IS 604: Contemporary Issues in IS Banking Enterprise Systems

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1 Chair of Information Systems IV (ERIS) Institute for Enterprise Systems (InES) IS 604: Contemporary Issues in IS Banking Enterprise Systems Prof. Dr. Alexander Mädche Chair of Information Systems IV Institute for Enterprise Systems Lecture supported by:

2 Agenda Session III Agenda 1 B 2 tec Company Overview 2 Introduction to SAP Banking Services 3 SAP Business Partner 4 Contract Management 5 Product Configuration 6 Financial Conditions & Pricing 9 Posting Control Management 10 Settlement Management 2

3 Periodic Processing Correspondence Settlement Management 3 Product Configuration Financial Conditions/Pricing Contract Management Accounting Order Management/ Business Operation Posting Lock Management Settlement Currency Conversion Posting Control Processing/ Exception Handling Open Item Management Cash Flow Billing and Invoicing Item Management/ Payment Services Payment Distribution Financial Customer Information Management Double, Triple, Quadruple Control Combined Settlement Master Contract Management Pooling Reporting Collateral Archiving Payment Distribution & Monitoring Credit Facilities Insurance

4 Back-Office Mid-Office Front-Office Settlement Management 4 Current account life-cycle Contact Advisory Offer Deal Mainte nance Manage Payments Account Settlement Account Closure Create BP Create Account Maintain BP Maintain Account Payments Settle Account Create Product Maintain Product Assign Product Define Ind. Conditions Create Conditions Maintain Conditions Order Management Create Product Pricing List Maintain Product Pricing List Posting Control Business Processes Business Events Business Transactions Book on internal accounts Reporting

5 Settlement Management 5 GOALS OF THIS UNIT Understand the function of the settlement Define the difference between different settlement types: standard settlement, standard settlement with date categories and extended settlement Explain settlement attributes Define settlement process flow

6 Agenda: Settlement Management 6 Agenda 1 Settlement Definition 2 Standard Settlement 3 Standard Settlement with usage of Condition with Date Category 4 Extended Settlement 5 Settlement Process 6 Prior Period Adjustments

7 Settlement Definition 7 Settlement: Comprises functions that enable the calculation of interest and charges in a bank for all types of account products and card products in the system Current accounts Time deposits Loan accounts Saving accounts Cards Card pools Settlement results are calculated using diverse factors such as conditions, periods, and balances The results are posted; single contract settlement or a settlement as a mass process are possible

8 Settlement Definition: Settlement Types 8 Standard Settlement Standard Settlement with Usage of Conditions with Date Category Extended Settlement

9 Agenda: Settlement Management 9 Agenda 1 Settlement Definition 2 Standard Settlement 3 Standard Settlement with usage of Condition with Date Category 4 Extended Settlement 5 Settlement Process 6 Prior Period Adjustments

10 Standard Settlement: Overview 10 Components of Settlement Conditions: Interest conditions Charge conditions Insurance premiums Payment conditions Settlement Control: Settlement periodicity Other settings in the account product and account master data Settlement Results: Results from previous periods Carry forward balances CYT results Turnovers: Daily balances Counters Info item Turnover classes Settlement Attributes Settlement Period Amount Limit Condition Condition Type Clearing Method CYT Calculation Settlement Control Indicators Trivial and Minimum Amounts Charge Collector Transfer to Reference Account

11 Standard Settlement 11 Settlement Period Periodicity period factor that specifies a number of period units (days, weeks, months, ) Settlement on the working day. Example: set Key Day = Work Day indicator. This makes periodic execution possible on a freely definable working day. Shift Next Period End Date Calculation of Next Period End Date: Starting date + defined periodicity + shift next period end to working day = next period end date Settlement Execution Date Next settlement execution date can differ from next period end date. Delay the settlement execution by specifying number of days (calendar/work days) Calculation of Next Execution Date: Next period end date + number of days between period end date and execution date + shift next period execution date to working day

12 Standard Settlement 12 Settlement Control Indicators Do not Post Settlement No settlement postings generated Next period end date shifted forward Post Cumulated Settlement Determines if settlement results are posted in one total or separately for each posting type Definition Charge/Interest Calculation Period Specifies whether a charge or interest is calculated for the last day of a settlement period in the period to be settled or if the last day of a settlement period is included in the following period. o Inclusive/exclusive o Exclusive/inclusive o Settings in the condition are relevant The interest calculation period affects the value date of the settlement posting: o Inclusive/exclusive: value date = end of the settlement period o Exclusive/inclusive: value date = end of the settlement period + 1 day Exceptions: Date of the contract begin is always inclusive Date of account closure is always exclusive

13 Standard Settlement 13 Settlement Control Indicators Inclusive/Exclusive Settlement period: Interest calculation period: Value date of the settlement posting: Interest calculation period Settlement period Value Date Inclusive/exclusive method means that interest calculation period includes the last day of the previous settlement period, but excludes the last day of the present settlement period from the current settlement. The last day of the present settlement becomes the value date. Exclusive/Inclusive Settlement period: Interest calculation period: Value date of the settlement posting: Interest calculation period Settlement period Value Date Exclusive/inclusive method means that interest calculation period excludes the last day of the previous settlement period, but includes the last day of the present settlement period into the current settlement. The value date for present settlement is a first day of the next settlement period.

14 Standard Settlement 14 CYT Calculation Capital yield tax is calculated by other components of banking services CYT Module Amount Limits Condition Trivial and minimum amounts for settlement condition types, for example: item charge, account maintenance charge Prevents posting of very small amounts by either not posting the result at all or by posting the defined minimum amount Settings possible for each condition group Can be defined for each account as individual conditions Defined for each currency or for all currencies Application settings Trivial and Minimum Amounts Trivial and minimum amounts for settlement condition types The bank can be prevented from posting very small amounts by either not posting the result at all or by posting the defined minimum amount Settings possible for each condition group type Defined for each currency Customizing settings

15 Settlement results Standard Settlement 15 Charge Collector Contains expenses and charges that are parked until settlement as info items Enables immediate calculation of charges and posting within the next settlement run Used for the following types of charges: Transaction charges Direct charges Penalty interest Condition Type Clearing Method Used for interest earnings: bank can reduce the due charges by the earned interest Flexible functions: any settlement condition types can be offset Credit interest Part of the credit interest that was offset by the due charges Part of the credit interest that carried forward to the next period Account maintenanc e charge Item charge Customer does not pay any charge

16 Standard Settlement 16 Transfer to Reference Account Posting of the settlement results to a reference account (internal or external) by defining: Settlement payment details: Direct Payment Details settlement results are posted directly to the specified account Indirect Payment Details settlement results are first posted to the settled account and then transferred to the specified account in the payment details Payment advice Complete settlement transferred to a reference account Only specified settlement results are posted to a reference account (for example: only credit interests or only charges) Alternative Settlement Enables calculation of interests and charges using different settlement conditions Always refers to the existing settlement Executed to the period that was already settled Results are not posted Next settlement date is not moved forward No reversal possible Reasons: - Market rate pricing and others

17 Standard Settlement 17 Synchronization Settlement period needs to be synchronized with contract start date and or in payment agreement in case of savings plan account Settings in the account product configuration For savings products: Settlement is part of end-of-term processing Must be synchronized with start date of savings account For loan products: Periodic settlement synchronized with due date periodicity of repayment payment condition Non-periodic Settlement Certain business events require non-periodic settlement Non-Periodic Settlement Manual Events Combined Settlement Account Orders Single Account Settlement Payment Items Call Time Deposit

18 Agenda: Settlement Management 18 Agenda 1 Settlement Definition 2 Standard Settlement 3 Standard Settlement with usage of Condition with Date Category 4 Extended Settlement 5 Settlement Process 6 Prior Period Adjustments

19 Standard Settl. with Usage of Cond. with Date Categ. 19 Standard Settlement with Usage of Cond. with Date Category - is a settlement that enables each settlement condition to be settled with different periodicity by specifying the date category. For example: debit interest is settled at month end while credit interest is calculated and posted on a quarterly basis. Date Category Specifies a time component of a condition Configured through relevant settings in Customizing for a condition type Predefined by SAP and cannot be changed: Date Category Calculation o Enables the definition of settlement period relevant for calculation o Settings made on Time Periods tab page for each condition Date Category Due Date o Enables the definition of settlement execution periodicity/settlement execution date o Settings made on the Time Periods tab page for each condition Characteristics: Periodicity defined for each condition Possible to use only for a subset of settlement conditions Overrules the settlement periodicity in the account master data Cannot be used with extended settlement

20 Agenda: Settlement Management 20 Agenda 1 Settlement Definition 2 Standard Settlement 3 Standard Settlement with usage of Condition with Date Category 4 Extended Settlement 5 Settlement Process 6 Prior Period Adjustments

21 Extended Settlement 21 Characteristics: Alternative to standard settlement (mutually exclusive) Regular settlement and extended settlement cannot be at the same time Executed in several settlement tracks Independent periodicity Independent conditions (condition groups) One base track and several additional tracks Each track can be settled individually If more than one track is due in a run, the track with the oldest execution date executed first Same attributes as for standard settlement have to be defined Track-specific attributes Cross-track attributes

22 Settlement Types: Summary 22 Standard Settlement All settlement conditions are calculated with the same period. For ex.: debit interest, credit interest, and account maintenance charge are settled at month end. All settlement conditions for a contract are settled at the same time Standard Settlement with Usage of Conditions with Date Category Each settlement condition can be settled with different periodicity by specifying the date category. The calculated and settlement period are defined in the condition settings. For ex.: debit interest is settled at month end while credit interest is calculated and posted on quarterly basis. USAGE Different settlement conditions are settled at the different time periods, whereby the calculation and settlement period may also vary for each condition Extended Settlement Settlement is executed in two or more independent settlements with different time periods. For ex.: debit interest and credit interest are settled at month end while the account maintenance charge is calculated and posted to the account on a quarterly basis. Different settlement conditions are settled at different time periods

23 Agenda: Settlement Management 23 Agenda 1 Settlement Definition 2 Standard Settlement 3 Standard Settlement with usage of Condition with Date Category 4 Extended Settlement 5 Settlement Process 6 Prior Period Adjustments

24 Settlement Process: Process Flow 24 Selection Preparation Calculation Posting Documentation - Select due accounts for mass run - Check due accounts - Conditions and period analysis - Condition determination - Determine if prior adjustments are necessary - Calculation - Calculation postprocessing - CYT - Post settlement results - Update settlement information - Calculate next due date Scope of function: Calculate and post interest and charges according to the contract conditions Increase of next period end Transfer interest and charges to the tax calculation module, if required Perform prior period adjustments in case of back valued postings or backdated charges Prerequisites: Store the settlement financial conditions for an account Posting cut-off before settlement for the bank posting area

25 Settlement Process 25 Mass Processing: Settlement mass run enables the settlement of many accounts Selection of due accounts is based on: Execution date Bank posting area Account product Account is selected if its next settlement execution date is on or before the execution date specified for a mass run Can be run separately for each settlement type (track) Accrual of Interest and Charges: Accrual process calculates incurred interests and charges between last settlement and specified key date The revenues and expenses are posted as non-balance-changing turnover and transferred to the general ledger These are taken off the books at next posting date Simulation of accrual possible

26 Settlement Process 26 Settlement Simulation: Simulation in the current period Function to simulate individual and mass account settlements for any given date in the current period Mode: With/Without check of Posting Date for Payment Transactions Saving of simulation results possible Simulation with Check of Posting Date for Payment Transactions: Settlement date and Include Postings until Date Current Posting Date for Payment Transactions Simulation in the settled period Function to simulate individual and mass account settlements for any given date in the past. The key date must be in settled, but not yet in the archived period Saving of simulation results possible Simulation in settled period mode is available for mass as well as for individual settlement Settlement Reversal: Executed settlements can be reversed: Mass reversal for many accounts Single reversal for one account

27 Agenda: Settlement Management 27 Agenda 1 Settlement Definition 2 Standard Settlement 3 Standard Settlement with usage of Condition with Date Category 4 Extended Settlement 5 Settlement Process 6 Prior Period Adjustments

28 Requirements Prior Period Adjustments 28 Backdated Changes: Prior period adjustments triggered immediately Backdated change change before the end of last settlement period and/or billing period Efficient correction of erroneous settings that influence many contracts. Automated correction of calculated results based on the previous erroneous settings Limit Change of a Condition Group in the account Individual condition Standard condition Reference interest rate Pricing agreement Business Partner standard price Business Partner price hierarchy Contract Level Change of Pricing Back Valued Changes: Prior period adjustments performed at the next settlement run Back valued postings occurs if posted transaction is before the current posting date Prior period adjustments: In the case of back dated transactions, an interest recalculation is triggered automatically during the next settlement The recalculation is necessary if a value date is before the end date of the last settlement period The adjustment posting takes place to prior period, if necessary You can recalculate more than one settlement period

29 Settlement Management 29 Settlement is a functionality to calculate interest and charges in a bank for all types of account products and card products in the system Settlement can be executed in mass processing or individually in dialog Standard settlement is recommended if all settlement conditions for a contract are settled at the same time Standard settlement with usage of date categories is recommended if different settlement conditions are settled at the different time periods, whereby the calculation and settlement period may also vary for each condition Extended settlement is recommended if there are large number of different settlement conditions that have to be settled at different time periods