-off threshold, then this write-off amount is applied to the receipt or invoice.
If the entire short pay wasn't resolved, and the remaining amount is greater than the write-off threshold amount, then a child claim is created in Deductions and Settlement. This child claim is also applied to the receipt.

Note: While settling a claim, the Claim Amount Includes Tax field indicates whether the amount settled is inclusive of taxes. If the override is allowed at the controls at status and tax rate levels, then the application will check this field.

In case of manual claims, settlement can be done in Receivables or Payables. The settlement method for Receivables is Credit Memo - On Account and for Payables the settlement methods are Check or Default Payment Payable. If you select a Payables settlement method, then the application creates an invoice in Payables with the information used to settle the claim. To do this, the application uses the Import Payables Invoices scheduled process and the payment details are updated in the claim when you run the Settle Customer Claims scheduled process.

Accounting

The accounting for nonpromotional settlement is handled by Receivables. Settlement artifacts are created as Receivables transactions and activities according to the Channel setups. For credit memos and invoices, Receivables performs the subledger accounting based on the Receivables transactions and activities created by Channel Revenue Management settlement.

Claim Type setup for a deduction includes a one to one mapping to a Receivables credit memo transaction type. This is used when a credit memo is created in Receivables. A standard credit memo is always created for a credit memo on invoice.
Claim Type setup for an overpayment includes a one to one mapping to a Receivables invoice transaction type. This is used when an invoice is created in Receivables.
Claim Reason setup for a deduction includes a one to one mapping to a Receivables credit memo reason. This is used when a credit memo is created in Receivables.

The accounting for a claim investigation is derived from the Receivables Activity associated with the claim investigation application.

In the Manage Channel Settings page, there are two settings under the category Settlement by Credit Memo - On Invoice that drive the settlement in Receivables. A receivables method to reverse accounting entries, and a receivables method to credit installments.

The accounting for promotional settlement is handled by Channel Revenue Management's integration with Subledger Accounting.

For more information about accounting events, see Accounting Event Details for Customer Accruals in the Implementing Channel Revenue Management guide.