SAP Order-to-Cash Cycle—FI-SD Integration and Configuration

Updated on October 21, 2016

What Is SAP Order-to-Cash?

Order-to-Cash is an integration point between Finance (FI) and Sales (SD). It is also known as OTC or O2C in short form. It is a business process that involves sales order from customers to delivery and invoice. It comprises SO, Delivery, Post Goods Issue (PGI) and billing to customers. OTC process is a very important process in Enterprise Resource Planning software(ERP Software). Both major ERP software SAP and Oracle include this process.

Its configuration touches both Finance and Sales & Distribution modules.This is an end to end process from customer Inquiry to goods delivery, billing and payment of money. The process starts when a customer inquires for an inventory item (finished goods for a company). The customer gets quote for the item and place an order for the quantity needed. A user from company place the order and pass it for processing. Inventory gets picked up from warehouse and shipped to customer. Billing process also starts with delivery and it can be sent with the item or later. This is an overall OTC scenario in general.

This process gives integration between customer master record, sales organization, sales offices, distribution channels, divisions and plants.

Here in this article, we are going to discuss the steps in details.

SAP Order-to-Cash Process

SAP OTC Process Flow

SAP OTC is a process involved customer sales order creation and satisfying customer requirements via delivery.

Prerequisites are customer master record is set up, sales area (sales organization, divisions and distribution channels) was set up already.

Generally steps are as follows:

  • Customer Inquiry
  • Quotation for customer inquiry
  • Sales Order creation
  • Post Goods issue (PGI)
  • Delivery
  • Billing- Bill sent to customer
  • Receipt of money- Customer Payment

The First two steps that are inquiry and quotation may or may not happen. A new customer may inquire and ask for quotation but an old customer may not inquire. Moreover, if you have contracted agreement to sell products at a certain price than customer will directly order without quotation.

Now, let's see what is the impact on the accounting entries for this cycle steps. Each step has it's own different configuration these steps used in business workflow.As I mentioned earlier, this process involves many different organizational levels. Most important organizational levels in this process is Company code, sales organizations, distribution channels, divisions and plants.

SAP OTC Sales & Distribution

OTC Process Steps
Transaction Code
Accounting Entries
Inquiry
VA11
No
Quotation
VA21
No
Sales Order
VA01
No
Post Goods Issue (PGI)
VL01n
Yes
Delivery
VL01n
Yes
Billing
VF01
Yes
Receipt of Money
FB50
Yes

Business Process Associated With SAP

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Order-to-Cash Configuration

This is an imported integration in SAP landscape. Here are the configuration steps in details. Its configuration happened in transaction code OBYC.

  • Inquiry : A customer inquire about the product price and service. This is a very starting point of OTC process. This process does not have any effect on general ledger accounts and do not have any accounting entries. Once a customer creates inquiry, an inquiry number is generated. Inquiry is created by transaction code VA11.
  • Quotation: Quotation is a price quote given to the customer. A quotation follows inquiry steps. A quotation can be created via inquiry or without inquiry reference number. A quotation is created by transaction code VA21.
  • Sales: According to some SAP experts, Sales order is actually the first step of OTC process. After inquiry and quotation, once it's gets created. Sales order can be created with reference of quotation or without reference. It does not make any accounting book entry and it does not make any change in General Ledger accounts. It is just a commitment to deliver goods to the customer. SO can be created with transaction code VA01.
  • Post Goods Issue: Post goods issue is the steps where goods are being picked by warehouse, packed and shipped to the customer's given shipping address as per the sales order. We have accounting entries as inventory is being credited against the cost of goods sales (COGS) debited. General ledger accounts associated with the cost of goods sales and inventory is affected respectively.
  • Delivery: Delivery follows post goods issue (PGI).Delivery is the actual fulfillment of goods to the customer shipping address. At delivery stage, we have accounting entries in the books. At this stage, we debit revenue account and credit customer account. Transaction code for delivery is VL01n.
  • Billing: At billing stage, we send the bill to customer for the goods delivered. We have accounting entries at this stage where we debit customer and credit cash account. Transaction code for billing in SAP is VF01.

Management and OTC Process

Order management is an important part of SAP Finance and Sales integration. This process also known as SAP OM in short. It is an administrative process. It automates order processing and seamless integration of data among different modules. OM includes customer master database, customer returns and refunds, billing information, shipping information, payment terms, payment conditions and other information related to OTC process.

OM along with the OTC process provides improved sales cycle and easy handling of goods and efficient order processing. It is an important process in retail, health care, telecommunications and customer oriented industries.

Comments

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    • profile image

      Hadiqa Sanober 

      2 months ago

      It's really nice article but accounting entries seems wrong please rectify

    • profile image

      Pawel 

      5 months ago

      Very good article. Only one thing that should be precised. PGI is goods movement confirmation as shown on pictures and can be done only after delivery is processed.

    • profile image

      Hari 

      5 months ago

      Very good information. Great effort. Very useful

    • profile image

      pollymate50@gmail.com 

      5 months ago

      This is most comprehensive business flowchart associated with OTC I have come across since it shows all the processes involved as per Chart of Accounts.

      I commend you for all your efforts.

      Polly Mate

    • profile image

      Shraddha Shukla 

      6 months ago

      Thanks for the information.

    • profile image

      Rohit Kulkarni 

      6 months ago

      Very Nice Information , As per my Knowledge PGI Accounting is

      COGS A/c Dr

      Sales or Revenue A/c CR

    • profile image

      Sandy 

      8 months ago

      Very informative blog.

    • profile image

      kamlesh 

      9 months ago

      Very good effort to present OTC process.

      Great work!

      Keep it up.

    • profile image

      Bhuwan Singh 

      12 months ago

      Outstanding Blog...

      Really helps a lot. Thank you so much!! :-)

    • profile image

      Shehnaz Ahamed 

      14 months ago

      Need more information about Accounts payable and Receivable.

    • profile image

      mastan 

      14 months ago

      it's very useful to sap people

    • profile image

      Ranjan Kumar 

      18 months ago

      O2C is a voice process?

    • profile image

      Ruta Suneet Digikar 

      19 months ago

      Entries are wrong for Delievery and billing

      entries should be

      Customer A/C debit

      To Sales A/C Credit

      And

      Bank /Cash A/C Debit

      To Customer A/c

    • profile image

      Radhika 

      19 months ago

      The mentioned accounting entries are wrong.. plz rectify.

    • profile image

      kranthikumar 

      20 months ago

      very usefull to every one..nice....thanks

    • profile image

      sapfullform 

      23 months ago

      nice article . it explains me in detail about sap order to cash process. thanks

      http://sapfullform.com/sap-full-form/

    • profile image

      Josewilliam 

      3 years ago

      Great sap article!

    • profile image

      Sharifah 

      3 years ago

      Unibeelvable how well-written and informative this was.

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