Trade notes receivable

Replacing an invoice with a trade note

Trade notes are a means of payment such as checks and bank drafts. Some trade notes do not come with a guarantee. Such trade notes are treated as normal anticipated receipts.

Trade notes that consist of fresh obligations, which are usually secure, can replace the related invoices. In such cases, when the trade note is created, the invoice balance is reduced by the amount of the trade note, and a new open entry of a payment document type is created for the trade note. When the trade note is processed and the trade note status changes, the new open entry is also updated. As a result, the business partner's balance remains unchanged.

Discounting trade notes

As a trade note receivable can replace an invoice, to obtain funding before the trade note maturity date, you can arrange with your bank that the bank advances the amount due on the trade note. The bank deducts commission/ interest for the remaining tenure of the trade note receivable and remits the balance to the company. This is known as discounting the trade note.

In the same way as the factoring of invoices, discounting a trade note can be with or without recourse. If you discount a trade note receivable with recourse, you must repay the advance to the bank if your customer fails to pay.

You must select Allow Discounts on TN check box in the Trade Note Types (tfcmg0516m000) session and also the steps related to discounting in the receipt method. To process the trade note discounting, you must execute the Doc. Sent to bank for Disc. step first and later execute Document Discounted step. You must specify the Discounting Details such as, Currency for Discounting, Discount Amount or Discount Percentage, Commission Percentage or Commission Amount.

Trade note steps

The trade note's status always indicates the last step performed on the trade note.

Trade notes receivable can have the following statuses:

• Open (initial status)
• Received
• Sent to BP
• Accepted/Sent
• Matured
• Sent to bank
• Paid ( Settled)
• Void
• Cancelled
• Dishonored
• Discounted
• Collateral
• Endorsed

When you define a trade note receipt method, you can select the steps to be performed on the trade note. Some steps are only available for trade notes payable, and some only for trade notes receivable. Of some steps, the availability depends on the selection of other steps. For some steps, you can indicate that the step is optional.

Reconciliation

When the trade note matures, the cash is actually realized. The trade notes can then be reconciled and then settled. Before a trade note matures, the trade note can be canceled. After maturity or reconciliation, the trade note can be dishonored if the customer fails to honor the payment. To update the anticipated balance after reconciliation, select Update Anticipated Balance upon Reconciliation check box in the Receipt method.

Refer Set up and process trade notes receivable for details on how to select the steps for each type of trade note.

Collateral

Trade note secured with the bank to get loan. In the receipt method the Document Collateral step must be selected. When the step is executed you must specify the Collateral Details such as Bank for Collateral or Collateral - Depositor.

Trade notes receivable used as collateral can be sent to the bank again for reconciliation after the obtained loan has been cleared in the bank.

Endorsement

The process of transferring the company’s trade note receivable to the supplier there by clearing the payment due to the supplier is known as endorsing. For more information, refer to To endorse a trade note.