26.06.2017

Do you find the an­aly­sis of op­en it­ems in ac­counts pay­able a drag?

In this blog post we want to look at the question of why open items in accounts payable can be well worth a closer look. We will illustrate this taking data from an SAP® IDES system; we will look at the data with ACL™ analytics software.

The P2P pro­cess in brief

The classic case in the P2P (purchase to pay) process is the coming about of a payable as part of an order transaction. A requirement is created, resulting in a purchase order that is first released by those persons responsible. After delivery, and subsequent or parallel issue of an invoice by the vendor, the invoice is captured in the SAP® MM module (by a MIRO transaction for instance). This results in an open item that is managed in the SAP® FI module, or to be more accurate accounts payable, until clearing by payment (or in many a case credit memo or reverse posting).

The length of time an invoice is retained as an open item is influenced by the term of payment combined with the baseline date for payment in SAP®. After a clearing entry both the original invoice and the clearing document (usually an outgoing payment triggered by the automatic payment run in SAP®) are to be found in the cleared documents.

Clas­sic an­aly­tics as­pec­ts of op­en ven­dor items

Open items of accounts payable are of course a focus of analytics.

This includes the following aspects:

  • Liquidity planning, working capital, optimization of cash flow
  • Punctual payment, terms of payment

In what follows we will take a brief look at these two aspects:

 

Liquidity planning, working capital, optimization of cash flow

What is relevant for liquidity planning and the like is the sum of open items, and when what amounts are due. Even if an invoice is already entered, assigned to the G/L account, and the amount is cost-relevant on the day of posting, the actual payment still has to be made. Here it is important, to optimize and plan liquidity and working capital, to keep an eye on the due date of open payables.

 

Punctual payment

In Germany at least, cash discount or early payment discount is a frequently used term of payment. It allows deductions from the gross amount invoiced if payment is made within a certain time. The requirement is payment within an agreed deadline. Ideally a company will manage to use the deadline until the last possible day, and then pay with a cash discount deduction. Of course ERP systems like SAP® take care of this for the most part automatically. But the requirements are well-functioning processes and good quality of master data, especially for financially related matters like bank details and terms of payment. Given these requirements, the SAP® payment run is a possibility of scheduling payments appropriately.

Classic analytics consequently often concentrate on these two thematic blocks, which really makes sense. 

Why the fo­cus is of­ten more on cus­tom­ers

Apart from this, from our point of view, open items of customers are frequently more of a focus than those of vendors. One possible reason is that appropriate follow-up is essential in receivables management for liquidity planning; in other words one attempts to keep the level, the value of overdue open items as low as possible. Compared to that, the attitude towards open accounts payable, simply spoken, is somewhat more relaxed: There is bound to be a reason why the open invoice of € 270,000.00 of supplier XYZ is not yet paid; perhaps there are quality complaints or other aspects to clarify. As long as the money was not yet paid, you may be in a better position.

But as we see it this view of things is somewhat too limited. There are further exciting aspects worth looking at from the angle of data analytics.

Why ven­dors are worth a se­cond look too

Extra to pure questions of liquidity, we see the following aspects of analytics as highly interesting:

 

Supplier invoices that are in fact credit memos to customers

What is important in the first place is to understand that "open items", with vendors too, must not necessarily be payables to suppliers. There are instances of business that also generate open items but may be of an entirely different nature. That is why analytics in this area are so exciting, because there may be the question of whether someone owes our company overdue payables, or whether there have been gross violations of payment directives.

Take the following three examples:

  1. Incoming payments 
  2. Manual outgoing payments 
  3. Credit memos from suppliers

Incoming payments
Incoming payments from vendors may have various reasons: They may be incoming payments in the context of credit memos or credit memo requests. It is also conceivable that there has been an outgoing payment based on an invoice, but this could not be tracked by the recipient financial institution, and was consequently transfered back.

Manual outgoing payments
If invoices are settled by the automatic payment run, this should not be the case. However, there may be (as a rule undesirable) exceptions in which outgoing payments are made manually, and without reference to an existing vendor invoice. In such cases this was found in comparison of account statements, and the (in fact already made) outgoing payment would be booked, and remain in the system as an open, count-related item until clarification.

Credit memos from suppliers
In many cases there are credit memo documents for certain vendors in the open items. Although one might simply say "credit memos from suppliers", the reasons are often quite diverse. Of course a supplier can issue a credit memo for a variety of reasons: They could credit a contractually agreed bonus on orders of the past calendar year, or it could be a credit memo as fair dealing because of poor quality, for example, or some other reimbursement. However, a credit memo must not necessarily be issued by the supplier proactively: In rare cases an accounting department was able to identify double payment, i.e. an invoice that was accidentally settled more than once and paid out to a supplier. In many cases, as soon as this is found, an accounting department will enter a credit memo document to ensure that, when payables are next settled, the twice paid invoice is deducted through this document.

For these three examples it is not only the matter of "days overdue" that is to be looked at. There is also the question of how it can come about in the first place, and of possible deviations from the standard process and existing guidelines.

But how do you best gain an overview of the subject?

Pro­ce­dure with data from SAP®

There are different ways of analyzing open items based on SAP® data. Simple consideration of open items of suppliers is possible by the SAP® transaction FBL1n for example. This is a way to show all items (no matter whether cleared or open), only the open or cleared items, or open items on a certain key date. The transaction can also visualize overdue items.

Fig. 2: SAP® transaction FBL1N

A further approach, especially for data analytics, is the BSIK table listing open items. But here you must remember that these are already to be found in the table with the cleared items (BSAK) as soon as the payment run has scheduled their clearing for instance. An overall view of the accounting documents in the BKPF and BSEG tables is always possible of course, although the analyst may then be confronted with larger amounts of data.

Extra to the question of where open items are stored, and how you can have them displayed, the classification of business transactions, as described above, is of considerable importance, i.e. whether it is a matter of a payable, an incoming or outgoing payment, or a credit memo from a supplier. A proven attribute at the level of SAP® data is the posting key. The posting key controls the attributes, whether a posting is a debit or credit, whether it affects customers or vendors, and whether a posting is sales-relevant, cost-relevant, or count-related.

The following table is a classification of our open vendor items from an SAP® IDES system.

Fig. 3: Open vendor items exemplified by SAP® IDES system

Most of them, as expected, are "Invoices" (27,606 of 27,700 open transactions). But there are also credit memos and outgoing payments that I list further up as interesting aspects. For the articles named in the blog post here again are the most important ones:

 

 

Posting keyMeaning
31Invoice
21Credit memo
25Outgoing payment
35Incoming payment

Fig. 4: Some interesting posting keys

Con­clu­sion

Even if you may sometimes tend to overlook them, open vendor items are worth looking at more closely, and not just from the point of view of liquidity. Aspects like open credit memos, open incoming payments or – sometimes especially worth questioning – open outgoing payments should play a part in all well-founded data analytics. What is essential here for data from SAP® is the question of the posting keys. To conclude, the following screenshot shows how these, in contrast to the document type, present a much more hard and fast source of information:

These are open items for vendor "300050". All are document type "KR", standing for "vendor invoice". But looking more closely at the posting keys you find that there also six transactions with the posting key "21", which are really credit memos of the supplier, and are thus claims of them on our part.


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