How to: paying vendor on the fixed day

Dmitry Kaglik

February 17, 2014

SAP

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Accounts Payable is an important part of every company’s life. You normally need to pay your invoices in order to continue business.

There are several ways to register an invoice in SAP, as well as several ways to make a payment. But one important thing that happens between invoice and payment is time. You need to know when to pay your invoices, leaving your vendors happy to continue business with you.

Here we need to say that Accounts Receivable need to know similar information. Once you issue an invoice, you need to estimate when it is going to be paid. It helps you to keep relationships with your customer (don’t chase the debt until it is really due), plan your cash flow and so on.

SAP has a tool that helps you to make necessary calculations of due date both on customer and vendor sides. It is called “Terms of payment”. It usually consists of 3 major components:

  • Baseline date, the date when the calculation begins
  • Number of days (up to 3), when invoice has to be paid
  • Early settlement discount percent (up to 2) offered on invoice.

Effectively, you may get up to two time ranges when invoice can be paid with a discounted value, and one day when invoice should be paid in full without being overdue.

Here we need to note that the vast majority of invoices use the invoice date as a base for the due date calculation. In other terms, the invoice may say “due within 10 days”, which means 10 days after invoice date.

But there is still a chance that you need to calculate the due date not as a number of days, but set it as a specific date in the month. Examples of business cases for this may be:

  • Contractor who works on a per-case basis, and sends you separate invoices for each case. But the contractor expects you to pay all invoices for the month together, and treats this payment as salary.
  • Supplier who sends you goods in a continuous flow, invoices each day/week/fortnight, but still expects one payment per month.

In other terms, you need to have the ability to set the due date on the invoice as a fixed date.

Is it possible to configure this in SAP?

Yes, and actually there are 3 ways to do so.

Configuration of Payment Terms in SAP is done on this screen

 

Configuration of payment terms
Configuration of payment terms

Let use an example in which you need to set your due date to be the 7th of the next month.

Option 1

Set up the fixed date as “7” and additional months as “1” in section 1 of the screen. Leave section 3 empty.

 

Payment terms - option 1
Payment terms – option 1

In this case, system will calculate the baseline date in the document and set it as the 7th of the month, following the one specified in section 2. For example, if your invoice is dated in December, but you physically enter it in January, the calculated baseline date will be either the 7th of January or 7th of February, depending on whether the radio-button shows “Document date” or “Entry date” respectively.

Because we left section 3 empty, the system will add zero days to the baseline date for the due date calculation.

Option 2

Set up the fixed date as “31” in section 1, and “7” as a number of days in section 3. Leave other fields in sections 1 and 3 empty.

Payment terms - option 2
Payment terms – option 2

 

In this case, system will calculate the baseline date as the last date of the month derived from the section 2 setting. If number of days in the calendar month is less than 31, the baseline date will be adjusted automatically to be the last calendar day of that month. The number of days in section 3 will be copied in the document and added to the baseline date to calculate the due date.

Option 3

Set up the fixed date to be “7” and Additional months to be “1” in section 3, leaving section 1 empty.

 

Payment terms - option 3
Payment terms – option 3

In this case, when you enter the document, system will set up baseline date as per rule in section 2. Then, it will calculate the number of days between the baseline date and the 7th day of the next month, and put this value in the document field.

For the screenshot above, the document line item will look like this:

 

 

Sample document
Sample document

Do you use fixed-day payment terms in your company? Which way do you set them up?

If you need help with understanding the Terms of payment configuration, or any other SAP-related question, why not ask SAP Expert?

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