EIGHT METHODS TO PAY VENDOR IN SAP

Each company needs to pay its suppliers. It is usually payments for vendor invoices.
And, of course, company needs to account for its liabilities and payments.

Of course, SAP is here to help. It has options to generate payments without invoice
registration, even without creation of a vendor master record. But this is a rare case.
More often, payments are generated against invoices, which are posted on vendor
accounts.

There are several options to post an invoice into SAP. Are there several options to
pay the vendor?

Yes, there are.

Let’s list them, more or less trying to keep the chronological order.

Cash
You may wish to pay the vendor in petty cash. These are usually small amounts, but
some processes may still require physical bank notes and coins to be present on the
table.

SAP gives you transaction FBCJ – Cash Journal to register petty cash transactions,
both incoming and outgoing.
Transaction FBCJ
Cash Journal transaction was deliberately made simple by SAP. It does not have
any clearing facilities in it. If you want to clear petty cash payment against an invoice,
you need to do so separately as a consecutive step, for example with transaction
code F-44.

Cheque
Cheques (or checks like they call them in some countries) are now extinct in most of
the countries where they were in use. But some countries like United Kingdom, India
or USA fail to get rid of cheques time after time, because some of the wide variety of
processes that people use in everyday life are dependent on cheque payments.

With SAP, you have the option to print out a cheque either with Automatic Payment
Program (F110) or manually with transaction F-58.
Transaction F-58
When a cheque is generated, the vendor invoice gets cleared in SAP.

If you print out cheques from SAP, you are likely to need a printer of a special type
with magnetic ink cartridge. Also, most cheques require a special MICR font to be
used on them.

Letter of credit
Letter of credit is a bank instrument that allows both parties to be sure that the
vendor is only paid when he fulfills the contract conditions. It is especially important
in bulk international trade, where contract conditions are complex and amounts are
large. Letter of credit itself is issued by a bank and sent to the vendor. Vendor sends
back to the bank a confirmation of contract execution, for example Bill of Lading,
after which the bank makes the transfer and charges the customer’s bank account.

As you can understand from this, you cannot generate Letters of Credit from SAP.
What you can do though is to mark the vendor or a specific document as eligible for
LC payment, thus avoiding duplicate payment by more usual methods. Once the
bank informs you about the payment made, you can clear the vendor invoice via
transaction code F-53.

Paper Payment order

You can generate a payment order for the bank, which can later be physically sent to
the bank for execution.

SAP can generate payment order forms and send them to the printer as a part of the
Automatic Payment Program (F110) process.

Normally, vendor invoice is immediately cleared in SAP when a payment order is

generated. But there is a special configuration of APP that allows generation of
payment orders without postings, thus without clearing. Bear in mind that if a
payment order is generated against the invoice, this invoice can only be searched in
the usual clearing transaction via a reference to that payment order.

Manual electronic transfer

You may transfer money to your vendor account electronically using the on-line
facilities of the bank. There is always an option to make an individual manual
payment.

Of course, you need to record that payment in SAP. Transaction F-53 is the best
way to do so. It also gives you an option to clear the invoices if they are paid.
Transaction F-53

File electronic transfer

Most banks nowadays are happy to accept payments via files. It gives you and the
bank an opportunity to process payments in bulk.

You can generate payment files via Automatic Payment program (transaction F110).
Similar rules to clearing of original invoice that we mentioned in the Paper Payment
Order section above apply here. There are different file formats in use. Some of them
are bank-specific, some of them are country-standard, and some of them are
standardized by global organisations (SWIFT, ISO). You need to agree on the file
format with your bank.
The agreed file format can be either one of SAP pre-configured, or you need to
create your own DMEE tree for that.

Once the file is generated, you have several options of transmitting it to the bank.

• You can extract the file to your local drive and then upload to the bank software or
internet site.
• You can run an automatic job to extract the file and move it to the location where bank
software can reach it. In this case, you need to remember that payment files are stored in
SAP in the logical filesystem TemSe. You need to extract them from TemSe first.

Direct Debit
Direct Debit is an option in some countries that allows vendor to charge customer’s
bank account automatically. Of course, Direct Debit has to be set up first, thus
informing the bank about customer consent for charges from that vendor.

If you set up Direct Debit for the vendor, you need to mark vendor master record or
specific invoices from it so that these invoices are not picked up by a normal
payment procedure. The most obvious way to do so is putting a Payment Block
against the vendor or invoice.

Once direct debit is processed through the bank, you can clear invoice against the
bank transaction using bank statement transaction FEBA or FEBAN, or using a
universal tool like F-53.

Another option to deal with Direct Debits is not to register DD-relevant invoices in
SAP at all, if your local legislation allows that. Once the charge is processed by the
bank, you can allocate these charges directly to a P&L account.

IDOC
IDOC is a vehicle of data exchange between two enabled systems, or even within
the same system. SAP Expert wrote earlier about usage of IDOCs for master data
alignment and vendor invoice posting.

IDOC also is a more advanced way to transfer information between the computer
systems of the bank and bank’s customer. To a certain extent, IDOC is another file
format. We discussed the way to generate files from SAP earlier. The same rules
apply here, with the exception that you don’t have an option to upload IDOCs
manually to the bank software. Instead, you need to configure a communication
channel between your SAP system and bank systems.

Using IDOCs, you can send to the bank not only the electronic funds transfer
information. Some banks give you an option to send information for the cheque
payment, thus outsourcing the printing function.

PAYEXT is the most used IDOC message type that can be used for data exchange.