Payment term is a part of accounts payable component that helps you keep track of your payable amounts more effectively.
They play a vital role in identifying the exact payable amounts as on a particular date
Background Any business operates as you very well know on revenue. But procuring the material to sell is equally important. The money against material that we purchase has to be paid on a particular date which is decided upon mutually. It becomes very important to pay the vendor in time, else vendor may penalise for the delay in payment.
Definition A payment term is a key that contains configuration regarding calculation of date on which payment becomes due to the vendor based on certain prerequisites. The payment term calculates something called net due date which is nothing but the date on which payment is to be done to the vendor.
Use The payment term not just helps to keep check on the payment of amounts but also helps in drawing many trends like payment payable to vendors in next 30 days, 60 days, 90 days etc. In other words it helps to prepare Vendor Ageing report which assists business to draw a cash flow for future transactions.
Implementation Consideration IMG Path: Financial Accounting (New) > Accounts Receivable and Accounts Payable > Business Transactions > Outgoing Invoices/Credit Memos > Maintain Terms of Payment
Before we proceed further we must understand some of the basics of payment terms in order to configure the same:
Document Date This is the date of the document which is getting posted. This can be Vendor’s invoice date.
Posting Date This is the date on which document is getting posted in the system
Entry Date This is the physical date of the server on which document is getting posted in the system
Baseline Date This is a date, from which payment due date is getting calculated by adding the credit period
Net Due Date This is the date on which the payment becomes actually due for payment to vendor
Now we will go further to configuration of Payment Terms.
Given below is the screenshot of the standard payment term “0001” which comes with standard SAP. We will look into details of this payment terms
Payment Terms This is the code of Payment Terms that we want to create. You are advised to copy the existing payment terms and create new ones starting with “Z”. This will help you identify the payment terms to be followed by business.
Sales Text Description of terms of payment
Day Limit This is a special field which we miss many a times. Here we can specify the parts of the months based on which baseline date is to be calculated. For e.g. All the invoices raised by vendor from 1st to 15th of the month are to be paid within 30 days from 15th day. This condition is possible using Day Limit.
Own Explanation Explanation of the terms of payment which is different to the automatically created explanations.
Account Type Select if this payment term will be applicable in case of Vendors or Customers
Fixed Day Calendar day with which the system overwrites the day of the baseline date for payment of the line item.
Additional Months Number of months which the system adds to the calendar month of the baseline date for payment.
Block Key Default value for the payment blocking key. In addition to the default block key, we have an option to make the block key default by selecting the radio button just next to default payment block.
Payment Method The payment method determines how payments are to be made, e.g. by check, bank transfer or bill of exchange. Also just like Block Key, we have option to default the payment method as well.
Default for Baseline date SAP has provided following dates to consider for default date for baseline dates
No Default: In this case, the baseline date is to be entered during entry, select this option Posting Date: Select this option if posting date is to be calculated as baseline date Document Date: Select this option if document date is to be calculated as baseline date Entry Date: Select this option if entry date is to be calculated as baseline date
Installment Payment Indicator that the invoiced amount is to be broken down into partial amounts with different due dates
Set this indicator if several items with different due dates are to be generated from one line item when using this payment term. In order to make this indicator works, further configuration is required to specify which payment terms are to be valid for the resulting partial amount for each percentage rate.
Recurring Entries This indicator controls whether the terms of payment in a recurring entry are to be taken from the customer or vendor master record, if no terms of payment key has been entered in the recurring entry original document.
Cash Discount Percentage Cash discount percentage rate which is granted for payment within the specified period. This period is to be entered in the next column of number of days provided. We can provide only two cash different cash discounts in once payment term. If further break-up is required, use installment payment configuration.
Fixed Date for Cash Discount We can alternatively provide the fixed calendar day to calculate the cash discount percentage.
Additional Month Addition of month to the fixed date for cash discount calculation
Hope above explanation will help you configure Payment Terms. We will try to bring more insight on the same in coming days.