SAP Order-to-Cash Cycle—FI-SD Integration

and Configuration

What Is SAP Order-to-Cash?

Order-to-Cash is an integration point between Finance (FI) and Sales (SD). It is also known as OTC
or O2C in short form. It is a business process that involves sales order from customers to delivery
and invoice. It comprises SO, Delivery, Post Goods Issue (PGI) and billing to customers. OTC
process is a very important process in Enterprise Resource Planning software(ERP Software). Both
major ERP software SAP and Oracle include this process.

Its configuration touches both Finance and Sales & Distribution modules.This is an end to end
process from customer Inquiry to goods delivery, billing and payment of money. The process starts
when a customer inquires for an inventory item (finished goods for a company). The customer gets
quote for the item and place an order for the quantity needed. A user from company place the order
and pass it for processing. Inventory gets picked up from warehouse and shipped to customer.
Billing process also starts with delivery and it can be sent with the item or later. This is an overall
OTC scenario in general.
This process gives integration between customer master record, sales organization, sales offices,
distribution channels, divisions and plants.
Here in this article, we are going to discuss the steps in details.

SAP Order-to-Cash Process

SAP OTC Process Flow
SAP OTC is a process involved customer sales order creation and satisfying customer requirements
via delivery.
Prerequisites are customer master record is set up, sales area (sales organization, divisions and
distribution channels) was set up already.

Generally steps are as follows:

 Customer Inquiry
 Quotation for customer inquiry
 Sales Order creation
 Post Goods issue (PGI)
 Delivery
 Billing- Bill sent to customer
 Receipt of money- Customer Payment
The First two steps that are inquiry and quotation may or may not happen. A new customer may
inquire and ask for quotation but an old customer may not inquire. Moreover, if you have contracted
agreement to sell products at a certain price than customer will directly order without quotation.
Now, let's see what is the impact on the accounting entries for this cycle steps. Each step has it's
own different configuration these steps used in business workflow.As I mentioned earlier, this
process involves many different organizational levels. Most important organizational levels in this
process is Company code, sales organizations, distribution channels, divisions and plants.
SAP OTC Sales & Distribution
OTC Process Steps Transaction Code Accounting Entries

Inquiry VA11 No

Quotation VA21 No

Sales Order VA01 No

Post Goods Issue (PGI) VL01n Yes

Delivery VL01n Yes

Billing VF01 Yes

Receipt of Money FB50 Yes

Business Process Associated With SAP

Order-to-Cash Configuration
This is an imported integration in SAP landscape. Here are the configuration steps in details. Its
configuration happened in transaction code OBYC.

 Inquiry : A customer inquire about the product price and service. This is a very starting point of
OTC process. This process does not have any effect on general ledger accounts and do not
have any accounting entries. Once a customer creates inquiry, an inquiry number is generated.
Inquiry is created by transaction code VA11.
  Quotation: Quotation is a price quote given to the customer. A quotation follows inquiry steps.
A quotation can be created via inquiry or without inquiry reference number. A quotation is
created by transaction code VA21.
 Sales: According to some SAP experts, Sales order is actually the first step of OTC process.
After inquiry and quotation, once it's gets created. Sales order can be created with reference of
quotation or without reference. It does not make any accounting book entry and it does not
make any change in General Ledger accounts. It is just a commitment to deliver goods to the
customer. SO can be created with transaction code VA01.
 Post Goods Issue: Post goods issue is the steps where goods are being picked by
warehouse, packed and shipped to the customer's given shipping address as per the sales
order. We have accounting entries as inventory is being credited against the cost of goods
sales (COGS) debited. General ledger accounts associated with the cost of goods sales and
inventory is affected respectively.
 Delivery: Delivery follows post goods issue (PGI).Delivery is the actual fulfillment of goods to
the customer shipping address. At delivery stage, we have accounting entries in the books. At
this stage, we debit revenue account and credit customer account. Transaction code for
delivery is VL01n.
 Billing: At billing stage, we send the bill to customer for the goods delivered. We have
accounting entries at this stage where we debit customer and credit cash account. Transaction
code for billing in SAP is VF01.

Management and OTC Process

Order management is an important part of SAP Finance and Sales integration. This process also
known as SAP OM in short. It is an administrative process. It automates order processing and
seamless integration of data among different modules. OM includes customer master database,
customer returns and refunds, billing information, shipping information, payment terms, payment
conditions and other information related to OTC process.

OM along with the OTC process provides improved sales cycle and easy handling of goods and
efficient order processing. It is an important process in retail, health care, telecommunications and
customer oriented industries.

Accounting entries starts from PGI (Post Good issue) that is when Goods are shipped out of
Inventory.
That is the first step of accounting entry:

Dr. Cost of Goods Sold A/c

Cr. Inventory A/c

When Delivery Happened the entry is like

Dr. Revenue A/c

Cr. Customer A/c

Once Delivered the product we are sending the invoice along with Delivery or may be later also we
can send the invoice to the costumer in this case the entry is like
Dr. Customer A/c (Accounts Receivable)

Cr. Sales A/c

Because customer is receiving the bill right..

Than last but not least in the OTC Process ends with the Payment so the entry will be generated like
Dr. Bank Account A/c

Cr. Customer A/c (Accounts Receivable)

because customer is sending money to business