SAP ACH Design and Configuration   (Beginners) Posted on September 16, 2012by Jay Esparza

The process of Implementing ACH via SAP 

By: Jay Esparza SAP FI GUY

E: SAPFICONFIG@GMAIL.COM

ACH – Automatic Clearing House. 

Defined: The ACH Network is a processing and delivery system that provides for the distribution

and settlement of electronic credits and debits among financial institutions. The National

Automated Clearing House (NACHA) is responsible for maintaining and policing the electronic

payments network commonly referred to as the Automated Clearing House (ACH). For years,

the most notable electronic payment program offered was Direct Deposit.

Sounds great .. also sounds like some complex configuration does it not? I too thought the same

thing when I was first approached to implement this solution for a local manufacturing company

but after some review after the project if all your specifications are defined and the business is

involved then there is no need to worry. Below I’m listing the steps needed to successfully

configure this solution to fit just about any company that has the need to use ACH.

First I’ll start with the functional specifications and we will work on configuration from there:

Design Specifications

– XYZ Company’s current unused payment method “A” will be renamed and utilized for ACH

Domestic Payment should have the ability to output Bank X’s EFA formatted totals file. The ACH

payment method will output the standard NACHA file format CTX (Corporate Trade Exchange)

with the assistance of SAP standard payment program RFFOUS_T, and custom variants while

running the payment proposal in F110. The file (DME) will be automatically uploaded to the

USR/SAP/TECH/OUTBOUND/FI/AP Unix directory.A batch program then will have to be defined

to invoke the FTP transmission to then be transmitted via secure communications (Secure FTP)

to Bank X for further processing into the ACH network. Upon the payment run the EFA totals

file should be generated by custom ABAP code that will read the amounts in each record of the

CTX . The total of those amounts will be placed into a newly created file and should be sent

along with the CTX ACH File for processing.The totals file will be follow XYZ’s standard naming

convention of ap53totachyyyymmddhhmmss.dat for output to Unix

and ap_ach_ctx_yyyymmddhhmmss.dat for transmitting to Bank X. The transmisson naming

convention should be determined by XYZ Company along with Bank X so that there is no

confusion.

A. Prerequisites

2. Business owners must have all vendor’s current banking and contact information

including IBAN, SWIFT, Account Numbers, Routing Numbers and payee contact. This

information can be collected via contacting the vendors to be paid via ACH and requesting

that their EFT information be supplied.

3. IS&S will have to setup and configure secure in and out bound traffic communication

methods in the form of secure FTP for safe file transmissions to Bank X.

4. Payment method “A” must be configured within country and company code 9999.

5. House Bank information (routing and account numbers) must be made available to

consultants for customizing within SAP.

6. If more than one house bank is required for processing – Bank chains must be defined by

the business as well as ranking orders.

7. Business must update vendor master records with the new vaid payment method of “A”

in order to use ACH CTX Bank Trasfers.

8. Vendor Master records banking information must also be updated

9. UNIX Directory structure will have to be determined for CTX Placement and processing.

10. Authorization must exist for the user/programmer/consultant participating in the

configuration to execute the corresponding transaction/Programs.

There we go .. short simple but effectivly designed to get the work started.

Some things you will need to get started on ASAP – no pun intended.

1. You will need to know who your technical contact is at the selected bank. This is the person

who will help you with all the technical details throughout the entire process of the ACH

implementation.

This person will be able to give you the information on specific formats for processing of the

ACH file. Typically the format being used these days are NACHA standard ACH CTX for

company to vendor payments and PPD for Company to personal payments or Payroll (Direct

Deposit Payments). We will be using ACH CTX.

ACH CTX – as defined by NACHA: CTX aka Corp. Trade Exchange

What is NACHA ?? – The Electronic Payments Association formerly the National Automated

Clearing House Association.

ACH CTX Example: 

Input File Example

DHDR JSC VENMIS98035 JOHNSON SPACE CENTER281-550-9800VENMISM98333 980206

A0176643000000011796V40000004DAVID JONES CO C0110002063456-155 N

RM IV23456 41796

RM IV23457 -30000 CM CREDIT MEMO ADJUSTMENT

A0425577710000110316V40000004SOFTBANK C01100039077777 N

RM IV23457 40316 40000 RB8.125% $3.16 INTEREST FOR 20 DAYS

RM IV23459 40000 40200 200

RM IV23458 30000

DEOR 0000000002 000000122112

The following are the NACHA standard ACH formats and their uses:

ARC

Accounts Receivable Entry. A consumer check converted to a one-time ACH debit.[2]

CBR

Corporate Cross-border Payment. Used for international business transactions, replaced

by SEC Code IAT.[3]

CCD

Corporate Cash Disbursement. Primarily used for business-to-business transactions.

CTX

Corporate Trade Exchange. Transactions that include ASC X12 orEDIFACT information.

[2]

DNE

Death Notification Entry. Issued by the federal government.

IAT

International ACH Transaction. This is a new SEC Code for cross-border payment traffic.

The code will replace the PBR and CBR codes. The new code will be implemented

September 18, 2009.[3]

PBR

Consumer Cross-border Payment. Used for international household transactions,

replaced by SEC Code IAT.[3]

POP

Point-of-Purchase. A check presented in-person to a merchant for purchase is presented

as an ACH entry instead of a physical check.

POS

Point-of-Sale. A debit at an electronic terminal initiated by use of a plastic card. An

example is using your debit card to purchase gas.

PPD

Prearranged Payment and Deposits. Used to credit or debit a consumer account.

Popularly used for payroll direct deposits and preauthorized bill payments.

RCK

Represented Check Entries. A physical check that was presented but returned because

of insufficient funds may be represented as an ACH entry.

TEL

Telephone Initiated-Entry. Verbal authorization by telephone to issue an ACH entry such

as checks by phone. (TEL code allowed for inbound telephone orders only. NACHA

disallows the use of this code for outbound telephone solicitations.)

WEB

Web Initiated-Entry. Electronic authorization through the Internet to create an ACH

entry.

XCK

Destroyed Check Entry. A physical check that was destroyed because of a disaster can

be presented as an ACH entry.

Now – How does ACH work? 

1.

A company/individual (Receiver) authorizes a company/individual (Originator) to initiate a transaction to their financial institution account.

2.

The Originator prepares information about the transactions that are to be automated for its customers or employees and passes it along to an Originating Depository Financial Institution (ODFI).

3.

The ODFI collects ACH transactions from participating companies, consolidates the information and presents it to the ACH Operator. (The ODFI may retain entries

for its own account holders)

4.

ACH Operator processes transaction files from submitting ODFIs and distributes it to Receiving Depository Financial Institutions (RDFls).

5.

The RDFI receives entries for its customer accounts and posts entries on the settlement date. Transactions are also reported on account statements

ACH Participants:

Originator:

Company or individual that initiates an ACH transaction according to an arrangement with a Receiver .

Originating Deposit Financial Institution ODFI:

The financial institution that deposits ACH files, on behalf of the Originator, into the ACH network.

ACH Operator:

The central clearing facility operated by a private organization or a Federal Reserve Bank on behalf of participating financial institutions, to or from which financial institutions transmit or receive ACH entries.

Receiver:

Natural person or organization that has authorized the Originator to initiate an ACH entry to the Receiver’s account with the RDFI.

Receiving Deposit Financial Institution RDFI:

The financial institution that receives ACH entries from the ACH Operator and posts

the entries to the account of its depositors (Receivers).

Third Party Processors:

Processors that participate between any relationship within the ACH processing flow (i.e., correspondents, sending-point processors or payroll processors).

Additional Commonly Used ACH Terms:

ACH:

The Automated Clearing House is an electronic payment Network that exchanges funds via Electronic Funds Transfer (EFT) throughout the U.S. fifty states and territories. Over 98% of the nation’s banks including the Federal Reserve belong to the ACH.

ACH Associations:

Provide rules and guideline for the efficient operation of the ACH Network. There are 36 regional ACH associations whose memberships include financial institutions and affiliates. NACHA, the National Automated Clearing House Association forms the governing foundation for the regional associations.

Addenda Record:

A record of information that may be attached to a detail entry record containing additional payment information (i.e., EDI messages, change and return information).

Authorization:

Refers to the authorization of an ACH transaction by a consumer or company. Most authorizations must be in writing and must be retained for a period of two years. There are 3 types: recurring, non-recurring, one-time.

Cash Concentration:

Companies that have decentralized units use the ACH to concentrate cash into a centralized bank account – replaces wire transfer.

Check Truncation:

Stopping or truncating a paper check by turning it into an electronic item at the Point of Sale (POS or POP) or in lockbox check truncation.

Corporate Payments:

Business to business ACH Network collection and disbursement of funds. The Federal government is mandating this form of payment for corporate taxes and payments to government vendors.

Direct Deposit:

Is the disbursement of funds to consumer accounts. Includes payroll, interest, trust disbursements, expense payments, dividends, pension payments, etc. This is the most widely used ACH service.

Direct Payment:

The collection of funds from consumer of business accounts. This normally would be used to collect payments for monthly dues as in: health club membership, rent, phone, utility bills, newspaper bills, trash collection, mortgage payments, lease payments, etc.

EFT:

Electronic Funds Transfer is the transfer of funds from one bank account to another bank account utilizing the ACH Network.

Effective/Settlement Date:

The date an Originator enters on an ACH file to indicate the date they intend the transactions to post ( effective date ); and the date entries actually settle through the ACH Operator, as affected by the timing of delivery for processing.

Electronic Check Re-presentment:

An ACH Network service that allows for the electronic re-presentment of a returned paper check marked non-sufficient funds (NSF). Provided that certain guidelines are fulfilled the check can be collected electronically.

Internet Initiated Entries:

(WEB) a consumer authorizes a Receiver or Merchant to debit their account via the Internet.

Lockbox Check Truncation:

Also called Accounts Receivable Conversion (ARC) is the process of turning checks received in the mail by a company or institution into electronic items.

NACHA:

The National Automated Clearing House Association is the chief rules making and interpretation body of the ACH. NACHA is the cooperative governing body for 36 regional ACH associations.

Non-Recurring Payment Authorization:

An individual or company authorizes the debit of their account for a varying period and/or amount. Notification must be sent 10 days before the effective date with the amount to be debited.

Notification of Change (NOC):

Notification of Change is an advice from an RDFI to an ODFI that entry information requires corrections and includes the correction details. A payment message returned by the RDFI via the ACH network, which supplies data to the ODFI for the correction of payment information.

NSF Check:

A paper check that has been returned by the banking system due to Non Sufficient Funds. These can be electronically represented through the ACH Network using Electronic Check Re-presentment.

One Time Payment Authorization:

An individual or company authorizes a one-time debit of their account. The authorization is usually a written authorization but in some instances a recorded telephonic authorization may be used.

Original Entry:

A debit or credit ACH transaction directed to an account at an RDFI.

Pre-notifications:

A zero dollar entry sent prior to the first live entry to notify the RDFI of future payments and test account information. (Optional)

POS:

Point of Sale is a term used to describe an ACH transaction at the time of purchase – for example at the supermarket check out counter.

RCK:

Refers to Returned Check and represents the electronic check process for electronic re-presentment of paper NSF checks – Electronic Check Re-presentment.

Recurring Payment Authorization:

An individual or company authorizes the periodic debit of their account for the same period and amount.

Return Reason Codes:

Or R Codes are rejections of original ACH entries by the RDFI.

RDFI:

The Receiving Depository financial Institution, the financial institution that receives an ACH transaction for a holder of an account.

Return Entry:

The return of an original entry that either could not be posted or was not able to be identified by the RDFI – closed account, NSF, wrong account number, etc.

Standard Entry Class Code (SEC):

Three character code, such as Prearranged Payments or Deposits (PPD), used in an ACH header record to indicate the ACH format being used and to identify entries for proper application of rules.

TEL:

Telephone Initiated Entry

Telephone-Initiated Entry:

(TEL) is an entry initiated through a telephone authorization for a onetime debit for collection of funds for payment of goods and services. A TEL is valid only when there is an existing relationship between the parties or if no existing relationship, the consumer initiates the telephone call.

Transaction Code:

Two-digit code that indicates whether an entry is a debit or credit to a checking, savings, loan or financial institution general ledger account.

Truncation:

In ACH it normally refers to stopping or truncating a paper check as in POS or lockbox check truncation and turning that paper check into an electronic item.

How ACH Funds Are SettledSettlement is the actual transfer of funds for ACH entries between financial institutions provided by the Federal Reserve Bank. The net debit and credit positions of financial institutions are calculated and posted to the reserve accounts of financial institutions (or to the account of their correspondent).

The timing of settlement is based upon the effective entry date indicated on the ACH file and the time of its delivery to the ACH Operator. ACH debits may be delivered to the ACH Operator no earlier than one banking day prior to the settlement date. ACH credits may be delivered no earlier than two banking days prior to the settlement date.

When the ACH Operator processes an ACH file, the effective entry date is read and entries are settled according to that date. If the ACH Operator cannot settle on the effective entry date due to untimely file delivery, a stale date, weekend, or holiday, the ACH Operator will apply a settlement date of the next business day.

For business to Business transactions you would be using the CTX Format as shown in the example up there .. way up there.

TO BE CONTINUED….

Addition Explanation:

Automatic Clearing House, otherwise known as ACH is a method of making batch payments to vendors using an electronic network. It is governed by the National Automated Clearing House Association (NACHA) and the Federal Reserve. According to NACHA, around 4.11 billion transactions and approximately $9.1 Trillion were conducted via ACH during the third quarter of 2012. This method of making payments is increasing at an increasing rate and in my experience I have noticed more and more US companies transitioning from check payments to ACH.

Most US banks should accept ACH transactions; however, it is best to check with your bank. They will normally require a file to be uploaded into their system (which could be a secure portal or via their website). There are several types of ACH file formats, but I will concentrate on the commonly used one, which is ACH CTX.

In SAP, you do not need to do much configuration and setup to get things working with ACH CTX, and I will show you the steps that need to be taken below:

(1)    Create a payment method for ACH: Go to transaction FBZP and you can either create the payment method from scratch or use one that is part of the SAP template (usually the “T” payment method in the US). In the Payment method/Country section, choose the option “Use Payment medium Workbench” and select the format “ACH”.

(2)    Enter Company ID: You need to enter the company’s identification number (usually the Tax ID) in three fields: Firstly, go to transaction FBZP and click on the “House Banks” button; then for the relevant Company Code and House Bank, enter the Tax ID in the “Tax Number 1” field; Secondly, in the same screen, click on the “Data Medium Exchange” button and enter the Tax ID in the

“Company Number” field; Thirdly, go to transaction OBY6, double-click on the relevant company code and go to the top-menu and choose “Environment -> Additional Information”, then page down and enter the Tax ID in the “Tax number USA (TIN)” field.

(3)    Create the ACH variant in the Payment Medium Workbench: GO to transaction OBPM4 and double-click on the Payment Medium Format “ACH”; then on the right-hand side of the screen enter a variant name in the “Sel. variant” field of the relevant company code and choose from the top-menu “Variant -> Edit Variant”. Then hit the “Enter” button, and in the ensuing screen, enter “ACH” in the “Payment Medium Format” field and hit the “Enter” button and save the variant. Then hit the back arrow to go back to the “Payment Medium: Selection Variants” field and hit the “Save” button.

(4)    Create Output Format: If you want to send out a remittance form to the vendor (to inform them that the payment has been made and what it is for) you will need to get the help of an ABAPer to create a custom form for this. You will then enter the form name in transaction FBZP, section “Payment Method in Company Code” and enter the form name in the “Form for Payment Medium” field. Note that you can choose to send the remittance advice as a form (in PDF format) or as an email. You should discuss the feasibility of these options with your ABAP person.

 

Once you have made the above settings you can enter the payment method for ACH in the vendor’s master record or in the invoice. When you have done the payment run, click on the “Printout” button (most people forget to do this with ACH payments), then choose form the top menu “Environment -> Payment Medium -> DME Administration, and the ACH file will be generated and ready to be sent to the bank.

Additional Notes:

Well, perform the following steps: 

1. Go to transaction code SE38 2.Enter the program name RFFOUS_T and press F8 key 3.This will take u to the screen Payment Medium USA - Transfers/Bank Debits direct debits in ACH format. 4. In this screen you need to enter the parameters which will help u generate the NACHA format. 5. The bottom most part is the output control which has got the following fields: File name (for DME) Output medium (for DME) File Identifier Company Description - [what u enter here will be displayed in the NACHA format]. Number of sample printouts No. of items in payment summary No. of CTX additional records 

Hope the above explanation helps. Get back if u face any further problems.