Payment Terms in SAP FICO – Configuration Settings

Role of Payment Terms in SAP

The terms of payment in SAP represent the specification of the payment conditions. This includes the number of days by which you need to make the payment or whether there is a discount for early payment.

System Settings to configure Business Transactions

In order to configure Business Transactions, related settings are highly required. Therefore, maintaining Payment Terms in SAP FICO is an important step in this process.

You need to do these settings necessarily to give your users a better experience. Certainly, your system users may find it difficult to process the transactions with the speed and accuracy needed to support the business.

As I mentioned, the most valuable setting in this process is maintaining payment terms in SAP FICO. In Accounts Payable, this step includes setting a lot of fields and configurations.

Payment Terms in SAP FICO comes after creating Master Data in the SAP System available to your vendors. The next logical step after creating Master Data is to configure the system. This handles business transactions in SAP FICO.

1. Maintain Terms of Payment in SAP FICO

In SAP payment terms settings, normal practice is that the shorter the credit or payment period, the higher the discount offered and vice versa.

In the system, you define payment terms as rules (4 digits). This enables the system to automatically determine the appropriate payment terms. Once the system defines them, you can assign these terms to the vendor master or customer master.

In SAP FICO, the system proposes the payment term key and payment terms when entering a document.

Configuration steps for Payment Terms in SAP FICO

IMG => Financial Accounting (New) => Accounts Receivables and Payables => Business Transaction => Incoming Invoice => Maintain Terms of Payment T .code –OB88

Important Fields in Payment Terms configuration in SAP

Day Limit

It is useful when you want a two-part payment term configured under a single key.

Fixed day

The system overwrites the day of the baseline date for payment of the line item with a fixed day entered here.

Additional Month

Enter the required number of months here, if you want to provide an additional cushion for payment. The system then adds this to the month of the baseline date. For example, the baseline date is 14th Jan 2020. Now if you enter 01 in this field, then the baseline date is postponed to 02.14.2020.

Block key

The system uses a blocking reason when you try making postings to a vendor which is assigned with this payment term.

Leave this field blank to indicate that it is free for payment. If you select the checkbox adjustment to block the key then the system transfers the payment block from the terms of payment. This is when you first enter the item or when you change the payment terms.

However, if this is not set, the system transfers the payment block from the terms of payment. This happens only when you enter the item first.

Payment Method

Select a payment method to be associated with this payment term key.

Instalment Payment

Select this checkbox if you want the invoiced amount to be broken down into several partial amounts with different due dates. By doing this you can enter the data only once for one item. Then the system carries out the breakdown automatically using payment terms.

Before doing this, you must specify the percentage for the breakdown of the total amount. Also, indicate which payment terms are valid for the resulting partial amount for each of the percentage rates.

For example, We posted an invoice for 12000 INR, 1st Installment due for collection is 10 days from the invoice date, 2nd instalment is due for collection is 20 days from the invoice and 3rd instalment is due 30 days from the invoice date. Invoice date 10^th June 2021.

2. Define Cash Discount

Follow these steps to define the cash discount:

IMG => Financial Accounting (New) Accounts Receivable and Payable => Business Transaction => Incoming => Define Cash Discount Base for Incoming Invoices => Invoices

3. Release for Payment

There may be a situation when you want to release a payment that had been blocked earlier. Once released, you can pay for that line item. For this, you need to configure the workflow with the document types for payment release. Likewise, you need to configure the levels at which the release happens, who can release the payment and up to what amount.

Read: SAP FICO Interview Questions on AR/AP

4. Outgoing Payments

Outgoing payments typically represent the payments you make to your external and internal vendors. Noteworthy, the external vendors are Business Partners from whom you purchase goods and services. The Internal vendors are your staff.

Hence, all the settings for outgoing payments are grouped into global settings, manual outgoing settings and automatic outgoing payments.

4.1. Manual Outgoing Payment

Define Tolerance for Vendor

When you do over-payment or under-payment, the system requires you to define tolerance for dealing with Vendor Payment differences. It is similar to the tolerance groups for G/L accounts. You need to define Tolerance under One or More tolerance groups. Then allocate a tolerance group to each vendor in the master record.

Its Transaction Code is OBA3.

Read the List of SAP FICO TCodes

4. 2. Automatic Outgoing Payments

The Automatic Payment Program (APP) enables you to clear open items between customers and vendors. It further makes inter-company payments, processes both domestic and foreign payments and block payment etc.

With APP you can use handle outgoing and incoming payments both automatically.

Here You need to set up all company codes for the payment transaction. Under this, the paying company code is an important one. Since it processes payment transactions centrally for several company codes. Consequently, you assign it to each of the company codes participating in the Payment Program.

Related: APP Process in SAP FICO

Conclusion

SAP always gives its users the best experience and easy to use methodologies. Setting up Payment Terms in SAP FICO properly, serves the purpose. Therefore, as an SAP FICO consultant, you must know how to perform these configurations well into the system.

As far as SAP S/4HANA Finance 2020 is concerned, there are no changes in payment terms. The functionalities are the same there as well. It is just that an SAP S/4HANA Finance consultant works on cloud technology, so he/she uses payment terms on that platform. Nothing else.

But I advise you that you must know both of them (ECC and S/4HANA) for every topic. So is for payment terms as well to get comfortable with both systems. in order to beautify your career path in SAP.

Learn: SAP S/4HANA Finance 2020

Related Video: Outgoing Payment in SAP FICO

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