In part one of our three part series, we explored the business process and it’s execution in SAP for three way match. In this second part, we’ll work through one way of managing variances for logistics invoices. There are two core approaches that can be used for managing variances. In this article, we’ll use the older approach of blocking invoices for payment.
Motivation on handling MIRO Invoices
Consider the following example, where our company order 80 units of inventory at a price of $12.50 per each. The vendor short shipped our company and only sent 60 units. When the invoice is received, it is for 80 units. The AP processor posts the invoice. From a financial reporting perspective, the GR/IR control and the AP account will roll up under the same group account. That ensures that only the balance that has been received is reported.
At the same time, since there is a dispute with the vendor on the correct amount owed, the company should not pay the invoice. The invoice processor, the purchaser, and the warehouse manager should collaborate with the vendor to establish what is correctly owed. In our scenario, the vendor agrees to reduce the amount owed for the 20 units at a price of 250. The invoice processor posts the credit memo and we have:
Now, the GR/IR control account balances to zero and the vendor balance in AP balances to $750 – the expected value of what our company will pay the vendor. In this process, there are a few keys:
- Despite a variance occurring, the invoice was posted immediately and put onto the company’s books.
- The vendor was not paid until the GR/IR account balances in both value and quantity. The payment was blocked.
- A credit memo was posted to solve the discrepancy
- At the end of the process, the GR/IR account equaled zero.
As we review the technical process in SAP, it will be critical to consider the above points.
Blocking invoices in MIRO in SAP
The below configuration determines when a payment will be blocked. This configuration is fairly complicated but at the core, for each company code, one or more variance types should be defined. Each variance type has a particular formula for calculating it. The help text attached to the configuration screen has each of the variance calculations laid out. One key note is that a small difference (variance type BD) should always be configured otherwise every variance will be written off to the small difference write-off account. Here, we’ve configured a tolerance to block for price variances over $5 or 5% for unfavorable and $10 or 5% for favorable.
Now, when an invoice that is posted exceeds those limits, the invoice will be blocked. Consider our above example above.
Now, the invoice is received and posted with the vendors values. Notice that the line up values and quantities are overwritten to match those of the invoice.
Resolving the variance
To resolve the variance, the vendor will issue a credit memo. This credit memo will be booked through MIRO by selecting the “Credit Memo” transaction at the top. Use the below table based on whether the price or quantity is wrong to decide on the correct transaction.
|Transaction||Value Adjustment||Quantity Adjustment|
|Invoice||Increase Amt Owed||Increase Qty Delivered|
|Credit Memo||Decrease Amt Owed||Decrease Qty Delivered|
|Subsequent Debit||Increase Amt Owed||No Change|
|Subsequent Credit||DecreaseAmt Owed||No Change|
Now that our GR IR balances, transaction MRBR will release the invoice from block.
Now, if you look in MIR5, you would see the payment block released. The invoice is paid and the GR/IR is clean.
T-Codes, Config Paths, etc [ + ]
|1.||↑||SPRO -> Materials Management -> Logistics Invoice Verification -> Invoice Block -> Set Tolerance Limits|
|2.||↑||Displayed with ME23N, entered via ME21N and MIGO|
|4.||↑||Credit memo entered through MIRO|