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SAP Procure to Pay Process Overview

The SAP Procure to Pay Process is a comprehensive procedure for purchasing materials and services from external vendors, starting from creating a Purchase Requisition (PR) to making payment to the vendor. It involves several key transactions including RFQ, Purchase Orders, Goods Receipts, Service Entries, and Invoice Handling, all aimed at ensuring efficient procurement and financial accuracy. This process is essential for meeting the procurement needs of various departments within a company while maintaining budgetary controls and supplier management.

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17 views10 pages

SAP Procure to Pay Process Overview

The SAP Procure to Pay Process is a comprehensive procedure for purchasing materials and services from external vendors, starting from creating a Purchase Requisition (PR) to making payment to the vendor. It involves several key transactions including RFQ, Purchase Orders, Goods Receipts, Service Entries, and Invoice Handling, all aimed at ensuring efficient procurement and financial accuracy. This process is essential for meeting the procurement needs of various departments within a company while maintaining budgetary controls and supplier management.

Uploaded by

455108602
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

1.

3 SAP Procure to Pay Process

We continue our SAP MM training course and this tutorial will provide an introduction and
detailed overview of one of the most fundamental processes in procurement and in SAP MM
module: SAP Procure to Pay Process. This process is also known as an External
Procurement Process.

SAP Procure to Pay process is required when we need to purchase materials/services from
an external vendor for our company. This process includes all the business tasks starting
from a purchase requisition (PR) and finishing with payment to the vendor.

The events that determine the start of this process are related to:

 Material requirement planning (MRP) from Warehouse Management to ensure minimum


material stock and tools quantities in the warehouse.
 Plant Maintenance materials, tools, external resources, services plans to procure all the
resources needed to manage Plant Maintenance in a proper way.
 Other procurement needs coming from departments of a company.

To start the process, it is necessary to create a Purchase Requisition (PR), a document


that allows people working in various departments of a company to specify the goods or
resources that have to be purchased. The process ends when the payment to the vendor is
booked. Here is a graphical overview of the external procurement process in SAP:

SAP Procure to Pay Process Diagram. Other*: requirements planning raised outside SAP

Overview of SAP Procure to Pay Process


The Procurement Department can satisfy purchasing requirements of other departments of a
company by issuing:

 A Purchase Order: in this case an RFQ (Request for Quotation) process first is needed.
 An Open Contract: in this case, in addition to the RFQ process, the purchasing task is
finalized by means of the Purchase Order referred to the Open Contract.

The RFQ process is always carried out by the Procurement Department before issuing a
contract. Usually the ultimate aim of this phase is to select a supplier among several of them,
in relation to the goods or services to be purchased.

A Goods Receipt allows the warehouse of department who ordered purchases to certify the
received quantity of goods while a Service Entry allows them to certify the acceptance of
services. Both tasks are performed only in relation to a Purchase Order/Contract Release
Order.

The following sub-process, which name is Invoice Handling, contains the tasks to match the
invoice to the Contract Release Order or the Purchase Order. It contains also the tasks
needed to check the invoice data against the Contract Release Order or Purchase Order
data, such as quantity and values by each position.

The last task is related to the recording of a vendor’s payment.

Transactions in SAP Procure to Pay Process


SAP procure to pay process utilizes the following transactions and documents in SAP ERP.

Purchase Requisition

Purchase requisition is an internal document which is issued/created whenever the goods


(stock/non-stock) and/or services are required. Several types of document will be available to
be used. SAP system checks automatically various parameters like budget availability and
requires an approval workflow for the requisition mainly based on its value and internal
delegation of authorities, as well as other technical parameters (like item category or
purchasing group). The requisition created in the system can also be revised if needed.

How to call this transaction

 SAP Transaction Code: ME51N


 Menu: Logistic -> Material Management -> Purchasing -> Purchase Requisition -> Create
SAP Menu Path to Create a Purchase Requisition

Request for Quotation (RFQ)

RFQ is required when you don’t know your vendor and need quotations from several vendors
for a material/service. It is the complete set of process that is triggered once a purchase
requisition has been received. Requisition line items can be grouped together in the same
RFQ process. Once the quotations are received from your vendors, you maintain the records
in SAP system thus changing the RFQ document to a Quotation.

How to call this transaction

 SAP Transaction Code: ME41


 Menu: Logistic -> Material Management -> Purchasing -> RFQ/Quotation -> Request for
Quotation -> Create
SAP Menu Path to Create a Request for Quotation

Open Contract

Open contract is a general agreement with the vendor for a given period of validity with
agreed price list. With reference to the same contract multiple Contract Release Orders can
be generated until it is expired or outstanding value is available.

How to call this transaction

 SAP Transaction Code: ME31K


 Menu: Logistic -> Material Management -> Purchasing -> Outline Agreement -> Contract -
> Create
SAP Menu Path to Create an Open Contract

Purchase Order

Purchase order is an agreed upon official document from the customer to vendor for
customer’s intent to buy or receive one/multiple materials with agreed prices, lead
times/delivery dates, quantities and specifications. The budget commitment is automatically
created. Tolerances for goods and unplanned services can be foreseen.

How to call this transaction

 SAP Transaction Code: ME21N


 Menu: Logistic -> Material Management -> Purchasing -> Purchase Order -> Create ->
ME21N – Vendor/Supplying Plant Known
SAP Menu Path to Create a Purchase Order

Contract Release Order

Contract Release Order is an agreed upon an official document from the customer to the
vendor regarding the customer’s intent to buy or receive one/multiple materials with agreed
prices, lead times/delivery dates, quantities and specifications and it is created with reference
to an Open Contract. The budget commitment is automatically created. Tolerances for goods
and unplanned services can be foreseen.

How to call this transaction

 SAP Transaction Code: ME21N


 Menu: Logistic -> Material Management -> Purchasing -> Purchase Order -> Create
ME21N – Vendor/Supplying Plant Known
SAP Menu Path to Create a Contract Release Order

Goods Receipt

Goods Receipt is the step in the procurement cycle where the actual goods ordered via a
Purchase Order/Contract Release Order are received by the company and it is checked for
the required quality / quantity. If the goods quality meets the required criteria, a Goods
Receipt transaction is posted in the SAP system with reference to the Purchase Order /
Contract Release Order. This transaction has dual effect of changing the stock quantity (for
entered materials) and at the same time entry in the financials module is also passed for the
debiting the stock against the payables to the vendor.

How to call this transaction

 SAP Transaction Code: MIGO


 Menu: Logistic -> Material Management -> Inventory Management -> Goods Movement ->
MIGO

SAP Menu Path to Post a Goods Receipt

Service Entry

Service entry certifies that the requested services from the Purchase Order/Contract Release
Order have been actually delivered/rendered. A confirmation with the required parameters is
entered on the service entry sheet which is then routed via a workflow to the required levels
for confirmation and the final approval.

How to call this transaction

 SAP Transaction Code: ML81N


 Menu: Logistic -> Material Management -> Service Entry Sheet -> ML81N Maintain
SAP Menu Path to Perform Service Entry

Invoice Handling

The process is triggered whenever a vendor invoice received for the purchases is to be
entered in the SAP system. The invoice entered initially is considered to be in the “Parked”
status, which means that no financial entry or posting has been done and the invoice details
exist in the system for record keeping and further approvals. At this stage a “3 way check” in
the standard SAP system is triggered in which the invoice received is checked automatically
versus the reference purchase order and the good receipt document for the accuracy of
price/quantity. Any discrepancy observed here can be adjusted for variances and disputed
amounts. The invoice can be put on a status of block for payment. Once the invoice is
approved via the defined workflow in the SAP system, the invoice can be actually posted. It is
usually done by the responsible person in the Accounts Payables department of a company.
The process usually overlaps joint functionality in the MM and FI modules.

How to call this transaction

 SAP Transaction Code: MIRO/MIR7


 Menu: Logistic -> Material Management -> Logistics Invoice Verification -> MIRO/MIR7
Enter Invoice
SAP Menu Path to Enter an Invoice from the Vendor

Payment

If the invoice is approved via workflow, the last step in the cycle of purchasing is the payment
to the vendor. This is done by entering a transaction in the SAP system called the “Automatic
Payment Run”, which is usually triggered periodically based on the payment terms / due
dates as mentioned in the purchase order. The result of the payment run can be a check
printed via SAP for the intended vendors or the results of the payment run can be exported to
external systems for online banking portal via which the vendor payments are transferred
electronically.

Common questions

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Organizations gain several tactical advantages from SAP’s RFQ process when dealing with new suppliers, including the ability to compare multiple offers simultaneously, which fosters competitive bidding and potential cost savings. The process effectively influences supplier negotiations by leveraging detailed quotations to negotiate better terms and conditions, fostering transparency, and building stronger supplier relationships .

The Automatic Payment Run facilitates prompt vendor payments by executing transactions in the SAP system aligned with payment terms and due dates noted in purchase orders. Integration with external systems allows electronic transfer of payment information, enabling checks to be printed via SAP or exported for online banking, thus streamlining the payment process and ensuring timely vendor compensation .

The Open Contract system streamlines procurement by establishing long-term agreements with vendors that include a valid period and predefined price lists. It allows multiple Contract Release Orders to be created against the same contract, as long as the contract remains valid or has available value. This provides efficiency in procurement operations by reducing the need for repeated negotiations, leading to more consistent vendor management .

Using the SAP system for tracking procurement transactions significantly enhances a company's inventory management by ensuring real-time updates in stock levels upon goods receipt. It also supports financial management through seamless integration with financial entries, allowing automatic budget commitments and accurate reflection of liabilities, thus facilitating strategic decision-making processes and optimizing operational efficiencies .

The initial steps in the SAP Procure to Pay process include the creation of a Purchase Requisition (PR), which is an internal document required for goods or services. This ensures alignment with organizational needs as it allows various departments to specify what is needed and requires the SAP system to check budget availability. The approval workflow based on the requisition's value and internal delegation of authorities further ensures the alignment with budget constraints .

SAP's purchase requisition workflow supports procurement governance and compliance by enforcing budget checks and approval workflows based on requisition value and authority levels. The system ensures that all procurement requests pass through necessary scrutiny and align with internal policies, thereby maintaining governance standards and compliance with financial guidelines .

Mismatches between invoice and purchase order data are handled through the "3 way check" process. If discrepancies are found between the invoice, purchase order, and goods receipt, SAP sends alerts, allowing for necessary adjustments in case of variances or disputed amounts. This mechanism ensures data integrity and prevents inaccurate financial entries or payments .

The "3 way check" in SAP's Invoice Handling process is significant as it automatically verifies the vendor invoice against the purchase order and the goods receipt document to ensure all price and quantity details match. This process is crucial for maintaining purchase order accuracy and stronger financial controls by identifying discrepancies early, allowing adjustments for variances, and preventing wrongful payments .

Goods Receipt and Service Entry sheets play a critical role in ensuring accountability and quality control by verifying that the received goods and services meet the specified quality and quantity. The Goods Receipt is posted in the SAP system, affecting stock quantities and financial entries. The Service Entry certifies delivered services through a detailed sheet routed for confirmation and approval, ensuring organizational accountability and adherence to procurement agreements .

The RFQ process helps in supplier selection by allowing the procurement department to gather quotations from several vendors for a material or service when the vendor is not pre-determined. This process is crucial as it helps in evaluating and maintaining records of various supplier quotations, which eventually gets recorded as a Quotation in the SAP system. This phase ensures the selection of the most suitable supplier in terms of cost, quality, and delivery time .

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