SAP helps companies to procure services with optimizing the collaboration between involved business partners and the invoicing with specific requirements like advance payment, stage payment, cumulative values, retention handling.
SAP JAM is a secure, social network solution to collaborate with your business partner in the cloud. It helps to connect contractors with subcontractors with information and processes in the cloud to accelerate business and drive results. It protects corporate data with secure social collaboration. It empowers employees to find internal subject matter experts and collaborators quickly. It helps teams tame project chaos, build consensus, solve problems, and improve decision making.
The application Debit-Side and Credit-Side Down Payment Chains helps companies to easier manage the invoicing with construction specific requirements like advance payment, stage payment, cumulative values, retention handling, and additional costs.
This blog focusses on the business process to procure of services from subcontractor. The main aspect is the optimization of the execution and the invoicing.
Collaboration in Procurement Lifecycles
The continuous collaboration in procurement lifecycles optimizes business results. Collaboration, based on SAP JAM, helps business partners exchange information like documents and drive decisions and share news. It could replace the communication by mail. The knowledge sharing via SAP JAM helps to remove bottle necks of key employees. Members of a group have access to the information at the time they require them and are enabled to fetch the latest information at the time they are available. All members of the group can share issues and help to solve them.
Virtual private workspace, for members of the own company and members outside the own company such as subcontractor or architects, ensure open dialog, foster innovation and get optimized results. Virtual private workspace allow easily pull in with members to resolve exceptions, scure approvals, generate ideas, manage tasks or review performance. Blogs can be used to inform all members involved in the procurement cycles about news and issues. Task with deadlines and assignment to members allow the handling of issues or review performance. Ideas, discussions and polls enable the project team to generate ideas and solve issues in a short time. The document collaboration reduces email, increase the dialog and speeds revisions. Legal documents, qualifications and construction plans can be shared. Project members have easily access to the latest version of the document and the history.
End-to-End Solution – Invoicing with Subcontractors
The application Debit-side and Credit-side Down Payment Chain consider invoicing aspects for services like advance payment, stage payment, cumulative values, retention handling and additional costs.
Benefits for invoicing using credit-side down payment chains are:
- It allows companies to manage their relationships with subcontractors and suppliers.
- Credit-side down payment chain collect various business transactions like advance payment, several partial invoices, corrections to postings for the final invoice and offset of advance payment.
- Invoices are based on progress and can be entered cumulative.
- Retention handling: The general contractor retains a certain amount of requested invoice amount of partial invoices and final invoices.
- Additional Cost handling: The general contractor provides for the subcontractor services like water or electricity on the construction side.
- Allows to monitor payables for subcontractors or vendors and to gain information on past and future outgoing payments.
The Credit-Side Down Payment Chain offers two business processes. The first option is to start the business process from purchase order. The agreement between the business partners is represented by purchase order with externally performed services and the contract of credit-side down payment chain. The completed work can be recorded in the service entry sheet. This is an optional step. When it is executed the system offers the option to check the invoice amount against the amount of the released service entry sheets. The invoicing takes place in the credit-side down payment chain. Possible transactions are advance payment request, partial invoices, final invoice and corrections. The purchase order history and the commitment are updated when a posting takes place in the down payment chain. The payment of the open payables is done with FI transactions. The posting can be done automatically or manually, depending on the transaction that you choose to use. You can use transactions such as F-53 (Post Outgoing Payment) and F-52 (Incoming Payment) to post the invoice manually. Alternatively, you can use transactions such as F110 (Payments), F110S (Schedule Payment Program Periodically) to post the payments automatically.
The second option is to start the business process from contract of the credit-side down payment chain. The agreement between the business partners is represented by the contract of credit-side down payment chain. The invoicing takes place in the credit-side down payment chain. The payment of the open payables is done with FI transactions.
For both options two main transactions – /SAPPCE/DPCK01 Credit-Side Down Payment Chain and /SAPPCE/DPC_LIST_K Credit-Side Down Payment Chain-List – offered to the user to maintain the contract of the down payment chain, create posting, and monitor the payables for subcontractors.
The transaction /SAPPCE/DPCK01 Credit-Side Down Payment Chain enable the user to maintain the contract specific requirements for construction invoicing like retention different payment terms for partial invoices and final invoices, create new postings like advance payment request or invoice, and detailed overview on different level to monitor key figures like invoice amount, retention amount, and payments.
The register Transaction enables the user to an overview of important key figures including payment for each transaction such as advance payment, first partial invoice, and final invoice.
One transaction consists of several accounting documents e.g. a transaction for partial invoice consists of an invoice and the corresponding payment. This enable the user easily review the key figures like requested amount and paid amount for each transaction and whole order.
The second transaction for credit-side down payment chain – /SAPPCE/DPC_LIST_K Credit-Side Down Payment Chain-List – enables the user to monitor key figures for several credit-side down payment chains. The user can monitor all down payment chains for one project or all down payment chains for a subcontractor.
Internally the controlling and management is done usually by means of a project (PS = Project System). A project with at least one work breakdown structure (WBS) element which is defined as an account assignment element can be used in the purchase order as an account assignment object. Instead of a project one of the following cost controlling objects can be used:
- Network or activity
- Cost center
When a posting is entered the system proposes the proportion of the account assignment from the definition of the contract or the released service entry
sheets. The user can divide the assignment to the account assignment objects entered in the contract. The system allows the user to enter a percentage or amount.
Service Entry Sheet
The actually performed services by the supplier are entered in a service entry sheet. The service entry sheet can handle planned and unplanned services. The general contractor controls the service confirmation of the supplier and accepts it. The accepted service entry sheet is the basis for the process of invoicing. Especially in Self-Invoicing processes the accepted service entry sheet support the creation of postings. If user interface does not fit to user requirements, BAPIs or services are available to create own UI.
Contracts in construction industry frequently include retention clauses. This allows the customer/contractor to hold back a proportion of the contract price once the work has been completed, pending confirmation that the subcontractor has done the work properly and has rectified any immediate faults that might be found. The retention clauses are defined in the contract on a percentage of the contracted work. Different retentions are agreed for interim payments and final payments such as guaranty or warranty.
Retentions for partial invoices are released when creating a final invoice. In some cases retentions of partial invoices are released with the next partial invoice. The retentions for final invoices are released after a defined guarantee period. Special retentions are entered in the invoice due to quality defects or
incorrect invoicing of the subcontractor. They are not defined in the contract between the general contractor and the subcontractor. They can be released with the next invoices. When the user enters a posting, the system proposes amount of retention based on the defined contractual retentions. User can adapt the retention amount by entering a percentage or amount. User enters special retention amount as a percentage or amount to hold money back due to specific circumstances.
In the Customizing you can define the base for the retention calculation: net value or gross value. Also you can define default retentions and values which
are considered at the time the contract is created.
When the general contractor provides for the subcontractor services like water or electricity on the construction side, general contractor and subcontractor defines additional costs in the contract as a percentage of the invoice amount. For example the invoice amount will be reduced by 0.1%. This mean the payable item for the subcontractor is invoice amount minus 0.1%.
In the Customizing you define the additional cost and how it influences the posting:
- Definitionof net amount as base amount
- Post additional cost category as expense or revenue
- Define the rule when additional cost is considered in the posting: proportional foreach posting or only from final invoice
- Define G/L account for posting
Contractual additional costs entered as a percentage for postings and account assignment objects.
When the user enters a posting, system proposes amount of additional costs based on the defined contractual additional costs. The user can adapt the additional cost by entering a percentage or amount. User enters special retention amount as a percentage or amount to hold money back due to specific circumstances.
Advance payments are for pre-financing and are offset by the subsequent partial invoice. The system does not calculate retention amounts and additional costs. Advance payments only affect payment. They do not affect revenues. The advance payment request is maintained in the credit-side down payment chain. The payment is done with FI transactions like F-48.
The user enters the amount of advance payment cleared with partial invoice.
When the user creates the final invoice the system clears all advance payments.
How to handle tax related issues
In some countries, taxes are not recognized when an invoice is issued, but when a payment is made. In SAP ERP the Deferred Tax helps to enable the legal requirement.
The German law is supported. In Germany the reporting time depends on the existing of the final invoice of a down payment chain. Before the final invoice is posted the reporting time is when the payment posting. After the final invoice is created the reporting time switch to the time of invoice posting.
The system also supports countries where the reporting time is always the time the payment is posted.
In many countries (Germany, Austria, France, UK, Nigeria, and so on) exists a legal requirements that the customer pay the tax for the supplier directly to the local authority. The supplier receives the payment without the tax amount. The supplier doesn’t have to pay the tax to the local authority. In SAP ERP the Extended Withholding Tax helps to enable the legal requirement.
Customer Specific Enhancements
The application Down Payment Chain provides the following options to adopt the application to company specific requirements:
- Customer specific enhancement for contract
- Business Add-In allows own checks before saving the contract
- Business Add-In allows customer specific register
- Customer specific enhancement for posting
- Business Add-In allows own checks before saving the postin
- Business Add-In allows own document types for partial invoices, final invoice, correction and advance payment
- Business-Add-In allows to enrich the accounting document
- Business Add-In allows customer specific subscreen in posting screen. SAP has delivered a default implementation.
- Customer specific enhancement for lists
- Business Add-In allows additional fields in list of down payment chain, transactions and documents. This offers the possibility of own key figures.
How to Activate the Application
The application Down Payment Chain is part SAP ERP belonging to software component EA-APPL from EhP2 (Enhancement Package) to EhP6 and EA-FIN from EhP7. The application Down Payment Chain is an optional component. You have to activate the Enterprise Extension EA-FIN Financials Extension and
the Enterprise Business Function LOG_FI_DPC_MM_1 Enhancement for Down Payment Chain (EhP5). The subcontractor management process differs in various countries and also has legal requirements. You have to check if the localization is available for the specific business case (note 1021741 – Down Payment Chains: Release restrictions). If you want to use the application down payment chain in other countries, SAP offers the pilot note 1679235 Pilot SAP Note: Release down paymt chains for all countries. Please request the assignment of your customer number to the pilot note via a customer message of component FI-AF-DPC.
SAP for Engineering, Construction & Operations offers the Business Process Procurement of Services and Settlement of Invoices with Down Payment Chain of the Scenario Subcontractor Management. The Configuration Description helps you to implement the application Down Payment Chain. Today an un-valuated service entry sheet is supported.
For more information about Down Payment Chains see SAP Help Portal at http://help-sap.com > SAP ERP > Financial Accounting > Accounts Payable > FI Accounts Receivable and Accounts Payable > Debit-Side and Credit-Side Down Payment Chain.