Trade Agreements - Overview

When a trade agreement is created, advances, periodic settlements, and a final settlement are calculated and paid out to the defined recipients. A recipient is the beneficiary of the invoiced customer order lines covered by the trade agreement.

A trade agreement model, defined in the customer order, contains sequences that are used to find a trade agreement in which a customer order line can be qualified. Each sequence defined in the trade agreement model has a defined selection matrix which is used to map out the defined scope of the connected trade agreement and corresponding recipient. The scope could be item, item group, customers, warehouses, order types, etc. Accruals are then calculated and either accumulated to the trade agreement through the invoice process, or by batch.

Advances can be paid out periodically to the recipient during the agreement period. A trade agreement can then be settled on either when the validity of an agreement has passed, or before the agreement’s end date. For trade agreements that cover several years, settlements are calculated annually. Advances, periodic settlements, and final settlements are paid out to the recipient as a credit or debit note through the batch order entry.

Accruals

Accruals are calculated for the qualified invoiced lines covered by an active trade agreement.

Generation of accruals depends on the parameter setup for the management of accruals in 'Trade Agreement Model Lines. Open' (OIS439). These are the alternatives for 'Accruals management' in (OIS439):

1-'Per invoice' - accruals are calculated upon invoice generation.
2-'Batch' - accruals should be calculated through a batch program in 'Trade Agreement. Open' (OIS450).

Financial entries for calculated accruals are generated and transferred to the general ledger through 'Trade Agr FIM Periodic Proposal. Open' (OIS455). Accounting OI40-168 (for trade agreement) and OI40-169 (trade agreement reservation) are used for periodic accrual proposals. The accounting rules are listed in 'Accounting Rule. Set' (CRS395).

Advances and periodic settlements

In the trade agreement you can specify if advances are to be credited for a recipient. Advances, or periodic settlements, are calculated from the accumulated amount accrued in the trade agreement. They are credited either by an advance according to a fixed percentage, a dynamic percentage or amount based on the recipients generating value, or a fixed amount set per period for the recipient. If an advance percentage for the recipient is specified, then only that calculated percentage or amount is credited in advance.

Accrued invoiced amounts or paid invoices can be used to calculate an advance or a settlement. Paid amounts are the invoices paid in full. Only invoices paid in full are used when calculating a proposed value for advance or periodic settlement payments when the 'Chk paid inv' check box is selected in 'Settings - Trade Agreements' (CRS740). The proposed value can be inherited and manually changed in either 'Trade Agreement. Open' (OIS430) or upon payout in 'Trade Agreement Payout. Open' (OIS445).

Advance or periodic settlement proposals generated in (OIS445) can be adjusted manually. After an adjustment is made, the advance is credited to the recipients. Advances are paid using credit invoices, which are transferred to account receivable using the regular invoice routine.

Annual and final settlements

A settlement is the final calculation performed for the recipient or recipients included in the trade agreement. A settlement is created after the validity of the trade agreement has passed. For trade agreements that cover several years, annual settlements are created at year-end or after the validity of the agreement has passed. It is also possible to create a settlement before the agreement’s end date.

Advances or periodic settlements that have been credited to the recipient are deducted from the final settlement. When advances or periodic settlements credited are higher than the accumulated accruals in the trade agreement, a debit invoice is created for adjustment.

During the settlement process, invoices are created through the M3 batch order entry process. These invoices could either be credit, debit, or zero.

Limitations

On-invoice discounts are not included.
Planning and simulation of overall trade agreement is not included.
Trade funds management and planning (budget consumption) is not included.