Last Updated on October 2, 2022 by Pradeep
SAP Central Payments – Centralized Approach to AR/AP Process
SAP Central Payments is a centralized process of collection and payment from the Central Finance system. It is key to understand how to use the Central Finance methodology properly.
The use of Central Payments makes a significant difference in how the AR & AP process behaves with or without using SAP Central Payments Process. It impacts not only the complexity but also the time utilized in the whole work.
Since Central Payments is a gateway to learning how to use Central Finance, it is a must for you to understand the difference in using a process in Central Finance. And also learn how the payment process works if you use Central Finance.
These two types of uses in AR & AP are different. They require different tools, skills, scoping, and phasing when deploying central Finance.
So, now let’s understand the Accounts Payable Process without the SAP Central Payments. Then we would see how the process looks when we use the Central Finance architectural system.
Accounts Payable without SAP Central Payments
The SAP Central Finance engine needs the Master Data for suppliers. This needs to be set up correctly according to the master data processes in SAP S/4 HANA.
Requires Integration with Central Finance
For Accounts Payable in SAP, we need a vendor master in SAP ERP. However, in SAP S/4 HANA, we need a Business Partner. Conclusively, in the procure-to-pay process, integration with Central Finance matters.
How does the AP Process work?
The Accounts Payable process starts with a purchase order. Let’s say that organization has decided to use Central Finance for reporting payables with offsetting General Ledger (G/L) accounts.
As a result, the source system manages the open items. Despite this fact, Central Finance still considers an item as open with a clearing document to follow. Or it can use the open item as reporting item without a clearing document.
You can make the payment in the source system by replicating the clearing document only if you have configured it so. Though it depends on the customer requirements as the payment is managed in the source system.
The source system carried out the Bank reconciliation too.
Accounts Payable with Central Payment
In the SAP S/4 HANA 1909, the Central Payment feature is even more advanced. Now we can make payments centrally for all vendor activity that exists in underlying SAP ERP systems, both SAP and Non SAP.
Now you can create an invoice using a three-way match in the source system. You can generate an accounting document that makes a posting to the GR/IR account. It also creates a payable in the finance ledgers.
Automatic Process in SAP Central Payments
The SAP Central Finance system automatically reflects both GR/IR and the payable side.
However, the system automatically marks the delta open item as technically cleared. This is like the previous scenario where the source system made the payment.
Similarly, it replicates the actual open item in Central Finance. As a result, you cannot pay the technically cleared item accidentally in the source system.
The actual open item in Central Finance behaves like a normal item. You can clear it in Central Finance with a payment or offsetting entries.
How does payment work in SAP Central Payments?
The payment in S/4 HANA will clear the open item only in Central Finance with an offset to the bank clearing account.
Since we make the payment in Central Finance, two events will also occur in Central Finance.
First, payment instructions to the bank will be generated in Central Finance. Second, as a result, bank reconciliation will also be carried out in the same Central Finance instance.
Only Central Finance avails the open item balances, like item analysis and the ageing analysis. Likewise, Central Finance generates correspondence with the vendor. Such as an account statement or payment advice.
Receivables without SAP Central Payments
You can also manage the opposite of payables using Central Finance for reporting. In this instance, the customer resides in the local system and carries out the order fulfilment process as usual without disruption.
Account-relevant events trigger accounting entries into Finance and Controlling. Though it depends on how you have configured the local system.
Know: Why SAP Central Finance is Future?
How does it work?
Once you post the accounting document to the source system, an automatic copy is replicated to the Central Finance system. It works as a new accounting document with an entire audit trail.
You can view the customer reporting too in the central finance system as an open or cleared item. It has the drill-down functions to the source system.
Though, it is only possible if the mapping and configuration are correct.
The Payment, Bank reconciliation, and customer-related processes are carried out in the source system.
Receivables with Central Payments
We can also handle customer collections into Central Finance as part of the project scope. However, we need to set up the process differently.
In this scenario, accounting-relevant movements from order fulfilment are the same as receivables without central payment. The difference is that the open item is cleared technically in the source system according to this configuration. It ensures the item is not paid for accidentally.
This is because the open item is no longer available for payment in the source system. You can pay it only using the central finance instance.
This scenario forces collections to be made on the central finance system. Further, the bank reconciliation activities follow. As a result, the system connects the bank statements from third-party banks to the system making the payment.
Visit: SAP Central Finance Training
Conclusion
SAP Central Payments is an excellent solution to the payment process in the SAP S/4HANA Finance system. It has reduced the complexities in the payables and receivables. Consequently, it also minimizes the time utilized in the whole process.
SAP Central Finance is grabbing a lot of attention from businesses. Hence, more and more S/4HANA Finance consultants are approaching to learn this deployment process. The functionalities of Central Payments play a vital role in making central finance so desirable.
Keeps on reading more articles on Central Finance on Skillstek’s Blog that I publish frequently.
Related: SAP HANA Finance Vs. Central Finance
Watch Video: SAP Central Finance Training- Overview
