Oracle E-Business Suite: Coping with EBS Intercompany Invoicing

Objectives
Explore intercompany (I/C) invoicing topics and issues not addressed in the Inventory Users Guide Learn tips for coping with I/C invoicing in areas of:
Reconciliation Scheduling G/L Dating Error Detection Valuation

Presentation Scope
In Scope
Shipments to fulfill customer sales orders Loosely referred to as internal drop shipments Simple pricing of I/C invoices from price lists EBS 11i functionality; applicable to Release 12

Out of Scope
Step-by-step configuration Internal Sales Order / Internal Req-specific scenarios Global Purchase Agreement-specific scenarios External Drop Shipments (EBS SO spawns a PO) Advanced Pricing to value intercompany invoices

Intercompany Invoicing Overview

Standard functionality in EBS 11i and R12 Produces intercompany invoices for internal drop shipments when SOs are sourced across operating units (OUs):
SO entered in a selling (OU) Shipment for SO is sourced from an org linked to a different OU, the shipping OU

I/C Receivables (A/R) invoice in the shipping OU

Bill an internal customer, the selling OU

I/C Payables (A/P) invoice in the selling OU

Pay an internal supplier, the shipping OU

Classic Intercompany Invoicing Flow

Note: Child not created until Parent record has been Transacted and Costed

Typical Accounting for Classic I/C Invoicing

Step 1 2 Event Order Entry / Booking: Japan OU Customer SO sourced from U.S. Inventory Product Shipment from U.S. Inventory directly to Japan Customer: Sales Order Issue / Issue From Stores Operating Unit Japan Sales U.S. MFG Typical Accounting No accounting transaction Dr Cost of Goods Sold (COGS) Cr Finished Goods [Staging] Inventory Not an intercompany transaction Dr Accounts Receivable Cr Sales Revenue Not an intercompany transaction Dr Dr Intercompany Receivables Cr Intercompany Sales [Intercompany] COGS Cr Intercompany Payables Valued At n/a Standard Cost

Generate Customer Invoice via AR AutoInvoice

Japan Sales

Sales Order Price Transfer Price Transfer Price Sales Order Price Transfer Price Transfer Price

4 5

Create Intercompany A/R Invoice Create Intercompany A/P Invoice

Use Account Generator WF to code the debit to Intercompany COGS if account default is inadequate

U.S. MFG Japan Sales Japan Sales

Receive Customer Payment

Dr

Cash Cr Accounts Receivable Not an intercompany transaction Dr Dr Intercompany Payables Cr Cash [or I/C Netting acct.] Cash [or I/C Netting acct.] Cr Intercompany Receivables

7a 7b

Record Payment Against Intercompany Payable Receive Payment for Intercompany Receivable [or record I/C netting]

Japan Sales U.S. MFG

Intercompany Relation

Reconciliation
How do you ensure the completeness of all intercompany Payables invoices?
Each I/C Receivable should have matching I/C Payable

No reconciliation report provided in Oracle EBS

Reconciliation: Discoverer Worksheet

Tip # 1: Discoverer Worksheet

Create a custom Discoverer worksheet for every existing intercompany relation Use a custom SQL script to query I/C A/R invoices and any matching I/C A/P invoices
Sample script provided in white paper on My Oracle Support site or upon e-mail request

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Intercompany A/P Invoice Numbering

Prior to release 11.5.9, the I/C A/P invoice # equaled the I/C A/R invoice # Starting in 11.5.9, the A/P invoice # has a suffix (dash + shipping OUs org ID) to ensure uniqueness
Example: I/C A/P invoice # 47391-32 created to match I/C A/R invoice # 47391

The SQL script provided in the white paper can accommodate matching to A/P invoice #s with or without the suffix

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I/C Invoicing Concurrent Programs

Four separate concurrent programs must run to produce I/C A/R and A/P invoices:
1) Create Intercompany AR Invoices in the INV module 2) Autoinvoice Master Program for Intercompany source in the Receivables module 3) Create Intercompany AP Invoices in the INV module 4) Expense Report Import for Intercompany source in the Payables module

The 2nd, 3rd & 4th programs are dependent on predecessor

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Tip # 2: Daily Scheduling

Dont wait until month-end to generate a whole months worth of intercompany invoices! Schedule the four concurrent programs to run daily
Reason: Errors can be detected & resolved more quickly through frequent scheduling

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Example of Daily Scheduling List

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Tip # 3: Meaningful Description

Use meaningful Header Description values when submitting the Create Intercompany AR Invoices or Create Intercompany AP Invoices programs
Reason: Parameter value becomes the invoice description

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Header Description Parameter

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Description on Imported Invoice

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Error Detection
Request status does not necessarily indicate whether errors occurred with some records
For 3 of the 4 concurrent programs (except Create Intercompany AR Invoices), the request status will be Normal even if the output or log file indicates some records were rejected

Do not just monitor at month-end!

Reason: Daily scheduling wont minimize issues at month-end if monitoring is only done at month-end People should be responsible for periodic monitoring errors with these scheduled requests

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Typical Detection Methods

Create Intercompany AR Invoices
Warning request status indicates transaction errors User must review the log file to identify error messages

Autoinvoice Master Program

Request status will be Normal even if records error out Review the output file of spawned Autoinvoice Import Program request for rejected record count Error records can be monitored by querying the RA_INTERFACE_ERRORS_ALL table I/C autoinvoice errors are not so common

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Log File from Warning Request

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Typical Detection Methods [continued]

Create Intercompany AP Invoices
Request status will be Normal even if records error out User must review the log file to identify error messages Contains separate counts for records selected, processed, and rejected

Expense Report Import

Request status will be Normal even if records error out User must review the output file to detect errors in the Exceptions Report section

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Tip # 4: Alert for Warning Requests

Create an Oracle Alert to detect Create Intercompany AR Invoices requests that ended with a Warning status
Sample alert script provided in white paper available upon e-mail request

Common reason for Warning: Missing transfer price

For example, log file will indicate APP-INV-05706: Warning: Cannot retrieve transfer price for the item LASER123. Warning: Cannot create invoice line

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Example of Oracle Alert E-Mail

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Scheduling Issue: Unique Batch

Issue in EBS prior to release 11.5.8 Payables invoice batch names must be unique within an operating unit if batch control is enabled Bug 2366334: If an Expense Report Import request is scheduled to run repeatedly, each submission will have the same batch name parameter value (wont be unique)
A/P batch from 1st request run will be created Subsequent runs will fail, because they will attempt to create the same batch name

Resolved in release 11.5.8 and patch 3114322; request concatenates the batch_id to batch name
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G/L Dating Issue: Payables Options

Setting GL Date Basis to System Date is appropriate for trade payables but not for intercompany payables
Would cause some I/C A/P invoices to have G/L dates different from their corresponding I/C A/R invoices Could push an I/C A/P invoices G/L date into another G/L period

If GL Date Basis for I/C A/P invoices were set to Invoice Date, then their G/L Date would always match the G/L Date of their I/C A/R Invoice
I/C A/P Invoices G/L Date =

I/C A/P Invoices Invoice Date =

I/C A/R Invoices Invoice Date = I/C A/R Invoices G/L Date

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G/L Date Basis Option in Selling OU

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No Solution Offered in EBS

Neither EBS 11i or R12 offer a way to vary the GL Date Basis of A/P invoices based on source type [Intercompany vs. non-Intercompany] Issue raised in numerous Oracle Support bugs
Bug 2359320 INCIAP INTERCOMPANY INVOICING PICKING UP WRONG DATE Bug 3104204 AP INTERCOMPANY INVOICES HAVE A DIFFERENT GL DATE FROM AR INVOICES

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Unofficial Tip: Custom Triggers

Keep the GL Date Basis set to System Date in the selling OU if desired for trade payables Add custom triggers to two Payables tables to override the A/P invoices G/L date [only for intercompany invoices!], inserting its invoice date value:
AP_INVOICES_ALL AP_INVOICE_DISTRIBUTIONS_ALL

Custom triggers guarantee that the G/L dates of I/C A/P and A/R invoices match Add triggers at your own risk!

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Example of Custom Trigger for One Table

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Payments
Oracle EBS 11i offers no automation:
For corporate netting of I/C A/R and A/P invoices To apply cash collections to I/C receivables when a payment is recorded against I/C A/P invoices

One intercompany cash collection could be for hundreds or thousands of I/C A/R invoices depending on shipping volumes

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Valuation
Two methods for valuing intercompany invoices:
Static price list in Order Mgmt. module Advanced Pricing engine rules for more complexity

Static price list for an internal customer is defined within the customers bill-to location

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Price List Chosen for Customer Site

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Transfer Price List

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Basis for Selecting a Transfer Price

The Create Intercompany AR Invoices request selects a transfer price based on which price is effective as of the system date
Request run system date = I/C A/R inv. creation date

The G/L date of the I/C invoice has no bearing on the transfer price selection

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Example of Transfer Price Selection

I/C A/R invoice for item LASER123
G/L date: 01-APR-2007 Invoice date: 01-APR-2007

If this I/C A/R invoice were created on:

01-APR-2007, it would be valued at the $1,320 price 05-APR-2007, it would be valued at the $1,100 price

Issue: Some companies want the invoice to be priced at the new price ($1,100) based on the G/L date regardless of the invoice creation date

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Potential Valuation Issue

Dilemma: How do you ensure that intercompany invoices with G/L date in:
March 2007 are valued at the old transfer prices? April 2007 are be valued at the new prices?

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Tip # 5: Control the Valuation Cutoff

Use the Cost Cutoff Date (CCD) functionality in EBS Inventory to indirectly control the I/C invoice valuation cutoff
Introduced in EBS release 11.5.7 Controlled by one simple Inventory parameter date Defers the costing of any MTL transactions in the org with G/L date on or after the cost cutoff date value

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Inventory Org Parameter: Cost Cutoff Date

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CCD Impact on I/C Invoice Valuation

Set CCD to 01-APR-2007 to defer the costing of April-dated shipments until perhaps April 6th I/C invoices for April-dated shipments will not be created & valued so long as their Sales Order Issue shipment transactions remain uncosted The cost cutoff date indirectly defers I/C A/R invoice creation through the Parent-Child dependency
Deferring the I/C invoice creation also postpones the transfer price selection

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Cost Cutoff Date Impact on a SO Issue

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Additional Resources
I/C Invoicing for Internal Reqs / Internal Orders: Han Kolbe presentation [2006 NorCal OAUG Seminar on Intercompany Transactions] COGS Account Generator for I/C Payables: John Peters presentation [2006 NorCal OAUG Seminar on Intercompany Transactions] Overview of Intercompany Invoicing Oracle white paper by Sharma Manda [Oracle Support doc # 336129.1] Internal Drop-Shipping: Multi-Org Inter-company Invoicing in 11.5.10 by David S. McCurry [OAUG COL06 white paper presentation] Multiple Organizations in Oracle Applications Oracle white paper, Appendix B Using The Account Generator to Generate the Intercompany COGS Account [Oracle Support doc # 226456.1] 11i Cost Cutoff Date to Retroactively Cost Transactions by Eric Guether [NorCal OAUG 2007 Training Day presentation and Oracle Support doc # 432515.1 ]

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