Imagine this: You’re about to cut a $10,000 check to your supplier, “Global Tech,” for their latest bill. At the same time, your collections team is chasing Global Tech for a $7,000 overdue invoice because they are also your customer.

Why send them $10,000 only to wait for them to send $7,000 back? This is a common scenario in many industries, where vendors are also customers. The logical solution is to “net” the two amounts, but executing this correctly in your accounting system is crucial for maintaining a clean audit trail. These complex NetSuite financial processes are exactly where expert NetSuite consulting becomes invaluable.

This guide will walk you through the proper AP/AR netting NetSuite process using a Journal Entry, ensuring your books stay accurate and your cash flow improves.

NetSuite AP/AR Netting Benefits: Why It Matters

Before diving into the “how,” let’s cover the “why.” Taking the time to net these transactions isn’t just about convenience; it has tangible benefits:

• Improved Cash Flow: The most obvious benefit. In our example, instead of a $10,000 cash outflow, you only need to pay the net difference of $3,000. This keeps more cash in your business.
• Reduced Transaction Costs: Fewer bank transfers and check-cutting fees.
• Increased Efficiency: It saves time for both your AP and AR departments. Our NetSuite optimization services help businesses implement these efficiency improvements systematically.
• Stronger Partner Relationships: Proactively suggesting a netting arrangement shows you are organized and looking for mutually beneficial, efficient solutions.
• Cleaner Aging Reports: It prevents an invoice from appearing on your AR aging report while a bill sits on your AP aging report, providing a truer picture of your financial position with that entity.

AP/AR Netting NetSuite Core Concept: Maintaining Audit Trails

You can’t just delete the invoice and reduce the bill amount. For audit and reporting purposes, you need a clear record of the original invoice and bill, and a specific transaction that links them together.

The solution is a Journal Entry. This transaction acts as a “contra-entry,” moving the amount from your Accounts Payable to your Accounts Receivable, effectively using the debt you owe to “pay off” the debt they owe you.

Step-by-Step AP/AR Netting NetSuite Implementation Guide

Let’s use our example:

• Vendor Bill from Global Tech: $10,000 (You owe them)
• Customer Invoice to Global Tech: $7,000 (They owe you)
• Netting Amount: $7,000 (The lesser of the two amounts)

Step 1: Preparation and Agreement

Before you touch anything in NetSuite, you must have a clear agreement.

1. Identify the Transactions: Pinpoint the exact vendor bill number and customer invoice number you intend to net.
2. Confirm the Amount: Determine the netting amount. It will always be the lesser of the two open balances.
3. Get Written Confirmation: Send an email to your contact at the other company confirming their agreement to net Invoice #XXX against Bill #YYY for a specific amount. This is a critical step for your audit trail.

Step 2: Create the Netting Journal Entry

This is the central transaction that makes the magic happen.

1. Navigate to Transactions > Financial > Make Journal Entries.
2. Set the Date to the day you want the netting to be effective.
3. In the Memo field, write a clear description. This is your best friend for future reference.
   • Example Memo: “AP/AR Netting for Global Tech. To net Invoice #123 against Vendor Bill #456.”
4. Enter the Debit Line:
   • Account: Select your Accounts Payable account.
   • Debit: Enter the netting amount ($7,000).
   • Name: In the “Name” column, select the Vendor name (Global Tech). This is crucial for linking the entry to the AP register.
5. Enter the Credit Line:
   • Account: Select your Accounts Receivable account.
   • Credit: Enter the netting amount ($7,000).
   • Name: In the “Name” column, select the Customer name (Global Tech). This is crucial for linking the entry to the AR register.
6. Click Save.

Your Journal Entry should look like this:

Step 3: Apply the “Payments”

The Journal Entry has been created, but NetSuite doesn’t automatically apply it to the open invoice and bill. You have to complete the final link.

To Apply the Credit to the Vendor Bill:

1. Navigate to the vendor bill you are netting.
2. Click the “Make Payment” button.
3. You will be taken to the Bill Payment screen. On the “Apply” subtab, you should see two lines under the “Credits” section:
   • The vendor bill for $10,000.
   • A credit from your Journal Entry for $7,000.
5. Check the box next to the Journal Entry credit and the box next to the Vendor Bill. This will apply the $7,000 credit to the bill, leaving an open balance of $3,000.
6. Click Save.

To Apply the Debit to the Customer Invoice:

1. Navigate to the customer invoice you are netting.
2. Click the “Accept Payment” button.
3. You will be taken to the Customer Payment screen. On the “Apply” subtab under “Invoices,” you should see the open invoice for $7,000.
4. Under the “Credits” section, you will see a corresponding credit from your Journal Entry for $7,000.
5. Check the box next to the Journal Entry credit and the box next to the Invoice. This will apply the credit, marking the invoice as fully paid.
6. Click Save.

The Result

You have now successfully netted the transactions.

• The customer invoice for $7,000 is now closed.
• The vendor bill now has an open balance of $3,000, which you can pay through your normal process.
• You have a clear, auditable trail from the invoice and bill to the journal entry that connected them.

NetSuite AP/AR Netting Best Practices and Considerations

• Documentation is Key: Attach the email confirmation from the other party directly to your Journal Entry transaction in NetSuite using the “Files” tab.
• One-to-One Entity: This process assumes the vendor and customer records represent the same legal entity. Be cautious if they are related but separate entities. For complex entity relationships and advanced NetSuite configurations, our development team can create custom solutions.
• Single Currency: This guide assumes both transactions are in the same currency. Netting across different currencies is more complex and requires additional steps to account for currency fluctuations. Contact our NetSuite experts for guidance on multi-currency netting implementations.

Need Help with Complex NetSuite Financial Processes?

AP/AR netting is just one of many financial process optimizations available in NetSuite. If your business regularly deals with vendor-customers or complex financial transactions, professional guidance can ensure you’re maximizing efficiency while maintaining compliance.

Schedule a NetSuite Financial Process Consultation where we’ll:

• Review your current AP/AR processes for optimization opportunities
• Assess whether AP/AR netting automation makes sense for your volume
• Design custom solutions for complex entity relationships
• Provide training on advanced NetSuite financial features

For businesses with frequent netting scenarios: We can develop automated solutions that streamline this process while maintaining the audit trail requirements.

Questions about NetSuite financial optimization? Contact our NetSuite experts – we’ve implemented AP/AR netting solutions for businesses across industries.

Turn manual financial processes into competitive advantages.