How to set up customer and vendor balance netting in Dynamics 365 Finance?

Step-by-Step process to enable and use customer/vendor netting in Dynamics 365 Finance

To work with this option, first enable the feature 'Customer and vendor netting.'

Step 1: Enable customer-vendor netting in feature management

1. 1. Navigate to Workspaces > Feature Management.

1. 1. Search for Customer and Vendor Netting and enable the feature.

Step 2: Set up a netting journal

To be able to use the netting option, you need to create a new journal name. A new journal name type 'Customer and vendor netting' is available and needs to be chosen for this journal:

1. 1. Go to General Ledger > Journal Setup > Journal Names.

1. 1. Click New, enter a name, and set the Journal Type to 'Customer and Vendor Netting.'

Step 3: Configure netting accounts

1. 1. Navigate to General Ledger > Chart of Accounts > Accounts > Main Accounts.

1. 1. Create a netting account to handle netted amounts.

In our demo environment, within the USMF company, customer US-003 (Forest Wholesales) has open invoices. Therefore, we assign the same party ID to a vendor role in the USMF legal entity and post a vendor invoice to create an open amount for settlement.

With all these preparations made, we can have a look at the netting options. This is part of the Cash and bank management module.

Step 4: Define netting agreements

First, we need to set up a netting agreement to allow these customer/vendor combinations to net the open amounts between them. This is also where we link the previously created journal name and bridge account. Don’t forget to activate the netting agreement once you're done, so it can be used!

1. 1. Go to Cash and Bank Management > Netting > Netting Agreements.

1. 1. Click New, enter details, and select the journal name created earlier.

1. 1. Add the customer and vendor accounts that will participate in netting.

Step 5: Perform manual netting

1. 1. Navigate to Cash and Bank Management > Netting > Customer and Vendor Netting.

1. 1. Click New, select the relevant netting agreement.

1. 1. Select the customer invoices and vendor invoices to be netted.

1. 1. Click Process Netting to offset balances and generate a settlement journal.

  When the netting agreement is activated, you can start using the netting between this customer / vendor combination (and other customer / vendor combination if you have added multiple lines in the netting agreement).

For netting, go to the 'Customer and vendor netting balance' option in the Cash and bank management module. Here you can see the open amounts of the customer and vendor behind the netting agreement. Also, you can start netting manually (Create netting) or automatically (Automatic netting via Process Automation) via the two netting options in the top of the form.   In this example, we are using 'Create netting' option to start the process manually. In the form that opens, we have selected the posting date and also marked the invoices of the customer / vendor combination that we would to settle with each other:

When marked, click 'Post' at the top of the form:

While the posting process is in progress you get an info message about this.

When finished on both the vendor and customer new transactions are added based on the netting, which also results in settlement of the earlier marked invoices: Vendor transactions:

Customer transactions:

In this manual netting, we selected the invoices that needed to be netted for both the customer or vendor. If you use the 'Automatic netting' options, you can use the 'Netting rules' to tell D365FO how to settle the invoices.