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The Sign-Off Table

Lesson 1 of 5

The order-to-cash chain

9 min

Order-to-cash is everything that happens between a customer showing interest and the money arriving in the bank. In SAP S/4HANA it is carried by a chain of documents, each created with reference to the one before. Contoso Motor Co. sells alternators CMC-ALT-100 to fleet customers such as Great Lakes Fleet Services through sales area 1710 / 10 / 00 (sales organization 1710, distribution channel 10, division 00), shipping from plant 1710 in Detroit.

  1. Pre-salesInquiry and quotation: the customer asks, Contoso offers a price and date
  2. Sales orderThe binding commitment: customer, product, quantity, price, delivery date
  3. Outbound deliveryInstruction to the warehouse: what to pick, from where, by when
  4. Picking and goods issueStock is picked and goods issue posts the stock reduction and cost of goods sold
  5. BillingThe invoice to the customer; posts revenue and the receivable
  6. PaymentThe customer pays; accounts receivable clears the open item
Contoso's order-to-cash chain for a sale from stock.
The Sign-Off Table · thesignofftable.com/academy/sap-sd-101

Pre-sales

Not every sale starts with an order. A fleet buyer may send an inquiry ("can you supply 50 alternators in March?"), and Contoso replies with a quotation that has a validity period. When the customer accepts, the order is created with reference to the quotation, so prices and terms carry forward and the quotation shows how much of it has been converted. Pre-sales documents are optional; many Contoso orders are entered directly.

Sales order

The sales order is where most of the intelligence sits. On save, SAP determines prices from condition records, checks availability and confirms delivery dates in schedule lines, checks the customer's credit, finds the delivering plant and shipping point, and flags missing data in the incompletion log. In the launchpad the order is created with the Create Sales Orders app (or VA01 in SAP GUI) and managed with Manage Sales Orders.

Delivery, picking and goods issue

When the material availability date arrives, shipping creates an outbound delivery for orders that are due, usually in a batch run, from shipping point 1710. The warehouse picks the alternators from storage location 171A and records the picked quantity. Post goods issue then reduces stock and posts the cost of goods sold. From that moment, legal and financial ownership is on its way to the customer, depending on the incoterms.

Billing and payment

Billing creates the billing document (the invoice) with reference to the delivery, normally in a collective run over the billing due list. The billing document posts a journal entry: receivable on the customer, revenue and any sales tax. Accounts receivable then waits for the customer to pay; the incoming payment, usually from a bank statement or lockbox file, clears the open item.

DocumentCreated byWhat it provesContoso example number
QuotationInside salesAn offer was made20000123
Sales orderInside salesA commitment was accepted1000457
Outbound deliveryShippingGoods were scheduled to leave80001234
Goods issue (material document)Warehouse or shippingStock left the plant4900007731
Billing documentBillingThe customer was invoiced90001877
Journal entriesAutomatic from goods issue and billingFinance recorded cost, revenue and receivableSeveral

Order-to-cash documents. Numbers are fictional.

Reading the chain

The document flow, available from any of these documents, shows the whole chain with each document's status. It is the single best way to see where an order is: delivered or not, billed or not, posted to accounting or not. The foundations course on document flow covers it in depth; for order-to-cash, make it a habit to open the flow before answering any question about an order.

  1. Day 1Order entered50 alternators confirmed for day 5 delivery
  2. Day 3Delivery createdShipping's batch run creates delivery 80001234
  3. Day 4Picked and issuedWarehouse picks from 171A; goods issue posted
  4. Day 4BilledBilling run creates invoice 90001877
  5. Day 34PaidPayment on net 30 terms clears the receivable
A typical timeline for Contoso order 1000457. Real lead times depend on stock and transport.
The Sign-Off Table · thesignofftable.com/academy/sap-sd-101

What would you do?

A customer calls Maria, Contoso's order-to-cash key user, asking why their alternators have not arrived. The order exists and shows confirmed quantities. What is the quickest way to find where the process stopped?

Key points
  • Order-to-cash runs pre-sales, sales order, delivery, picking and goods issue, billing, payment.
  • Each document is created with reference to the one before, so data flows forward.
  • The sales order determines prices, availability, credit, plant and shipping point, and checks completeness.
  • Goods issue posts cost of goods sold; billing posts receivable and revenue; payment clears the receivable.
  • The document flow shows where any order is in the chain.

Check your understanding · not graded

Lesson check

  1. 1. Which document is the customer's binding commitment?

  2. 2. What is Contoso's sales area in this course?

  3. 3. Which step reduces stock in the plant?

  4. 4. What is the best first tool to see where an order is in the chain?