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Order to Cash (O2C) Process

What is an O2C Process in SAP S/4 HANA?
The Order to Cash (O2C) process refers to the series of steps a business
takes to process customer orders, deliver products or services, and
receive payment for those orders. It is the entire lifecycle of a customer
order, starting from order creation and ending with the collection of
payment.

Let’s understand this with an example of company XYZ, which

receives an inquiry from a customer, regarding an Item. After providing
a quotation, customer places a sales order specifying requirements of
the item. The warehouse team then picks the item from inventory, and
items are issued. Following this, the finance department generates an
invoice against which customer pays according to the terms,
completing the O2C cycle.

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Detailed breakdown of the O2C Process in SAP

Inquiry
The inquiry serves as the starting point for the O2C process.
 An Inquiry refers to the initial communication from a potential
customer expressing interest in a product or service offered by a
company. It typically involves the customer seeking information
about pricing, availability, specifications, or other details related
to the product or service.

No Accounting Impact

Quotation
A quotation is a formal document issued by the seller to the potential
buyer in response to an inquiry. It serves as a formal proposal outlining
the terms of the proposed transaction, allowing the customer to review
and consider their purchase decision.
 The quotation provides detailed information about the products
or services requested by the customer, including their
descriptions, quantities, prices, terms and conditions, delivery
options, and any applicable taxes or discounts. The quotation is
typically prepared based on the customer's specific requirements
as outlined in the inquiry.

No Accounting Impact

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Sales Order
A Sales Order is a document that initiates and manages a sales
transaction between a seller and a buyer.
 It includes detailed customer information, specific order details
such as product descriptions, quantities, and prices, and terms and
conditions of the sale. It provides a reference point for customer
service, handling inquiries, and managing returns.

No Accounting Impact

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How to Post O2C Process Transactions in SAP?

Sales Order creation in SAP S/4 HANA

The O2C process kicks off when a customer places an order. The sales
order captures the customer's requirements, including product details,
quantities, prices, and delivery terms. For example - Standard Order
(OR), Consignment Order (KE).
 SAP Transaction Code: VA01 (Create Sales Order)
 Financial Posting: At this stage, there is no financial impact.

STEP 1: Go to T. code VA01 > Enter Order Type and below

Organizational units and click on continue
 Order Type: It refers to a classification that defines the
characteristics and behaviour of a sales order. It controls various
functions such as pricing, delivery scheduling, billing, and more

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STEP 2: Provide the Sold-to-Party, Ship-to-Party number (Partner

Functions), Material, Order Quantity and other fields.

Availability Check
STEP 3: Click on "Check Item Availability" to ensure that the
requested items are in stock / Once the sales order is created, SAP
automatically checks the availability of the products using the
Available-to-Promise (ATP) functionality.

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It is purely logistical check to confirm stock availability for "confirmed

Quantity" under schedule lines Tab

STEP 4: then click on Shipping to ensure/change the –

 Material Available Date: The date by which sufficient quantities

of the item must be available for picking to begin.
 Transportation Planning Date: The date by which you must
arrange transportation so that the delivery can reach the customer
on time.
 Goods Issue Date: The date on which the goods must physically
leave the shipping point to reach the customer on time.
 Loading Date: The date by which picking and packing must be
completed so that the goods are ready for loading and for the
delivery to reach the customer on time.

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STEP 5: Ensure the Sales order have Plant, Shipping Point, Storage
Location and other fields under "Shipping Tab"

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STEP 6: Check for the Price and other amount based on Condition
Types of Pricing Procedure where amount is retrieved by maintained
Condition record or entered manually.

Sales Document 3000000499 Posted

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Outbound Delivery
This involves creating a delivery document, which signifies that the
items in the sales order are ready for shipment. The system reserves the
inventory for delivery at this stage.
 SAP Transaction Code: VL01N (Create Delivery)
 Financial Posting: No financial impact at this stage, but the
system updates logistics information, signalling that the goods
are ready to be delivered

How to create Delivery in SAP?

STEP 1: Enter the Shipping Point, Selection Date and Sales Order
number

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STEP 2: Information related to Picked Quantity, packaging and

transportation to be entered and saved.

Document Flow Status

Goods Issue
A Goods Issue refers to the point at which products are physically
removed from the seller's inventory and shipped to the customer,
signifying the transition from order fulfilment to delivery.
 It reduces the seller's inventory levels and triggers the accounting
processes necessary for revenue recognition. The Goods Issue
involves several activities, including picking and packing the
ordered items, updating inventory records, and generating
shipping documentation.

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 Accounting entry made when item from inventory is issued to

fulfil a sales order: This typically involves a decrease in inventory
and the recognition of cost associated with the inventory being
issued.
Cost of Goods Sold A/c Dr
Inventory A/c Cr.

Post Goods Issue in SAP S/4 HANA

Once the goods are physically shipped to the customer, SAP posts a
goods issue. This step is critical as it marks the transfer of ownership
of the goods from the seller to the buyer.
 SAP Transaction Code: VL02N (Post Goods Issue)

STEP: Go to Transaction Code VL02N and Click on Post Goods Issue

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Material Document Posted 4900000705

Document Flow Status

Customer Invoice
A Customer Invoice is a critical document issued by the seller to the
buyer after goods or services have been delivered.
 This invoice specifies the amount due for the purchased items,
including detailed information such as the product descriptions,
quantities, prices, any applicable discounts, taxes, and the total
amount owed. It also outlines the payment terms, such as the due
date and accepted payment methods.

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 Accounting entry made when customer is billed: The Account

Receivable (Asset) is increased, it means the company expects to
receive payment from the customer in the future and crediting
revenue reflects that the company has earned this income from
sale of goods or service.
Customer A/c Dr.
Revenue A/c Cr.

Billing (Invoice Creation) in SAP

After the goods are delivered, the next step is to bill the customer. The
system creates an invoice, which records the amount due from the
customer for the delivered goods or services.
 SAP Transaction Code: VF01 (Create Billing Document)

STEP: Go to Transaction Code VF01 > Enter Document Number with

Billing Type F2 and Save.

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Display Document

Document Flow Status

Customer Payment
In this stage the seller receives payment from the customer for goods
or services delivered.
 This step occurs after the order has been processed, the goods or
services have been delivered, and an invoice has been issued. This
step not only completes the transaction cycle but also provides
valuable data for financial reporting and analysis, helping
businesses monitor their revenue streams and manage
outstanding receivables efficiently.
 Accounting entry made when Customer Payment is received:
Here Increase in Bank account, when a payment is received the
company's bank balance increases and crediting Customer
account reduces the asset, reflecting that the customer has settled
their obligation.

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Incoming Payment in SAP

Once the customer makes the payment for the invoice, it is recorded in
SAP through the incoming payments process. After receiving the
payment, it reduces the customer’s outstanding balance.
 SAP Transaction Code: F-28 (Incoming Payments)
 Financial Posting:
o Debit: Bank Account
o Credit: Customer Receivables

STEP 1: Enter the below fields for receiving payment like Company
code, bank data, Customer data and click on Process Open Items

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STEP 2: Select the Invoice Document and click on Post.

Display Document

Document Flow Status

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