In SAP Agricultural Contract Management, the process of handling prepayments involves building upon standard SAP master data. This includes business partner data, material master data, and commodity information, which collectively form the foundation of an entirely new object for capturing the prepayment agreement information.
The integration of prepayments with SAP Agricultural Contract Management relies on the utilization of specific attributes within the SAP Agricultural Contract Management role on the business partner. These attributes enhance the prepayment process within SAP Agricultural Contract Management, although it's worth noting that prepayments can exist outside of SAP Agricultural Contract Management as well, in which case this additional data isn't necessary.
The prepayment agreement data collected includes the header data section, plant information, credit specifics that detail the extent of the advanced sum granted to the farmer, the agreed-upon interest rates, and the duration of interest terms. This section also captures the disbursement mechanism, outlining how funds will be allocated to the farmer while specifying payment dates and distribution modalities.
Collateral can be a fundamental consideration in these agreements, and the prepayment agreement outlines the assets that the farmer pledges as collateral. Moreover, the agreement establishes references or guarantors, further solidifying the transaction's security.
A farmer's history is captured, including the types of grains cultivated previously, and current and future harvest plans. This historical context plays a role in risk assessment.
Financial aspects extend to encompass fees and administrative charges associated with the agreement.
Furthermore, the prepayment agreement acknowledges the dynamic nature of the farmer-company relationship. When company representatives engage with farmers on-site, they gather supplementary information. This "Additional Notes" section serves as a repository for this on-field interaction data, contributing to a more informed assessment during processing and approval.
Details
Prepayment Agreements - Header and Plants
The header section functions a lot like a header section in any SAP document, and it has the below fields (among others):
- Agreement Type
- Agreement Category (derived from Type)
- Counterparty
- Tax Number
- Organization Data
- Status
- Description
- Economic Group
- Crop Season
The Plant section outlines which plants are valid for the prepayment agreement (including a primary plant being identified). This helps with finding applicable documents to be linked with the prepayment agreement.
Credit Information
The Credit section holds five main subsections of information relevant to the overall value of the prepayment and the underlying asset.
General Data
- Commodity
- Credit Amount
- Payment Due Date
Planting Area Details
- Size of Leased Planting Area
- Size of Productive Planting Area
- Size of Own Planting Area
- Total Area
Additional Credit Data
- Productivity Factor
- Estimated Production
- Limit Date for Use of Credit
- Percentage of Commitment
- Payout Percentage
- Restrictions (free text)
- History (free text)
Pledged Area Details
- Size of Pledged Area
- Size of Pledged Productive Area
- Size of Own Pledged Area
- Total Pledged Area
Cost Details
- Cost per Hectare
- Cost of Pledge
- Total Cost
Interest
The interest data is broken up into two main sections - a header section and a schedule of negotiated interest rates.
The header interest section defines an interest start and stop date. These dates could be specific dates (for example, 08/01/2021) or relative dates (for example, LDC event date, settlement date).
The interest schedule is a list of interest rates along with a validity period. The interest rate can be flat, floating (with respect to an index), or both and is paired with an interest method, which will be covered in more detail later, but provides instructions on how to calculate the interest.
For example, interest could be charged from the prepayment approval date until the BOL date:
- From 1/1/21 until 6/30/21, the interest rate is the 1-Month LIBOR + 1.5%
- From 7/1/21 until 12/31/21, the interest rate is the 1-Month LIBOR + 2%
Note
LIBOR is the benchmark interest rate at which major global banks lend to one another.
LIBOR is administered by the Intercontinental Exchange, which asks major global banks how much they would charge other banks for short-term loans.
Distribution of Prepayments
The Distribution of Payments section defines how the prepayment will be disbursed (when, to whom, and so on).
- A single prepayment agreement can have multiple distributions; however, they should add up to the total prepayment amount
- All beneficiaries, or who the payments go to, need to be a permitted payee for the counterparty on the prepayment agreement
Other fields include:
- Distribution Type (for example, Down Payment, Advance, and so on)
- Settlement Posting Date
- Amount and Currency
- Tax Code
Collateral and References
The Collateral section is primarily used in pre-finance scenarios where, because of the amount of money and duration of credit exposure, some sort of collateral needs to be provided in order to disburse payments. The following collateral fields are important:
- Collateral Type/Subtype (for example, Mortgage) (subtype is a text field)
- Required Prior to Settlement?
- Received?
- Area and Amount Data
- Owner Data (one or many BPs)
For the same reasons, references are often needed. The reference data holds information about who spoke to the person's creditworthiness and any comments they made.
The following reference fields are important:
- Reference Type
- Reference Name
- Contact Person
- Email/Phone Number
Past Harvest, History, Fees, Notes, Received Documents, and Attachments
The Past Harvest, History, and Notes sections mostly allow for loosely structured information about the farm or farmer.
The Fee Data section allows users to set fees related to the prepayment agreement. Fees have been expanded to include fees where the amount is calculated as a percentage of the total price.
The Received Documents section allows users to flag which types of supporting documents are expected, as well as which ones are mandatory. There is a separate checkbox to identify when those documents have been received.
The Attachments section shows files that have been uploaded and attached to the prepayment agreement. This could include the PDFs corresponding to the received documents entries or miscellaneous attachments.
Related Documents and Prepayment Settlements
As follow-on processes continue, prepayment agreements will be linked to logistics documents and will have prepayment settlements performed against them.
- Logistics documents could include commodity contracts, purchase orders, sales orders, and nominations
- Prepayment settlements are separate from commodity settlements. Prepayment settlements generate financial entries related to the distribution of payments and are required in Advance, Pre-Finance, and Barter scenarios.