Advances and Periodic Settlements
This document describes how to set up and manage trade agreement advances and periodic settlements.
Introduction
You can specify in the trade agreement if advances and periodic settlements are to be credited for a recipient. Advances and periodic settlements are calculated from the accumulated amount accrued in the trade agreement. They are credited either according to a fixed percentage, a dynamic percentage or amount based on the recipient’s defined forecasted generating value, or a fixed amount set per period for the recipient.
If an advance percentage for the recipient is specified on 'Trade Agreement Recipients. Open' (OIS431/E), then only that calculated percentage/amount is credited in advance. For example, a recipient has a total accrued amount of 1,000 USD. If the percentage is 100 or blank then the entire amount is credited in advance. If the percentage is 80, then only 800 USD is credited.
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 payments and calculating a settlement when parameter 'Chk paid inv' is set in 'Settings – Trade Agreements' (CRS740). This can be inherited and manually changed in either 'Trade Agreement. Open' (OIS430) or upon payout in 'Trade Agreement Payout. Open' (OIS445).
Advance proposals generated in (OIS445) can be adjusted manually. After adjustment is made, the advance is credited to the recipients.
Advances or periodic settlements are paid using credit invoices, which are transferred to accounts receivable using the regular invoice routine. Whenever credited advances are higher, the recipient is debited on the final settlement.
Once an advance or a periodic settlement is credited to the recipient, a record is created in the trade agreement transaction file 'Trade Agreement Transaction File. Open' (OIS435) with transaction line type 15-'Advance and settlement' indicating the credited amount and the credit invoice created.
Trade agreement advance method
The advance method defined in the trade agreement controls whether the advance is calculated with a fixed percentage, dynamic percentage, or a fixed amount. The advance method is specified on (OIS430/E). These methods are also used for periodic settlements.
Rates used to calculate the credit amount for the advance are either percentage or amount depending on the paying unit defined on (OIS430/F). Percentage is used when the paying unit is set to 01-05, and amount is used if the paying unit is set to 10-13. A fixed amount is used if the paying unit is set to 21.
Define advance method - fixed percent
Fixed percent advance method is calculated with a fixed percentage or amount. The advance or periodic settlement is calculated by multiplying the paying amount for the period selected by the rate defined for the recipient.
Fixed percentage or amount per unit is defined per recipient in (OIS431). This is accessed by using related option 11 in (OIS430).
This table shows an example of periods and paying values for a recipient:
| Period | Paying amount |
|---|---|
| 1 | 100 |
| 2 | 200 |
| 3 | 350 |
| 4 | 75 |
The fixed percentage defined for the recipient (OIS431) is 3%, and the advance is up to period 2 inclusive.
Paying amount for period 1-2 = 300.
Advance credited (300 x 3%) = 9.
Define advance method - dynamic percent
Dynamic percent advance method is an advance calculated on a recipient’s paying amount included in the periods selected for the advance or periodic settlement. The calculation is based on the actual sales (generating values) for the period selected.
When this method is selected, the percentage is retrieved in a scale defined for the recipient in 'Trade Agreement Scale Rates. Open' (OIS432). This is accessed by using related option 12-'Trade Agreement Recipients. Open' in (OIS431).
- When scale code defined on (OIS430/F) is set to 0-'Best possible trade agreement rate', the rate retrieved is according to the last limit passed.
- When scale code defined on (OIS430/F) is set to 1-'Graduated trade agreement rate' or 2-'Graduated rate - split trans', the rate retrieved is based on a graduated method where parts of the generating value of the selected periods included in the created advance receive different trade agreement rates. The portion of the generating value which lies between two limits, or exceeds the last limit, is given the trade agreement rate of the lower (or last) limit.
In this example, the paying unit on (OIS430/F) is set to '01' so that the rate is a percentage, and the scale rate values (OIS432) of:
| Limit values (forecasted generating values) | Rate |
|---|---|
| 200 | 3% |
| 500 | 4% |
| 700 | 5% |
| 1000 | 6% |
This table shows the periods and paying values for the recipient:
| Period | Paying amount |
|---|---|
| 1 | 100 |
| 2 | 200 |
| 3 | 300 |
| 4 | 400 |
Example 1: Scale code is set to 0-'Best possible trade agreement rate'
When the accumulated generating value for the period is lower than 200, no rate is retrieved. An accumulated generating value for the period 200-499 retrieves a rate of 3%, from 500-699 retrieves a rate of 4%, from 700-999 retrieves a rate of 5%, and 1000 or over retrieves a rate of 6%.
- What is the payout if the generating value for periods 1-2 in the created advance is
500?
- Rate retrieved for the period is 4%
- Paying amount for periods 1-2 is 300
- Payout amount for the advance if the paying value is 300 is 300 x 4% = 12.
- What is the payout if the generating value for periods 1-2 in the created advance is
750?
- Rate retrieved for the period is 5%
- Paying amount for periods 1-2 is 300
- Payout amount for the advance if the paying value is 300 is 300 x 5% = 15.
Example 2: Scale code is set to 1-'Graduated trade agreement rate' or 2-'Graduated rate - split trans'
When the accumulated generating value for the period is lower or equal to 200, no rate is retrieved. An accumulated generating value for the period 201-500 has a rate of 3%, from 501-700 retrieves an additional rate of 4% but only for the value 501-700, from 701-1000 retrieves an additional rate of 5% but only for the value of 701-1000, and an additional 6% is given to the value exceeding 1000.
- What is the payout if the generating value for periods 1-2 in the created advance is
100?
- Rate retrieved is 0% as the generating value has not passed limit 200.
- What is the payout if the generating value for periods 1-2 in the created advance is
750?
- The first value of 200 renders no payout
- The value 201-500 renders a payout of 3%
- The value 501-700 renders a payout of 4%
- The value 701-750 renders a payout of 5%
- The payout rate retrieved would be for values [(500-201) x 3%] + [(700-501) x 4%] + [(750-701) x 5%] / 750 = 2.6%
- The payout amount for the advance if the paying value is 300 is 300 x 2.6% = 7.8.
Define advance method - fixed amount
Fixed amount advance method is used by fixed amount trade agreements. Fixed amounts are specified per period per recipient in 'Trade Agr Pmt Sched per Recipient. Open' (OIS449). This is accessed by using related option 19 in (OIS431).
In (OIS449), a percentage is entered per period. The percentage distributed across the periods totals 100. The reservation entered on (OIS431/E) is used to calculate the reservation amount on the accrued trade agreement. If the validity of the recipient is several years, the percentage is distributed across those years.
The amount calculated for each period is the fixed credited amount that is suggested once an advance or periodic settlement is created for the agreement.
| Period | Paying amount |
|---|---|
| 1 | 10,000 |
| 2 | 2,500 |
| 3 | 4,000 |
| 4 | 3,725 |
An advance or periodic settlement is created for the agreement for periods 1-3, the suggested credited amount for the advance is (10000+2500+4000) = 16500.
Manage and create advances and periodic settlements
Advances can be credited during the validity of the agreement. Periodic settlements can also be credited during the validity of the agreement at a set frequency. They can be credited either by fixed percentage of the accrued paying amount of the selected period, the dynamic percentage based on the corresponding forecasted generating value, or by the fixed amount. Advances and periodic settlements are calculated based on the trade agreement’s accrued paying amount.
Advances and periodic settlements are paid using credit invoices, which are transferred to account receivable using the regular invoice routine.
The final settlement for the trade agreement is reduced by the amount credited in advances and periodic settlements.
Advances and periodic settlements are created in (OIS445). This can be accessed by using related option 15 in (OIS430).
- advance method defined in (OIS430) is not 0-'No advance'
- status of the trade agreement is set to 40-'Active' or 70-'Hold'
- there is no existing final settlement (option 90) for the year the advance or periodic settlement is created
- 'hold settlement' parameter is not selected.
Manage advances
The advance proposal is created by selecting option 10 in (OIS445) and specifying the year when the advance will be created. Entering a specific period in the 'to period' field creates an advance that covers the period of the agreement to the entered period.
For advances using this option, the 'from period' is always the start period of the agreement.
This table shows an example:
| Advances | Year | From period | To period |
|---|---|---|---|
| Option 10 | 2021 | 01 | 03 |
| 2021 | 01 | 06 |
When ‘check paid invoices’ is activated for the trade agreement during generation of advances in (OIS445), only paid invoices are proposed in the total credited amount in ‘Suggested Trade Agr Payout Amount. Open’ (OIS446). Open invoices for the generated advance settlement are then displayed in the field ‘Open invoices within period’ in (OIS446).
Manage periodic settlements
Periodic settlements are created by selecting option 20 in (OIS445). It is mandatory that the parameter 'Periodic settlement' is activated on (OIS430/F) to use option 20. Entering 'to period' is not permitted for periodic settlements.
The periods covered for periodic settlements depend on the 'Settlement Frequency' defined in (OIS430). For periodic settlements, the succeeding periods are based on the last period of the previous payouts.
This table shows an example:
| Periodic settlement | Year | From period | To period |
|---|---|---|---|
| Option 20 | 2021 | 01 | 03 |
| 2021 | 04 | 06 |
When ‘check paid invoices’ is activated for the trade agreement during generation of periodic settlements in (OIS445), only paid invoices are proposed in the total credit amount in (OIS446).
-
‘Earned previous period’ – indicates the earned amount for the previous periods. These transactions are the non-settled invoices from the previous periods but paid invoices within the current generated periodic settlement.
For instance, a trade agreement has previously settled a periodic settlement for period 1-2. When generating a periodic settlement for period 3-4, open invoices from the previous period that are paid within the current period are displayed in this field.
- ‘Open invoices previous periods’ – indicates the total amount of the open invoices from the previously settled periods.
- ‘Open invoices within period’ – indicates the open invoices within the periods of the current generated periodic settlement.
Periodic settlements - redistribute differences
Perform redistribution is calculated when there is a difference between the reservation amount of the trade agreement transactions and the calculated credit payout for the selected periodic settlement payout period. This function is only available for periodic settlement payouts.
Redistribution of differences for periodic settlements created via option 20 in (OIS445) is only possible when:
- 'periodic settlement' is activated on (OIS430/F)
- status of the trade agreement is either 40-'Active' or 70-'Hold'
- advance method defined in the trade agreement is not 0-'No advance'
- there is no existing settlement (option 90) for the year the periodic settlement is created
- 'perform redistribution' is activated on (OIS430/F).
Example:
A periodic settlement is created via option 20 for a frequency of 2 periods per settlement.
The following values are set up for the trade agreement:
- Advance method defined in the trade agreement is set to 2 - 'Fixed percent'. Fixed percent advance methods use the rate defined in the recipient (OIS431) to calculate the advance credited amount. In this case the rate in the recipient is 6.5.
- Paying unit for the agreement is set to 10-'Net weight'. Since paying unit is set to 10, reservation rate is amount.
- The trade agreement transaction file for the recipient has the following
values:Note: The reservation rate used for the calculation of accruals is based on the specified scale code on (OIS430/F). In this case, the trade agreement has a scale code defined as 0-'Best possible trade agreement rate' which has a mandatory normal rate of 6.5.
Period Paying amount Reservation rate Reservation amount 1 50 6.5% 325 2 100 6.5% 650 Total 150 975
After creation of periodic settlement for periods 1-2, a credit amount is calculated based on the rate defined in the recipient, since advance method is fixed percent (150 x 6.5%) = 975. This is the amount to be credited for the selected period.
When the credited amount for the periodic settlement is modified, a redistribution takes place. In this case, the current credited amount of the advance 975 is modified to 500.
A new rate is calculated for the new credit amount as follows:
- credited amount/Paying amount = 500/150
- rate adjusted after modifying the credited amount = 3.33.
Once a periodic settlement is credited to the recipient, a record is created in the trade agreement transaction file (OIS435) with transaction line type 15-'Advance and settlement' indicating the credited amount and the credit invoice created. An additional record is then created in the transaction file with transaction line type 19-'Redistribution according to final rate'.
This table shows the trade agreement transaction file records:
| Period | Paying amount | Reservation rate | Reservation amount | Credited amount | Transaction line type |
|---|---|---|---|---|---|
| 1 | 50 | 6.5 | 325 | ||
| 3.33 | -158.50 | 19 | |||
| 2 | 100 | 6.5 | 650 | ||
| 3.33 | -317 | 19 | |||
| 500 | 15 |
The record for the new reservation amount is the adjustment based on the calculation (paying amount * adjusted reservation rate).
Workflow
Advances and periodic settlements must be activated by specifying the advance method for the trade agreement on (OIS430/E).
- Start (OIS445). This can be accessed through related option 15-'Trade Agreement Payout. Open' in (OIS430).
- Specify if an advance or periodic settlement will be created:
- For advances that are created through option 10, it is mandatory to set the year and 'to period'.
- For periodic settlements that are created through option 20, it is not permitted to
set the 'from period'. Periodic settlements can be created with or without year
entered. The 'to period' depends on the settlement frequency defined in (OIS430).Note: Creation of advances (option 10) is not permitted if a periodic settlement is created for the trade agreement. See Manage and create advances and periodic settlements.
- After specifying the option to use to create advances or periodic settlements, select
options - create. Check information on (OIS445/E).
- Select 'Chk paid inv' field if you want to check the paid invoices against the original invoices to ensure that they are fully paid.
- Select 'perform redistribution' if redistribution of rates will be calculated after modifying the proposed credit advance amount. This function is only for periodic settlements created via option 20.
- Select 'hold settlement' if the advance or periodic settlement created will be on hold. Release advances and periodic settlements that are on hold by selecting option 22-'Release for settlement' on the advance or periodic settlement created in (OIS445).
Press Enter to confirm the information and return to (OIS445/B). An advance or periodic settlement record with status 10-'Ready for proposal' is created.
- Select related option 20-'Crt adv proposl' to create an advance or periodic settlement proposal for the selected period. The advance or periodic settlement record is updated with status 30-'Proposal ready'. To change the proposal, go to step 5, otherwise go to step 8.
- Select related option 11-'Suggested Trade Agr Payout Amount. Open' to review the advance or periodic settlement created in 'Suggested Trade Agr Payout Amount. Open' (OIS446).
- The recipient’s calculated credit amount can be modified. Select the recipient you want to change. Select change to proceed to (OIS446/E).
- Change the calculated credit amount on the E panel. Press Enter to return to (OIS446/B). Press F3 = 'End' to return to (OIS445).
- Select the advance or periodic settlement record and select option 35-'Crt adv/stl/pre' to send the advances or periodic settlements via the batch order entry and create advance or periodic settlement credit invoices. The record is updated to status 90-'Process completed'.
- A record in the trade agreement transaction file in 'Trade Agreement Transaction File. Open' (OIS435) is created with transaction line type 15-'Advance and settlement' indicating the credited amount and the credit note invoice. An additional record is created in the transaction file with transaction line type 19-'Redistribution according to final rate' for periodic settlement redistribution of rate.
- A document is then printed for the advance or periodic settlement OIS447PF.
Setup
The following setup is for advance or periodic settlement payouts:
- Advance method on (OIS430/E).
- Status of the trade agreement on (OIS430/E) – applicable for status 40 and 70 agreements.
- Reservation rate per recipient (OIS431) for trade agreements with fixed percent advance method defined.
- Scale rates per recipient (OIS432) for trade agreements with dynamic percent advance method defined.
- Payment schedule per recipient (OIS449) for trade agreements with fixed amount advance method defined.
- Per settlement activated for trade agreements (OIS430/F) for periodic settlements that are created via option 20.
- Perform redistribution activated for trade agreements (OIS430/F) if redistribution of rates will be calculated after modifying the proposed credit amount, or if there is a difference of rates between the calculated reservation amount and the calculated credit amount for the trade agreement.