In SAP the simplest purchase to payment cycle is PR > PO > GR > IR > payment. However, PO is not the only purchase document method. There are Request For Quotation (RFQ), Scheduling agreements, Contracts etc. kind of purchase methods. In many cases, the payment to the vendor is not done as per matching GR and PO with IV (invoice verification). Let us examine some of these methods.
In SAP if payment to vendor is not performed as per GR and PO then we can have either periodic billing payments or partial billing payments.
Partial billing payment method is well suited when the manufacturer do not has a fixed scheduling agreement with the vendor. This is the case when purchase is done for a project or there is a contract agreement without any fixed scheduling of materials need to be purchased. Especially the partial payment method is best suited to value contracts for services.
In case of a value contract, the vendor is supposed to provide services over a fixed duration. For this purpose, a purchase order may be created with scheduling lines. the vendor may send invoice at some time intervals. The finance department at customer may honor the invoice and post it so that the vendor account is credited with the partial payment.
On projects, generally there is a clause like this. The vendor will have to be paid 30% of project amount at the beginning of the project, 20% at some time after finishing 50% of the project work and remaining amount after finishing all project work. In this case, the vendor will send invoice for 30% of the project value amount at the beginning of the project. the finance department will honor it and payment will be made to the vendor. At completion of 50% of project work, the vendor will send invoice for 20% of project value amount. And vendor will send invoice of 50% of project amount at completion of project work. The invoice will be honored and the vendor will be paid.
How the system checks the partial invoice amounts and keeps a tab so that the vendor is not get paid more than the total project or contract amount?
When the PO was generated at the beginning of the contract or project, it contains total project or contract amount. Whenever a partial invoice amount is raised by the vendor, system checks this contract or project amount (the invoices always have the referenced PO number attached to them) with the total invoice amount paid so far. If the invoice amount exceeds this total contract or project amount then system generates warning. The finance department (account payable clerk and account payable manager) can then decide what to do in that case.
Periodic billing payment method is used with scheduling agreements. The customer has an agreement with the vendor to supply material at fixed intervals. Here, the vendor may not be issuing invoices but he is still paid for the fixed quantity of material which is sending at fixed intervals. This is done by referring the PO schedule lines which contain the delivery dates, price and material quantity. The delivery dates and material quantity are confirmed by the inventory management department. the finance department thus is able to make payments to the vendor. In this kind of arrangement no paperwork is involved. Also this arrangement saves a lot of time as no invoice verification is needed.