I. About customer and vendor netting

Customer and vendor balance netting is when the balances for a vendor and a customer are netted against each other because the vendor and customer are the same party. This approach minimises the money exchange between the organization and the customer or vendor party. It also helps a company avoid making unnecessary payments or receipts, and save on transaction fees, by consolidating the company's customer and vendor balance.

Several menu items are added and available in the Cash and Bank Management module along with the Accounts Payable and Accounts Receivable modules.

II. Configuration

A. Set up a journal name -

     When customer invoices and vendor invoices are selected for balance netting, a netting journal is automatically posted to settle the customer invoice balance and vendor invoice balance. To post this netting journal, a journal name and main account must be defined in advance.

To create a journal navigate to General Ledger > Journal Setup > Journal Name, create a new journal with the Journal type as a 'Customer and vendor netting' as shown below,

B. Create a main account - 

     This main account is used for bridging the netting. To create a main account navigate to General Ledger > Chart of accounts > Accounts > Main accounts,

C. Set up a netting agreement - 

     A netting agreement lets you maintain the pairs of customer accounts and vendor accounts for netting during an effective time period. The agreement must be configured and activated before you create the netting transactions. Navigate to Cash and Bank Management > Netting > Customer and vendor balance netting. After creating a new record and updating information like customer legal entity, customer account, vendor legal entity, vendor account, start and end date as shown below,

Once details are entered, make sure to activate the netting agreement.

D. Netting rules -

To use automatic netting, netting rules needed to be set up with information about how open transactions can be netted.

To set up netting rule, navigate to Cash and bank management > Netting > Netting rules as shown below,

III. Manual Netting Process

A. Manual netting - 

     A netting between customer and vendor balances can be done manually by selecting the open customer invoices and vendor invoices. The system automatically calculates the minimal amount between the customer invoice balance and vendor invoice balance as the netting amount. A netting journal that has two journal lines is automatically posted. 

a. Navigate to Cash and bank management > Netting > Customer and vendor balance netting

b. This page shows all the pairs of customer accounts and vendor accounts that are available for netting. Select a pair, and then select Create Netting.

c. Select the open customer invoices and open vendor invoices that you want to net, and then select Post.

Post the marked transactions,

Click on 'Netting history' to view history,

From this screen, you can view netting details, print netting advice and reverse the netting.

B. Automatic netting,

You can automatically net customer and vendor balances by defining a netting rule and then running it through a batch job or the process automation framework.

When a preview before posting is selected, this form opens. You can view details for customer and vendor transactions (i.e. invoices included in netting). When done click on Post.

C. Data Entities - 

There are two data entities available in standard D365 FO for importing netting agreement and netting agreement pair as shown below,

IV. Conclusion

The Customer and Vendor Netting functionality in D365 Finance and Operations significantly streamlines financial processes by allowing the offset of transactions between customers and vendors who are the same legal entity. It optimizes cash flow, reduces transaction costs, and enhances accuracy in reconciliation through automation. The flexibility of setting netting rules and automated workflows ensures efficiency and compliance, while improving relationships with customers and vendors. Overall, this functionality provides centralized control and transparency, making financial management more efficient and accurate.