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Explore Alternative Payee Options

in Accounts Payable
by Martin Ullmann, Ariston Consulting
It is often difficult for users to determine which payee option best fits their needs. Learn about
all of the different options in detail, with comparisons and examples, so you can choose what
will work best for you.

R/3 and mySAP, SAPs Accounts Payable

(AP) applications, offer a variety of
options to process payments to alternative
payees. The most commonly known and
used option is the alternative payee
option, because it was the only option
available until R/3 Release 4.0. In this
release, SAP introduced two more options,
which allow more flexibility and functionality. Most customers, however, never
investigated these options for various
reasons, including not wishing to deviate
from established business processes.

If an alternative payee is entered, all payments to a vendor are issued to the alternative payee. If the alternative payee is
filled in both screens, general payment
transaction and company code-specific
payment transaction screen (Figure 2),

>> Key Concept

Within Accounts Payable,
payments are issued to
the address of the vendor.
Alternative payees are
used when payments have
to be sent to an address other
than the regular vendor address.

The currently available options are:

Alternative payee
Alternative payee in document
Permitted payee
Ill give you an overview of the different
options and then describe each option in
detail. I will also show you the implications on invoice entry, payment, and
reporting. The screenprints I use here are
from R/3 Enterprise 4.7, but the concepts I
discuss are relevant to all releases from 4.0
onward, including ERP Enterprise Core.

Figure 1 Alternative payee field in general payment transaction screen

Alternative Payee
The Alternative payee field is available
on the vendor master data screen on two
different screens: the general payment
transaction screen and the company codespecific payment screen of the vendor
(Figure 1).

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Figure 2 Alternat. payee field in company code-specific payment transaction screen

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the company code-specific payee has

priority.
Upon invoice entry (FB60), the user
cannot see whether an alternative payee is
assigned to the vendor. Since the vendor
address on the screen does not change, the
user has to go to the vendor master data
and verify that the correct alternative
payee is assigned to the vendor.
Otherwise, a payment can be issued to the
wrong payee address. This can be
awkward and time-consuming to correct
(Figure 3).
Figure 3 Invoice entry with alternative payee

Alternative Payee in Document

This option is similar to the one-time
vendor invoice and payment functionality
in AP. Here, however, the user has the
option to enter an alternate address or
bank information into the invoice,
whereas for one-time vendors, this information must always be filled in.

Figure 4 Vendor with Alternative payee in document allowed

To allow Alternative payee in document

information to be entered, the Individual
spec. box must be checked in the payment
transaction screen of the vendor master
data (Figure 4). Once the Alternative
payee in document information is
allowed for a vendor, the Individual
payee checkbox is available during
invoice entry on the Payment tab of the
invoice (Figure 5).
If you check the Individual payee box, a
new screen pops up that allows you to
enter alternative address or bank information specific to this invoice (Figure 6 on
the next page).

Figure 5 Invoice entry with payee in document

This option usually raises security concerns from an accounts payable department, because payments can be issued to
payee addresses different from the vendor
master data. You can mitigate these concerns by using payment blocks for
vendors with the option, Payee in document, allowed. You can do this by either
setting a payment block in the vendor,
which results in payment blocks of all

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invoices, or by blocking invoices via a

substitution using a business transaction
event (BTE 00001120). These invoices
have to be approved and unblocked by a
second user before payment issuance.
I usually recommend the use of the
Alternative payee in document functionality for payments to lawyers. Case or
settlement information is entered in the
second name line, allowing these items
to appear as required on the issued check
(Figure 6).

Permitted Payee
This option allows the assignment of
multiple permitted payees to the same
vendor. First, permitted payees need to
be assigned in the vendor master data
and then chosen during invoice entry.

Figure 6 Payee in document screen

Permitted payees can be assigned

in the general payment transaction
screen in the vendor master data, and
are therefore valid for all company
codes. As of Release ERP 2004,
permitted payees can also be companycode dependent.
Once you click on the Permitted payee
button, a second screen appears that
allows multiple permitted payees to be
assigned to the vendor (Figure 7). Once
the Alternative payee in document information is allowed for a vendor, the
Individual payee checkbox is available
during invoice entry on the Payment tab
of the invoice (Figure 8).

Figure 7 Assignment of permitted payees

The user must choose the correct payee

address manually from the permitted
payee list. Therefore, issuance of payments to the wrong payee address is
avoided far more easily than with the
alternative payee option.
From a security point of view, payee
addresses can be chosen but not changed,
limiting the need for additional payment
approvals. From a reporting point of view,
if invoices are entered with the Permitted
payee option, the alternative payee is

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Figure 8 Invoice entry with Permitted payee

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visible in the vendor line item display

(transaction FBL1N) only. Figure 9 lists
invoices posted with the three different
options. The Payee/er field is populated in
the third invoice only.

Recommendations
In all of the above examples, the payments are issued to alternative payees.
The main differences are in security and

reporting. I usually recommend using

payee in document and permitted payees,
because the users have to enter or choose
the payees deliberately. This suits the
needs of most companies. To use all three
options in combination is usually too confusing for users and is needed only when
alternative payee transactions must be
processed with automated invoice creation
processes. Examples include evaluated
receipt settlements or invoicing plans, for
which users cannot choose permitted
payees.

Figure 9 Vendor Line Item Display (FBL1N) shows invoices for all three alternate

payee options

Martin Ullmann has more than 10 years of experience with SAP R/3. He is a manager with Ariston Consulting, which specializes
on the high-tech, utility, and public sector industries. His main area of expertise lies in the FI/CO area, with focus on new components, integration, enhancements, and business process improvements. Martin can be reached via email at
Martin.Ullmann@Ariston-Inc.com.

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