6.5 Billing and Invoicing
The billing process in SAP is the last step in the sales order lifecycle, and it serves as the link between sales processing and FSCM and revenue recognition. The billing process is used to request payment from customers for goods received or services performed. The billing process in SAP S/4HANA is very similar to billing processes in SAP ERP, which means minimal change impacts for users when upgrading from SAP ERP to SAP S/4HANA. The billing process supports debit memo processing, credit memo processing, billing document processing, invoice list processing, and invoice correction processing.
6.5.1 Billing and Invoicing of Goods and Services
In SAP S/4HANA, a number of SAP Fiori apps are provided to manage billing documents, including Create Billing Documents, Change Billing Documents, Display Billing Documents, and Create Multiple Billing Documents. These apps provide functionality which is similar to Transactions VF01, VF02, VF03, and VF04 in SAP ERP.
Many additional SAP Fiori apps provide even more functionality than transactions in SAP ERP. The Manage Billing Documents app allows users to search for a single billing document or multiple billing documents using search criteria such as customer, billing type, and billing date. The view can be changed to suit the needs of the business users; invoices can be filtered and sorted; columns can be changed; and variants can be saved for future use. Using this app, a single invoice or multiple invoices can be displayed. Users can review the header and line item information of the invoice and can display the output generated from the invoice. Users can also change the billing documents from the app, such as posting the invoices to accounting if there was an accounting error during invoice creation, resending output from the invoice, and canceling the invoice if it was created in error. The power of this app is that users no longer need to access different transactions or apps to view and manage invoices—everything can be done through a single app.
The Schedule Billing Creation app allows users to schedule the creation of billing documents and view the status of scheduled runs. In SAP ERP, these are managed through batch jobs, which often require technical consultants to set them up to create billing documents at specific times each day. This app allows users to schedule jobs immediately or in the background without the involvement of technical resources so that businesses can quickly react to a changing business environment with minimal impact to customer receivables and cash flow.
6.5.2 Subscription Billing and Invoicing
Subscription billing and invoicing in SAP S/4HANA is often used for service-based invoicing scenarios that are complex or have high volumes. In this scenario, billing items from SAP Convergent Invoicing are passed to the Sales and Distribution module as invoices. There is close integration with the SAP CRM system to maintain a relationship with the customer and track the customer’s consumption of services. The management of this process can be handled as a part of SAP Hybris Billing.
SAP ERP System Upgrade to SAP S/4HANA
When upgrading from SAP Business Suite to SAP S/4HANA, it’s important to know if either SAP Solution Sales and Billing 1.0 or SAP Flexible Solution Billing 1.0 was installed in the system. Before conversion, all parked invoices must be either canceled or posted to an active invoice package. In addition, if the option for CI Sales and Distribution integration was enabled, some of the database tables in SAP S/4HANA have been changed, so the /SOIN/R_CI_SD_MIGRATE_TO_S4 report must be run to identify inconsistencies and avoid errors.
6.5.3 Contract Accounts Receivable and Payable
SAP Contract Accounts Receivable and Payable (FI-CA) provides the ability to process large numbers of documents while still providing standard accounts receivable functions used to support order-to-cash processes. This function integrates with General Ledger Accounting, SAP Cash Management, SAP Credit Management, SAP Biller Direct, SAP Dispute Management, and SAP Funds Management. It’s often used to support billing and accounts receivable processes in industries that have complex or high-volume transactions, such as the utilities industry. SAP Contract Accounts Receivable and Payable processes also support SAP Convergent Invoicing processes and can be used to support the processes managed through SAP Hybris. The module integrates closely with the SAP ERP SD module, similar to traditional SAP ERP Financials Accounts Receivable (AR) and SAP ERP FInancials Accounts Payable (AP) modules.
Following are some of the main processes supported by the SAP Contract Accounts Receivable and Payable module:
- Document postings, including tax postings
- Open item management
- Customer account information such as balance display and contact information
- Creating and issuing customer correspondence
- Performing traditional accounts receivable processes such as dunning, interest calculation, payment receipt and processing, write-offs, and deferred revenue postings
6.5.4 SAP Credit Management
In SAP S/4HANA, SAP Credit Management is included as part of the FSCM functionality. SAP Credit Management is used to minimize financial risk during business transactions by reducing risk of nonpayment, minimizing Days Sales Outstanding (DSO), and facilitating relationships with loyal customers. It can be used to support both goods-related and service-related transactions. The SAP Credit Management processes supported by SAP S/4HANA allow a business to monitor credit risk and exposure, and they provide enhanced views of receivables and cash flow.
The SAP Credit Management functionality is closely integrated with Sales and Distribution processes. As mentioned in Section 6.2.1, a business partner is assigned to a credit role if it’s applicable to credit management. The credit view of the customer is maintained using Transaction UKM_BP. The credit data includes information such as assigned credit limit, payment terms, and risk class. The SAP S/4HANA system can also be set up to integrate directly with a number of outside credit agencies, and the information provided by those agencies can be stored in the data records. This allows a business to make real-time credit decisions regarding customers and reduces the overall credit exposure of the company.
The credit risk class is used to designate how much financial risk a customer poses to the company. The risk class is assigned after an investigation into the customer using external information integrated into the system, such as external credit agency ratings, as well as internal data on the customer, such as length of the relationship with the customer and past payment history. Customers who have higher credit ratings, who have a long history with the company, and who make payments on time are generally assigned a more favorable risk class. FSCM provides the ability to set up automatic customer credit limit reviews by using real-time transactional data as well as integration with external credit agencies, thereby further reducing the overall credit exposure of the company.
Based on configuration settings, the assigned risk class determines how the customer interacts with the Sales and Distribution processes using automatic credit control. The automatic credit control in SAP S/4HANA allows a business to set up rules to determine how often a customer’s credit is checked during the sales order lifecycle. The automatic credit control rules use a customer’s credit limit, risk class, and credit segment to check a customer’s credit. Key points during the order lifecycle at which credit can be checked are upon order creation, when an order is changed, and before a delivery document is created. Customers with more favorable risk classes, for example, may only have a credit check completed during order creation, while customers with a less favorable credit risk class may have a check completed at all three points.
The customer’s credit limit is consumed by the open sales orders, open deliveries, and unpaid invoices in the system. A credit horizon can be configured, which would exclude open orders from the credit limit that falls outside of the horizon. This can be helpful if, for example, customers place orders more than two months in advance, but the company doesn’t want orders with delivery times sooner to be held due to credit reasons.
SAP S/4HANA provides a number of SAP Fiori apps to support credit management processes and allow credit departments to analyze credit risk and exposure. Apps such as Display Credit Data and Display Credit Exposure allow users to display credit-related information for a customer, such as the credit master data or the transactional data affecting a customer’s credit limit. Users can use the Manage Credit Cases or Manage Documented Credit Decisions apps to review credit issues for a customer, make decisions such as whether to release a sales order on credit hold, and document the reasons for the decision. The Credit Limit Utilization app can be used by credit managers to display KPIs such as utilization of credit limit as a percentage of the total or an absolute value and identification of customers who exceed a specified credit utilization threshold. The SAP Fiori app allows managers to segment the data to view utilization by credit segment, region, or business partner, as well as identify top partners with the highest credit utilization or credit exposure. These SAP Fiori apps are integrated directly with the SAP S/4HANA database, so the information presented is the most up-to-date, ensuring credit users are able to make informed decisions using real-time data.
SAP ERP System Upgrade to SAP S/4HANA
Because credit processes are managed through the FSCM module instead of the SAP ERP Financials AR module, there are some transactions and reports that are no longer available in SAP S/4HANA as listed in Table 6.3.
| SAP ERP Transaction | SAP S/4HANA Transaction |
|---|---|
| FD32 | UKM_BP |
| VKM1 | UKM_MY_DCDS |
| VKM4 | UKM_MY_DCDS |
Table 6.3 Transactions and Reports in SAP ERP and SAP S/4HANA
Table 6.4 shows the transactions and reports that aren’t available in SAP S/4HANA.
| SAP ERP Transactions/Reports | |
|---|---|
| F.28 | S_ALR_87012215 |
| F.31 | S_ALR_87012218 |
| F.32 | VKM2 |
| F.33 | VKM3 |
| F.34 | VKM5 |
| FCV1 | RFARI020 |
| FCV2 | RFARI030 |
| FCV3 | RFDFILZE |
| FCV4 | RFDKLI*NACC Reports |
| FD32 | RFDKLxx Reports |
| FDK43 | |
Table 6.4 Transactions and Reports Not in SAP S/4HANA
When preparing to upgrade from SAP ERP to SAP S/4HANA, a custom code check must be performed to identify any code using the transactions just listed—the code will either need to be updated or may not be required to be converted. SAP also provides a number of tools and checklists to ensure proper migration of legacy credit master data, legacy credit exposure data, legacy credit exposure data, and configuration data.
6.5.5 Revenue Recognition
Recognizing revenue is an important process for any business, and, in simple terms, it’s the result of selling goods to the customer in exchange for payment. Traditionally, revenue is recognized in one of two ways. For sales from stock, revenue is recognized at the time of defined events, such as when Post Goods Issue (PGI) happens, during proof of delivery, or at the time of billing. For service contracts, revenue is recognized based on agreed-upon calculations, such as a percentage of completion, as a straight-line calculation over the course of the contract, or upon contract completion.
In May 2014, the International Accounting Standards Board (IASB) issued International Financial Reporting Standards (IFRS) 15 to provide further guidance regarding how to account for revenue from contracts with customers. The guidance will go into effect on January 1, 2018. The reporting standard applies to the majority of contracts with customers (there are a few exceptions) and is intended to provide more clarity to users of financial statements regarding the amount and timing of cash flows. The guidance provides the following framework to identify contracts and recognize revenue when a performance obligation is satisfied:
- Identify the contract with a customer.
- Identify the performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations in the contract.
- Recognize revenue when the entity satisfies a performance obligation.
IFRS 15 is closely aligned with Accounting Standards Codification (ASC) 606, which was jointly issued by the and Financial Accounting Standards Board (FASB) and IASB.
To support these new reporting standards, SAP has release the SAP Revenue Accounting and Reporting (RAR) functionality. SAP RAR integrates with the Sales and Distribution processes, and it’s intended to support the reporting requirements issued by the IASB and FASB. By using SAP RAR, you can do the following:
- Allocate the transaction price to distinct items of a contract.
- Combine items from multiple operational contracts (e.g., sales contracts and sales orders) into a single revenue contract.
- Combine items from multiple operational applications into a single revenue contract.
- Recognize revenue when a performance obligation is met.
- Manage revenue data separately for parallel accounting purposes.
To help illustrate the functionality, consider a scenario of purchasing a new cell phone. When purchasing a new phone, a customer will receive a phone and a monthly service contract for a specific total price. The cell phone is delivered to the customer immediately at the store, and the monthly cell phone service contract lasts for two years. RAR will take the total price and identify the price of the different contract items—the cell phone and the service contract. When the cell phone is delivered to the customer (immediately), the revenue is recognized, and the revenue from the service contract is recognized each month for the life of the service contract.
SAP RAR integrates with SAP ERP SD throughout the order lifecycle. Sales Bills of Materials (BOMs) can be used to identify various items in a contract, and RAR can either combine or separate the items of the BOM based on whether a customer can purchase the items separately or only as a package. The pricing conditions from SAP ERP SD contracts and orders are transferred to SAP RAR to determine the total transaction price. After final invoice, the total price of the transaction in SAP RAR is equal to the total price invoiced to the customer. When customers make advanced payments, deferred revenue is recognized, and after the performance obligation is met (as outlined in the contract), the deferred revenue is posted to the final SAP General Ledger (G/L) revenue account.
SAP ERP System Upgrade to SAP S/4HANA
The SAP ERP revenue recognition functionality isn’t available in SAP S/4HANA, but it has been replaced by SAP RAR. Therefore, the transactions that were used in SAP ERP won’t be available in the new system. Before converting from revenue recognition to RAR, all sales contracts and orders must be closed in the old system or must be successfully migrated to the new system. SAP provides further documentation on converting from revenue recognition to SAP RAR to facilitate the conversion process.
6.5.6 Advanced Order Processing and Billing
SAP ERP offers Advanced Order Processing and Billing functions, which were developed especially to improve the efficiency of sales and billing processes for contractors. This functionality isn’t available in SAP S/4HANA, and there are no current plans to include it in future releases. For businesses upgrading to SAP S/4HANA that have activated the Advanced Order Processing and Billing functionality in the SAP ERP system, business processes will need to be reviewed and changed based on functionality provided by SAP S/4HANA.