SAP Order to Cash Process

It is the important scenario in FI (Financial Accounting) – SD (Sales & Distribution). It is an end-to-end

business process that organizations use to govern the transactions of selling products / services. It
enables organizations to efficiently manage their sales operations from order creation to payment
receipt. This process ensures that correct products / services is delivered to the customers in timely
& cost-effective manner. Its configuration touches both FI & SD modules. Alternatively, it can be
called as Fi-SD Integration.

O2C process can be differentiated in 4 parts as follows:

A. Pre-Sales Activities
B. Order Processing
C. Shipping
D. Billing

These steps consist of several activities as below:

A. Pre- Sales Activities – This takes place before the actual deal is taken place. In this discussion
between customers and business is taken place. E.g., Customer can ask for product details,
price, quality, quantity, & if required monthly cost for bulk order.

This step includes below sub-process –

a. Contract – Informal contract with customer that can lead to a quotation. This
involves negotiating on contract terms, delivery schedules, payment terms etc.
b. Inquiry – Formal Non-binding inquiry from customer about product / services that
business / company can offer to its customers.
*This step does not have any effect on GL accounts & do not have any accounting
entries. Once inquiry is done, inquiry number is generated in SAP.
c. Quotation – Formal agreement / document between company & customer to
provide its products / services with during a certain period of time on certain terms &
conditions agreed between both parties.
*Once this is generated, this can be created via inquiry or without any reference
number in SAP
d. Scheduling Agreement – Formal agreement containing delivery quantities & certain
dates as agreed. This is common component in supplier industry.
B. Order-Processing Activities – Once, order is confirmed, Sales order is created in SAP. This
can be created with reference quotation number or without reference. There is no
accounting entry nor it affects any GL Accounts.
a. Sales Order – Document that captures goods / services from customer. It includes –
Information about product / services, pricing & delivery details, shipment & billing
information.
b. Availability check – Once SO is created, availability check is done, for goods / services
available in inventory or not.
C. Order Fulfillment – Business will fulfil their commitment of customers by providing product
/ services once the Sales order is finalized & confirmed.
a. Post Goods Issue / Outbound Delivery – this document enables shipping of goods to
customer. It includes below information:
Picking (Transfer order), Packing, Arrangements of transport, Posting goods issue
(Material Doc)
 *Posting goods issue process is integrated with SAP FI module which generates
automatic postings on GL Account.
b. Shipping Document – This is created containing shipping labels, pacing lists & other
documents for transport & custom clearance. After this is created, goods are shipped
with relevant transportation & tracking is done where monitoring shipment’s
progress with real-time status updates are sent to customers on timely basis.
c. Delivery – This is actual fulfilment of goods to customer’s shipping address where
goods will be delivered. Once, goods are delivered, proof of delivery is obtained from
the customer & that the status is updated in SAP.
*There is accounting entry in books where revenue account is debited &
customer account is credited.

D. Billing – Common practice is that customer pays after the goods are delivered to them. This
process depends on Vendor & customer which they follow. This can be configured in SAP by
taking advance payment from customers before any goods are dispatched. Billing document
is created in SAP which provides following functionality:
a. Invoice creation
b. Creation of Debit & Credit memos
c. Cancellation of previous billing document
d. Integration of FI Module for automatic GL A/c Postings.
*There is an accounting entry where Customer account is debited & revenue and tax
accounts are credited.
E. Payment – after, billing document is created, company waits for payment from customers,
once, payment is done, accounting entry is done in SAP FI Module.

Scope Accounting Accounting Steps SD OR FI

Entry Document Module
Pre-Sales NO NO Inquiry SD
Pre-Sales NO NO Quotation SD
Pre-Sales NO NO Contract SD
Order NO NO Sales Order SD
Processing
Order Fulfilment NO NO Delivery SD
Order Fulfilment YES YES Post Goods SD + FI
Issue
Order Fulfilment YES NO Shipment SD + FI
Billing YES YES Billing SD + FI
Billing YES YES Payment FI

Prepared By – Amey Joshi