The SAP Order-to-Cash process is integral to efficiently managing a business’s sales operations for goods and services. It begins with receiving customer orders and encompasses all steps up to the collection of payments. This process ensures that companies effectively track receivables and maintain smooth cash flow. In contrast, the Purchase-to-Pay Process handles procurement and payment processes for acquiring goods and services within the organization.
Key Components of the SAP Order-to-Cash Process
Sales Order
A Sales Order in SAP is created based on a customer’s purchase order. This document includes comprehensive details such as the items or services ordered, quantities, pricing, customer details (shipping and billing addresses), and terms and conditions. Essentially, it serves as an agreement between the buyer and seller, committing the company to deliver the specified products on an agreed-upon date and at a set price.
The Sales Order process also integrates closely with the company’s finance department, impacting business accounting. This necessitates continuous communication between finance and sales departments regarding revenue recognition, order management, and billing information.
Key Transaction Codes for Sales Orders:
VA01: Create a Sales Order
VA02: Edit a Sales Order
VA03: Display a Sales Order
Outbound Delivery
Once a sales order is executed, an outbound delivery document is generated. This document reflects the goods or services being dispatched to the recipient. It encompasses all pertinent shipping information, including packing, transporting, picking, and goods issuance.
Key Transaction Code for Outbound Delivery:
VL01N: Create Outbound Delivery
Billing Documents
The billing process follows the generation of the outbound delivery document. A billing document includes all necessary billing-related details for a transaction with a customer. These documents can be used for various purposes, such as credit memos, debit memos, invoices, cancelled transactions, and supplier invoices.
SAP Order to Cash Process Flow
The SAP Order to Cash process comprises several critical steps, outlined below:
Customer Accounts in SAP Order to Cash
In SAP S4 HANA, customer accounts are master records that integrate accounting-relevant information for accounts receivable and logistics information. These accounts are maintained through the sales and distribution module. They encompass essential details about the customer, such as name, address, currency conditions, and accounting information like reconciliation accounts in the general ledger.
Accounts Receivable is a sub-ledger to the general ledger detailing individual transactions in sub-ledger customer accounts. The balance of all customer master records consolidates into a single general ledger account known as the accounts receivable reconciliation account.
Customer Invoice
When a company needs to bill its customers for shipped goods and services, it must update its sales revenue accounting. The invoice includes customer details, the payable amount, payment terms, and shipping address.
Automatic Creation of Customer Invoices (From Logistics)
Upon releasing the billing document, an accounts receivable entry is automatically generated. This process creates two distinct documents:
A sales and distribution invoice
An accounts receivable invoice
Customer Payments in SAP Order to Cash
The Incoming Payment Process is vital in SAP S/4 HANA’s Financial Accounting. After recording a customer invoice, the next step is to secure revenue through an efficient customer payment process. It is crucial to understand and evaluate the pros and cons of various payment methods before accepting payments.
Businesses can generate incoming payment documents using various payment forms, such as cash, checks, credit cards, mobile payments, bank transfers, and bills of exchange, to manage financial transactions and ensure seamless revenue collection. The relevant transaction code is F-28.
Credit Memo
When adjustments are needed regarding the amount paid by the customer, the company issues a credit memo to correct the customer balance and offset incoming payments. Credit memos are issued for damaged goods, incorrect quantities, wrong amounts, or wrong products. The transaction code for creating a credit memo is FB75.
Receipt of Down Payments
Down payments are advance payments made by customers before or while receiving goods or services. They are often requested when the customer has a low creditworthiness rating. Common in long-term contracts, such as construction, down payments are initiated by a payment request, a financial note that does not impact the balance sheet. The down payment is cleared against the final invoice upon delivery of goods or services.
Dunning
Dunning involves sending reminders to customers about overdue payments. This communication process starts with friendly reminders and escalates to formal claims and phone calls, helping to expedite collections. In SAP S/4 HANA, dunning requires specific configurations and settings in the customer master data.
Credit Management in SAP Order to Cash Process
Credit Management is crucial in accounts receivable, especially in business-to-business transactions, where payments are due post-delivery. Orders fulfilled without receiving payments are maintained in the credit limit field as part of the customer master data. Effective credit management ensures the company maintains a healthy cash flow and minimizes credit risks.
What is a Credit Limit?
A credit limit is a temporary loan that a company extends to its customers, allowing them to purchase goods and services up to a specified amount without immediate payment. For instance, a customer with a credit limit of 2,00,000 INR can place orders up to this amount. However, if an order exceeds this limit, the system automatically blocks it due to insufficient credit. Credit limits vary per customer and are influenced by payment methods, history, and creditworthiness ratings from credit inquiry agencies.
Benefits of Credit Management
Credit management helps a company monitor and control credit risk by setting credit limits for customers. The responsible unit within the company receives alerts for specific customers or groups. For instance, customers with good credit histories might be granted grace periods according to the organization’s standards.
Period-End Closing in SAP Order to Cash
Period-end closing in SAP Order to Cash involves two main stages:
Reconciliation Process: This consists of reconciling accounts receivable general ledger accounts with details in the accounts receivable application.
Updating Records: After reconciliation, updating the record statuses and customer period statistics is necessary.
Accounts Receivable Reconciliation
In SAP S/4 HANA, financial documents are stored in the ACDOCA table. Unlike SAP ERP, which uses multiple tables, S/4 HANA consolidates all financial information into a single table, simplifying the reconciliation process. This table includes data for accounts receivable, accounts payable, the general ledger, asset accounting, controlling, and more, eliminating the need for reconciling multiple tables.
Role of Sub-Ledger Account
Before closing the books, it is essential to verify that the total balances in sub-ledger accounts receivables match the accounts receivable reconciliation account in the general ledger. This ensures the accuracy and completeness of the reported accounts receivable amounts in the balance sheet.
Account Linking
Each customer has a separate account in the sub-ledger linked to a reconciliation account in SAP S/4 HANA. Entering the reconciliation account field when creating a customer master record is mandatory. This reconciliation account is a control account for reconciling sub-ledgers with the general ledger.
As transactions are posted to a customer sub-ledger account, the system simultaneously creates an entry in the ACDOCA table, updating the reconciliation account automatically. This ensures that accounts receivable and the general ledger are posted concurrently.
Comparing Figures
During period-end closings (month-end, quarter-end, or year-end), comparing transaction figures with the total balances of posted items is crucial. The system performs a comparative analysis by:
Comparing debit and credit balances in customer accounts with the total balances of posted debit/credit items.
Comparing these balances with the application or secondary indexes used to manage accounts on an open item or line-item display basis.
Hence, with reconciliation accounts for all sub-ledgers, the SAP S/4HANA guarantees the sub-ledger to general ledger reconciliation and its integration model.
Conclusion
Mastering the SAP Order-to-Cash process is essential for efficient sales operations and maintaining a healthy cash flow. This comprehensive process integrates various business functions, ensuring accurate tracking and management of customer transactions. By leveraging SAP S/4 HANA’s robust capabilities, businesses can streamline operations and enhance financial accuracy.
At VE3, we specialize in optimizing the SAP Order-to-Cash process. Our expertise ensures that your business can efficiently manage sales operations, mitigate credit risks, and maintain seamless cash flow. Connect with us today to learn how our tailored solutions can drive your business success.
