How does the SAP system identify and control intercompany billing?

Most companies who have implemented SAP are spread all over the globe and owns at least one legal entity in each country in which they are operating. However, stock in a specific warehouse can only be owned by one legal entity at a time. It is not specifically necessary that the stock located in a specific country is also owned be the legal entity operating in that same country. In other words, stock physically located within the European Union can be owned by a legal entity that resides in Switzerland. Such a construction can be beneficial after evaluating the various country specific tax regulations.

How does SAP identify and control intercompany sales?

Basically intercompany processes are triggered when the delivering plant, warehouse or distribution centre is linked to a different legal entity when comparing with the company that received the customer order. Then the company that owned the stock wants to receive a commission from the the company that made the sale to the customer.

Let’s assume that a British sales organisation sells stock shipped from a plant in Germany that is owned by a French company. Two invoices are issued. At first a customer invoice is created by the British sales organisation, followed by an intercompany invoice issued by the French company to be paid by their British counterpart. Note that the physical location of the stock has no direct impact on the intercompany process.

Of course the system needs to be configured to make this intercompany process possible. You need to pay attention to a) controlling the process flow, b) connecting enterprise structure elements and c) locating the origin of master data.

  • At first you need to identify which type of intercompany billing needs to be used per sales scenario. You do this by linking billing document types (i.e. intercompany invoice, intercompany credit note) to specific sales order types (i.e. standard sales, credit memo request). Please note that there may be a need for multiple intercompany invoice billing types when different pricing rules and/or different automatic postings to the accounting modules are necessary.
  • Then it is important to determine the sales area that is used to register the intercompany sale. For this you need to identify the sales area used in the intercompany billing document when goods are shipped from a specific physical location.
  • Finally, customer master data must exist that represents the physical location from which goods are shipped. This customer must be maintained against the sales area used for issuing the customer invoice. The maintenance of the customer master data is important to allow the system to automatically create an intercompany billing document that contains all the required default transactional data (i.e. pricing, terms of payment).

When evaluating the pricing in the billing documents, you normally see two different approaches. The customer invoice is by default based on the net price with additional discounts and surcharges, whereas the intercompany invoice uses the cost price to determine a profit margin.

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