Why you Definitely Should keep an eye on Your Payment Terms – Guest Blog

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Leading experts from a variety of fields bring their insights to the equation by providing guest commentaries on our Security Blog. This guest commentary comes from Zapliance, a German partner that focuses on SAP Audit.

Deducting cash discounts for incoming invoices is one of the easiest ways to save costs in the company. For this to work successfully, payment terms must be maintained correctly and promptly in SAP. In this blog post, I would like to show you how to analyze payment terms using data analyses to investigate whether discounts are not being used.

One or two percent discount does not sound like much, right?

Yes, Right.

But as every business owner knows: There can be no better form of “financial investment” than making use of cash discounts as a form of supplier credit.

Why?

Because the one or two percent discount is not being offered over one year, but over a period of just a few days, often 20 or 30 days. Now calculate how much that is worth over a whole year! In times of low interest rates, that’s better than any other form of investment you can think of.
But in larger companies, where you may be dealing with hundreds or thousands of invoices, it is important to keep track of things and ensure you pay on time.

So how do you go about making sure this happens? In the master data, the payment terms of your vendors should be maintained properly, so that the payment can enter the payment run automatically and cash discount can be used.

After studying this blog post, you will know:

  • how payment terms and conditions are organized in SAP
  • how to find suppliers with poorly maintained payment conditions in SAP

Why are payment terms missing in the SAP vendor master data?

Missing payment terms are often the result of poorly maintained master data due to lack of information or motivation in the master data department. If the vendor master data is not properly maintained with regard to the payment terms, then such vendors cannot automatically be proposed for payment in SAP.

How do you prevent payment terms from being missing in vendor master data?

A complete overhaul of master data should be carried out in accordance with a well-thought out set of internal company guidelines for master data management (master data governance), which contains clear instructions on how to maintain payment terms.

Furthermore, it would conceivably also be technically possible to define the data fields for the payment condition as mandatory fields in SAP, so it is simply no longer possible to maintain master data without a payment condition being entered.

How to recognize bad payment terms in SAP?

In SAP, payment terms for vendors are not regularly maintained individually, but payment conditions are first created as a master record, and the vendor master record then contains a reference to the payment condition master record. In this way, you have a good overview of the existing payment terms. In a payment condition, you can maintain up to three periods:

  • A first period for cash discounts of x%
  • A second period for cash discounts of y%
  • And a third during which the invoice is payable without deduction.

Suppliers with poorly maintained payment terms can now be defined as follows:

  • A vendor master record has no reference to a payment condition
  • A vendor master record has a reference to a payment condition, but the payment condition itself is in some way contradictory. Terms of payment are, for example, contradictory if payment periods of 0 days are maintained and positive discount percentages have been stored for these payment periods. In practice, such discount groups can never be used at all!

How to obtain data for an analysis of the payment terms in your vendor master data?

If you want to analyze payment terms for your vendor master data in SAP, you need the necessary data structures and data from your SAP system. zap Audit automatically extracts all the necessary data from your SAP system. You can learn more about zap Audit here.

How do you perform an analysis of the payment terms in your vendor master data?

In what follows, we will evaluate all suppliers with poorly maintained payment terms.

Step 1: Create a list of suppliers with poorly maintained payment terms

Create a list of suppliers with poorly maintained payment terms.

The SQL query used for this purpose examines all vendor master records (LIFNR field) in table LFB1 (vendor-specific vendor master data) and checks whether a reference to a payment condition exists at all (ZTERM field).
At the same time, it also checks whether the payment condition is appropriately maintained. In the present case, a payment condition would not be meaningfully maintained if all payment periods were maintained with 0 days (ZTAG1, ZTAG2, ZTAG3 fields), but with discount percentages of > 0% defined (ZPRZ1 and ZPRZ2 fields). Because this would mean that one could, in theory, benefit from a cash discount, but that in practice there is no meaningful payment period in days, which could actually be used.

MANDT BUKRS LIFNR ZTERM ZPRZ1 ZPRZ2 ZTAG1 ZTAG2 ZTAG3
100 3000 0000002358 ZB05 3.000 0.000 000 000 000
100 3000 0000403619 ZB05 3.000 0.000 000 000 000
100 3000 0000002558 null null null null null null

If you would like to obtain the SQL Query for this analysis, please download the zapliance ePaper here.

In our example above, we find out that the payment condition ZB05 (ZTERM) has been stored for the vendors (LIFNR) 0000002358 and 0000403619. This payment term is, however, badly maintained, since 3% discount has been stored for the first discount period (ZPRZ1), but the period is 0 days (ZTAG1). There is simply no time for the 3% discount to be used. For vendor 0000002558, you can see that a payment condition has not been stored at all (value null).

Step 2: Audit the suppliers with poorly maintained payment terms

Go through the list from step 1 with the department and clarify why payment terms have not been maintained properly or have not been maintained at all.

If you want to read more about payment terms in SAP, your own payment behavior, or cleaning up your vendor master data click here.

Zapliance - Dennis Jürgensen

Zapliance is a German partner that focuses on SAP Audit.