Managing Direct Debiting in Accounts Receivable

This document contains an outline of how you use direct debiting to automate the process of invoicing customers and recording payments.

The purpose of direct debiting is to automatically transfer specific amounts from the customer's bank account to the company bank account at certain intervals. Direct debiting is primarily used when selling the same services or products on a regular basis to a customer.

For a description of an alternative workflow for direct debiting, see Managing Direct Debiting according to the Danish Model.

Outcome

Customer debts are collected automatically. For detailed information, see the corresponding instruction.

The payments processed affect your customer credit and risk management as well as your cash flow management.

Accounts receivable and the general ledger are updated. For information on account entries created, see the corresponding instruction.

Before you start

  • You must have well-defined routines for managing direct debiting and be fully aware of the costs and savings involved.
  • A text to be printed on the invoices, stating that the payment will be made through direct debiting, must be created in 'Payment Instruction. Open' (CRS285) and connected to each customer in 'Customer. Open' (CRS610/K).
  • See the corresponding subordinate process document/instruction for further starting conditions.

Electronic Direct Debiting in Germany

When remitting direct debiting payment orders electronically in Germany in a so-called DTAUS payment file (in non-EDIFACT format), a separate bank report ("Datenträgerbegleitzättel") with file information is required. If the number of invoices to be paid for a customer in the remittance is greater than the number specified for the company bank account used, a separate payment specification ("Avis") is printed and sent to the payer. The starting conditions for this are:

  • The payment method used must be connected to a payment type under payment class 5. The 'Agreement type' check box in 'Payment Type. Open' (CRS078/E) is used to distinguish between direct debiting without agreement ("Lastschrifteinzug") and direct debiting based on a registered agreement ("Bankeinzug").
  • If the 'Agreement type' check box (above) is selected, direct debiting agreements must be registered in 'Direct Debiting Agreement. Open' (ARS450).
  • In 'AR Payment Method. Open' (CRS076/E), the DE-DTAUS alternative must be selected in the 'Electronic form' field and the 'Document' field. The first controls the format of the DTAUS file, the second the creation of the"Datenträgerbeizättel" and the payment specification ("Avis"). The valid alternatives are generated automatically by pressing F14=Standard in 'Bank Format. Open' (CRS695/B) and 'Document Format. Open' (CRS696/B) respectively.
  • A bank account indicator must be created for this type of direct debiting in 'Bank Account Indicator. Open' (CRS072). Indicator field 1 must be defined as a field that is10 positions long, numeric 1/0, and reserved for the customer's bank account ID. The check digit method for bank account in the same programs should be set to 07. After having connected the indicator to the customer's account in 'Bank Account. Open' (CRS692), bank account ID and bank ID ("Bankleitzahl", a numeric, eight-position value) must be entered for the account. This bank information is checked based on the check digit method selected. If the information is found to be incorrect, the invoices affected are blocked when a remittance proposal is created and they are included in the error report.
  • For the company bank, the 'Number of document lines' field in (CRS692/F) define the number of positions available in the DTAUS payment file (record C, variable part, second record section). The following formula used is: (No. of document lines) x 2 x 27.

    Example: If you select 6 as the document line number, the number of positions is: 6 x 2 x 27 = 324 digits. If this number is exceeded, a separate payment specification is created for all invoices for the payer; the file record will then only contain a reference to this specification.

Follow These Steps

  1. Managing Direct Debiting Agreements

    The basis for direct debiting is the agreement you enter into with the customer. You register the agreement and its controlling values in 'Direct Debiting Agreement. Open' (ARS450) and then send it to the bank.

    However, it is possible to use direct debiting without registered agreements. In that case, a special payment method allowing for this must be used when creating invoices.

  2. Send Invoice to Customer for Information Purposes

    When a new customer invoice is created, an order with the unique direct debiting agreement number is created automatically as well. A message that this invoice is for information purposes only and should not be used for payment is included in the invoice. Depending on your company routines or the type of agreement, send the invoice to the customer.

  3. Remitting Invoices to Bank

    You create a bank remittance statement with the invoices you have selected in 'Bank Remittance. Open' (ARS300) and send it to the bank. The invoices are closed automatically.

  4. Reconciling Payments

    When you have received the confirmation from the bank, report the invoices as paid or unpaid in 'Bank Remittance. Reconcile Payment' (ARS350) or 'Draft/Check. Open Unpaid or Rejected' (ARS340) respectively. If the bank confirmation is received in a batch file, you do this in 'Batch Payment. Update' (ARS040).

Related topics