S/4HANA Condition Contracts are a powerful new feature used to manage rebate, commission and royalties agreements with customers or suppliers. They’re typically used to grant discounts or commissions for meeting quantity or value targets for sales or purchase volumes.
Condition Contracts fully replace the old SD Rebate Processing of SAP ERP or R/3.
And compared to their predecessors, condition contracts offer a lot of additional capabilities and features, making for more flexible and powerful functionality than ever before.
I am lucky to have already experienced the advantages of using condition contracts in several S/4HANA implementation projects, and am delighted to share six key insights and advantages I discovered in this post.
Six Key Benefits of Condition Contracts
1. Real-time insights in business volume
In each condition contract, the business volume (REBV) is defined as the basis on which the agreement applies. Hence the name, “condition contract”.
There are many criteria to choose from when defining the contract, and they cover both inclusions and exclusions. The contract also allows the user to define which of many subtotals a rebate should be applied to. For example, in the pricing procedure, a rebate might be applied to subtotal 1, 2, or net value.
As another example, a customer rebate condition contract could be set up to apply to all of a customer’s invoices except for one specific material within a certain timeframe.
Talk about granular control! Take a look:
Further examples of easily implemented conditions that are now standard features include:
- The granting of a commission to an external sales agent based on customer volume in the region she is assigned, but with an additional condition that it is based on the invoiced value which has actually been paid by the customer —and not on the total invoiced value.
- The granting of a rebate to a customer on all invoiced sales to a customer group, excluding freight charges.
These conditions are incredibly easy to set up, and once they’re in place the real-time business volume (REBV) is immediately available to view in the dedicated app:
Or, if you prefer more detail:
Further, due to the power of S/4HANA, aggregation in tables like VBOX is no longer needed. An online view of business volume is available immediately without requiring index tables.
2. Supplier and Customer contracts now share the same functionality
In S/4HANA, you’ll see that condition contract types with shared functionality exist for both:
- customers (accounts receivable processes)
- suppliers (accounts payable processes)
This is a great addition in S/4HANA. It means business volume conditions and insights can now apply to both purchasing or sales transactions. What’s more, the display of information/insights as well as processing and settling are the same across the board.
This consolidation of condition contract management across customers and suppliers, guarantees standardization and much easier processing. It also makes it simpler to get the information you need at a glance.
3. Conditions available in the contract
In any condition contract, there are two main types of condition:
- The actual rebate or commission granted: typically scales are used for this type
- The accrual percentage
These conditions are set in condition tables according to various criteria (customer, customer/material, etc.).
Further, there’s a lot of flexibility in how calculation type is defined in the contract, including options for: percentage-based, fixed amounts, quantity based, weight based, etc.
This already gives you a lot of flexibility in how you define your contracts, but there is more! Beyond these two main condition types, there are also condition types to enter a delta on business volume (e.g. upon a commercial agreement or when not all sales volume is in the S/4HANA system), and this provides the ability to overwrite or correct a final settlement amount.
4. More flexibility in building up or correcting accruals
Another great feature we encountered in our deployments was how accruals are calculated.
Accruals can now be built (a) periodically, or (b) with every billing document issued.
What’s more, in cases where the accruals are not built up or need to be corrected (e.g. when the condition contract was changed or created retroactively), an accrual run can easily be triggered. This will reverse all accruals made for the contract to-date and rebuild the accrual in accounting.
Compared to the older SD rebate processing, this is a vast improvement that will prevent a lot of headaches. Now, time-consuming transactions such as VBOF are no longer required.
Further, accrual postings now also contain every detail you could possibly want to reference, such as customer, material, sales organization, material group, etc. So if you’re looking to get the big picture on your accruals, S/4HANA condition contracts have you covered.
5. The settlement process
Settlements are run for delta accruals, partial and final settlements.
In each instance, a settlement document is now created, which means you no longer need a separate rebate credit memo request and consecutive credit memo. Instead, only a single document is created. It’s simpler, faster and easier to understand!
Based on the settlement document, an output for mail or print can also be triggered that contains every relevant detail. This can be sent to the contract partner (customer/supplier) automatically.
And a detailed overview of settled amounts is also now available as part of your embedded analytics:
6. Endless further possibilities
The features outlined above are only the beginning of what you can do with condition contracts in S/4HANA. The customization possibilities available via Condition Contract Management are now very extended, allowing you great and effortless flexibility in creating workflows for approvals of settlements.
And if you’re a developer, S/4HANA gives you the tools to go even further, thanks to the extensive list of BADIs (Business Add Ins) available.
As mentioned above, I’ve already been lucky enough to use condition contracts in several deployments of S/4HANA. The experience has left me in no doubt that SAP has taken a huge step forward in dealing with rebates and commissions with the introduction of Condition Contract Management. It’s one more reason why this is an exciting time to be deploying and using S/4HANA.
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