| # Trade notes receivable Trade notes receivable (TNRs) are documents received from a customer with the commitment to pay the amount due after a certain period of time (a promissory note). If you create a TNR, the open invoice entry is replaced with the payment document. Such TNRs can be endorsed or discounted. Discounting trade notes As a trade note receivable can replace an invoice, to obtain funding before the trade note maturity date, you can arrange with your bank that the bank advances the amount due on the trade note. The bank deducts commission/ interest for the remaining tenure of the trade note receivable and remits the balance to the company. Therefore, this is called: to discount the trade note. In the same way as the factoring of invoices, discounting a trade note can be with or without recourse. If you discount a trade note receivable with recourse, you must repay the advance to the bank if your customer fails to pay. Replacing an invoice with a trade note Trade notes are a means of payment such as checks and bank drafts. Some trade notes do not come with a guarantee. Such trade notes are treated as normal anticipated receipts. Trade notes that consist of fresh obligations, which are usually secure, can replace the related invoices. In such cases, when the trade note is created, the invoice balance is reduced by the amount of the trade note, and a new open entry of a payment document type is created for the trade note. When the trade note is processed and the trade note status changes, the new open entry is also updated. As a result, the business partner's balance remains unchanged. Stamp tax If you must pay stamp tax on trade notes, you can set up stamp tax as described in To set up stamp tax. Trade notes division Sometimes the total payable amount is divided into multiple trade notes of smaller denominations. Instead of issuing one trade note for the entire amount, companies issue multiple trade notes that together cover the amount. Dividing trade notes can be done for two reasons: To create trade notes of smaller amounts that can be either discounted or endorsed. The maximum amounts of such trade notes depends on the agreement between the company and the business partner. To minimize the amount of revenue tax (stamp tax) to be paid. If you specify that trade notes must be split into trade notes of smaller amounts, when you create a trade note ERP LN automatically divides the trade note amount according to the selected division method and generates a number of trade notes for the resulting amounts. If you receive instructions from your business partner about how to divide the trade notes, you can set up the trade notes division data for the business partner. If you divide the trade note to minimize the amount of stamp tax to be paid, you can set up the trade notes division data according to the stamp tax tariffs. Refer to Trade notes division for more details. Trade note steps A trade note receivable can be: Issued or received. Sent to customer. Accepted by customer. Sent to the bank for reconciliation. Discounted. Used as a collateral. Endorsed. When the trade note matures, the cash is actually realized. The trade notes can then be reconciled and then settled. Before a trade note matures, the trade note can be canceled. After maturity or reconciliation, the trade note can be dishonored if the customer fails to honor the payment. Trade notes receivable that were discounted or endorsed can be directly settled. Trade notes receivable used as collateral can be sent to the bank again for reconciliation after the obtained loan has been cleared in the bank. When you define a trade note payment method or receipt method, you can select the steps to be performed on the trade note. Some steps are only available for trade notes payable, and some only for trade notes receivable. Of some steps, the availability depends on the selection of other steps. For some steps, you can indicate that the step is optional. The trade note's status always indicates the last step performed on the trade note. Trade notes receivable can have the following statuses: Open (initial status) Received or Issued Sent to BP Accepted/Sent Matured Sent to bank Paid ( Settled) Void Cancelled Dishonored Discounted Collateral Endorsed Refer to To set up trade notes for details on how to select the steps for each type of trade note. Related topics To process trade notes To set up trade notes Trade notes division Trade notes financial postings |