Strings & Circles & Washouts
Settlement definitions
A simple transaction is when the trading company buys from a grower and seller to a consumer. Then the normal provisional, commercial and final invoices are used. What is also common is for Trading Houses to buy and sell from each other to make a profit, similar to a paper market or speculative trading. In this case when the physical goods are moved and documents transferred, the traders/operations department realise a financial settlement is sufficient without taking physical responsibility for the goods and documents; which can go from the original seller to the final buyer. In that situation the following settlement types are used:
Washouts
Two trade houses have a purchase and sale contract for the same goods. In this case the difference between the 2 contracts is paid over as a single transaction to the one counter party. No delivery takes place
String
This is for when there is a series of contracts between parties, at the start is the supplier and at the end the consumer. The initiating company has a seller and a buyer in the string. Instead of each member paying the full contract value to their own counter party they decide to settle by negotiation which may involve one or several counter parties. In this situation delivery does take place.
Circle
This is similar to a string, but instead of a supplier and consumer at the ends, the 2 ends join up and all parties are buying and selling to each other. The parties negotiate and agree a single settlement price (the circle price). The Initiating company settles with their own seller and buyer. No delivery takes place
String Bypass
The situation is the same as a string, but the negotiation results in settling with their own seller and buyer offsetting their contractual price with the settlement price as per circles.
ITAS procedures
Wash Out (WO)
When P and S physical contracts are with the same Counter Party for same product, contract terms, shipping period and contract terms port a WO process can be actioned. The application requires the 2 contracts to be allocated. This process will only operate on a 1-to-1 basis i.e. can not use PINVGL for multiple P+S in same invoice. Parties agreed to settle the contract price difference for the quantity. Provisional invoice is final invoice. Weight basis always Contract weight. No quality settlement. P&L recognition is margin only
Process
- Select WO from PINVGL function screen
- Select Purchase contract from contract selection screen
- Select relevant template, when Inhouse x Invoice Type
- Working page
- If Inhouse Invoice Type selected, the Word document is displayed for inspection
- Do you wish to create invoice?
- Confirmation of their DN or CN ref number
- Document printing options
- Accounts posting
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- TRADE update. Both contracts updated with invoicing details (invoice marking). Status tab updated and Invoice type Wash out on Misc tab updated.
Posting
The posting is between the Counterparty and the account (NOM x PL) assigned to the EXP code.
Circle (CI)
A circle is basically a chain of transactions where one of the parties in the chain meets their self. Essentially it is like a washout with a 1-n other parties in between. The essential difference to the WO is that there is an ‘in-between price’ i.e. the circle price, also known as the settlement price. The Operating Company can be positioned anywhere in the circle, that has no impact on the process.
In a circle of transactions, product, contract terms and contermsport to be same. No quality adjustments are included. Settlements take place at the contract price and contract quantity. Basis price for settlement is the circle price, this is the lowest price in the circle, user makes this entry in PINVGL. Provisional invoice is final invoice. The P&L recognition is Circle margin only.
Essentially there is no P / S invoice for the contract quantity at contract price; instead there is 1 invoice for the Sale and 1 invoice of the Purchase, settling each transaction being the contract price and the settlement price difference.
Process
- Select CI from PINVGL function screen
- Select contract from contract selection screen
- Select relevant template if Inhouse x Invoice Type
- Circle working page
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- a) enter the circle price
- b) entry of the circle price establishes the settlement value per contract
- c) post to susp. User to tick if wish to post the value to the Suspense account.
- If Inhouse Invoice Type selected, the Word document is displayed for inspection. Please note the application will create 2 documents; 1 for each Counter Party
- Do you wish to create invoice.
- Confirmation of their DN or CN ref number
-
- Document printing options
- Accounts posting
- DNote and Cnote
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TRADE update. Both contracts updated with invoicing details (invoice marking). Status tab updated and Invoice type Circle Misc tab updated.
Posting
The posting is between the Counterparties and the account assigned to the EXP code. On the Circle working page the user has the option to post the value(s) to the suspense account (S01 nomination) instead of a CLI account.
String
The process handles a wash-out situation where various financial obligations need to be administrated. The Operating Company selects the allocated trades which establishes the P&L (i.e. net invoice value) and enters in PINVGL all the counter parties involved with their settlement price. The net of these Counter Party values must equal the Op Company P&L value before progress to completion. The postings are between the CLI accounts (Counterparties) and the account associated with the EXP code. On the working page the user has the option to send the value(s) to the suspense account instead of the CLI account e.g. have not received their Invoice/DN/CN.
Process
- Select String from PINVGL function screen
- Select contract from contract selection screen
- Please note only allocated contracts allowed for which there is no purchase invoice on the P contract.
- Select relevant template
- Circle working page
If Inhouse Word document for inspection has been selected, PINVGL will create a piece-of-paper for each Counter Party
- Do you wish to create invoice.
- Confirmation of the DN or CN ref numbers
- Document printing options
- Accounting documents created
- TRADE update. Both contracts updated with invoicing details (invoice marking). Status tab updated and Invoice type Circle Misc tab updated.
- Document printing options
String By-pass
The process in PINVGL is comparable to Circle, this option handles the scenario when the operating company is in the middle of the circle/string. This is aa similar business case to String except only settle with the actual buyer and seller instead of all the counter parties in the string. You enter the string bypass price and settle the difference between contracted price(s) and settlement price.
String (purchase side only)
This process is used to handle where a purchase trade involves multiple counter parties with whom the operating company will settle as per string by pass. The sale side of the allocation is handled by standard commercial or string sale side only invoicing.
String (sale side only)
This process is used to handle where a sale trade involves multiple counter parties with whom the operating company will settle as per string by pass. The purchase side of the allocation is handled by standard commercial or string purchase side only invoicing.
Wash Out / Circle / String Invoice received
This is to handle any invoices being accrued already in an earlier stage to the String and Circle suspense account.
Process
- Find relevant document number
- Select Wash Out / Circle / String invoice received
- Enter the document number and complete the grid
- Upon save the application will reverse the original CN (by a CN), this clears the suspense account. Next to that a new CN wil be created posting to the CLI account and the relevant P&L accounts.
Technical:
Configuration requirements:
1. Need a GL account (NOM) to book Suspense String/Circle transactions where a Counter Party Invoice is not available. It will need to be nominated in S01 (View/Physicals/Invoicing tab 3/ ctrl30_strsusp)
2. Need Expense code(s) to be setup (EXP) to represent Circle Gains, Circle Losses, String Gains, String Losses, Washout Gain and Washout Losses. Then must nominate these codes in EXP/ maintain controls/tab 3