Managing customer downpayments in SAP BusinessByDesign
Downpayments process refers to a business practice in which payment demand is raised before the service/delivery starts. Downpayments is pretty common practice in lot of industries and focus of this blog post is how can one manage a sales order or contract with billing schedules and create downpayments from order or contracts in schedules before the start of the billing cycle.This enables the user to raise payment demands on periodic basis rather than asking for full amount upfront.
Lets start with the problem statement and then we can see how to achieve this in the system
To describe how one can manage downpayments in ByD from sales orders
Key Features of Business ByDesign processes that we will be using
- Downpayments can be created from sales orders
- Billing schedules are also created in the same sales order
Gaps which we will cover with workaround
- No payment schedule for downpayments can be maintained in the order document unlike invoice schedule
Customers can use this to ask for an upfront payment for an order (in schedules or one time) and then move the revenue to P/L once actual customer invoice is issued for that service
Timelines in our example
- User creates a Sales Order of 1000 EURs and schedules the billing in 4 invoices covering the entire year
- User creates downpayment request from the sales order for first invoice amount before start of service.He sends this document to his customer asking for payment
- System posts Downpayment request as a statistical item in Receivables which can be cleared against the customer payment
- This makes G/L posting in balance sheet account
- At the end of 3 months system generates the customer invoice from this sales order .
- System automatically links this customer invoice with the DP that was created in the system in step
- The amount is now posting to P/L account at the time of posting of the customer invoice.
Lets gets started with creating this process in SAP Business ByDesign
Create Sales Order with Invoice Schedule
Here we create a Sales Order of 1000Eur (+tax).We also create invoice schedule in the sales order dividing the invoice schedule into equal parts per quarter. For this example each invoice is scheduled to be created at the end of the cycle.Dates can be modified as per billing schedule
Create Downpayment Requests from Sales Order
User can now create a downpayment on the date he wants the payment request to be created.In this example we want to send the downpayment at the start of the quarter before starting the service.
Create a downpayment out of the sales order by selecting the sales order and entering the required amount. User can automatically release this.
Please note here I am creating a downpayment request of a different amount than the invoice schedule is going to create.This is to showcase how system treats partial clearing of invoice with a downpayment.One can also create the full amount (250+tax in this case) by not selecting the “Net/Gross” indicator.In this case system will automatically add the tax amount to the downpayment request getting generated.
System will post this as a downpayment request. This can be sent to the customer to demand payment before the service starts.
This also makes a statistical item in receivables which can be cleared when customer makes the payment.
There is no G/L posting at this point.
Clear Downpayment request with a payment
Once the user receives the payment he can clear the Downpayment request and this creates a JE entry and posts to Balance Sheet Accounts.Taxes are active and will be picked in next return (this deviates from country to country, behaviors has been explained for EU countries)
Invoice Creation from Sales Order
On the date when invoice schedule has been set up in the sales order , system generates an invoice request. This can be either released immediately or merged with other invoice requests for this customer and sent as a single invoice depending on your configuration
Invoice Creation from Sales Order
System automatically assigns the paid Downpayment with this invoice.If the amount is fully covered by the downpayment then balance would have been zero but in this
Example downpayment received was less than invoice amount and hence a due has been created.
As explained previously you can also create a downpayment request which clears the full amount
Posting of the invoice
There are two posting system automatically creates in this scenario one by invoice and one by clearing.
Second one is clearing posting that system automatically creates as a DP was assigned to the sales order.
Hence amount moves from Balance Sheet Account to P/L account
Tracking and visibility
One can use document flow option in ByD to view the document link.
User can keep creating downpayments from the sales order and this can be tracked in the document flow of any document in the chain.This way they can manage their payment schedule with downpayments. With this you can manage a payment schedule of the downpayments in the sales order.
Similar process can be used in
- Contract with Downpayments
- Creating downpayments will completely clear the invoice that will be generated
- Creating standalone downpayment requests and assigning them to customer invoice request.
- One can combine multiple invoices to one downpayment
- One can combine multiple downpayments to clear one invoice
Please note downpayments differ in some countries due to legal requirements like India. Purpose of this document is to explain the generic features available in SAP Business ByDesign. For country specific deviations please mail me.
Very detailed and nice document！
Thanks for this doc.
What I do not understand is how and when the team of logistics know when they can ship the goods because or down payment?
The tracking of payments for downpayment request can only be tracked via doc flow so currently teams handling logistics will not get any intimation when payment happens. Typically customer set a delivery block on the sales order and manually remove this block when payments come. Its not a clean solution but a workaround.
What happens when the sales order is for items with different tax rates, at present the down-payment request is for a single tax code.
Two down-payment requests could be created, but can these then be consolidated so the customer only receives one request?
An issue I'm seeing for accounts is that a payment is entered on an account in AR, down payment request applied to sales order, DPR invoiced, order is invoiced, and yet payment AND invoice are left open on AR. Any reason they aren't clearing each other out on the AR?
Is there a report which shows - Customer Down Payment Invoice Requested - Customer Down Payment Request cleared. Please let me know the data-source apart from Customer Invoice Item for designing the report.
Hello Parul Sharma ,
We are trying to create a bank advice which amount is less than the downpayment request.
The business cases can be the following:
However, the system seems to forbid this, because we have the following message: "Down payment request must be cleared completely".
Do you know the reasons for this limitation?
Or any workaround to handle this?
Thanks a lot,
Dear Parul Sharma ,
I would like to request your help on how to use Partial amount of Paid Down Payment on Customer Invoice. For example, customer paid USD100 on Down Payment as Product deposit when two delivery and two invoice are expected. For first delivery and first invoice, we want to deduct partial down payment only USD50 in Invoice.
Can system process this scenario?