Returns Process in ERP

[Former Member]

Hello all,

I understand that the return process in SD involves creating an RE sales document, inbound delivery, and PGR followed by a Credit Memo.  However, let's say that the customer returning the product hasn't yet paid the invoice - in this scenario creating a Credit Memo wouldn't make sense since there would be nothing to refund.  My understand is that in this scenario an Invoice Correction document should be used instead.  Am I correct in thinking so? Also what would be some areas that would need customization for the system to automatically pick Invoice Correction billing type over Credit memo?

Thanks,

Akshay

[joao_sousa2 · Accepted solution]

However, let's say that the customer returning the product hasn't yet paid the invoice - in this scenario creating a Credit Memo wouldn't make sense since there would be nothing to refund. 

The issue of a credit memo has no correlation to the payment (or not) of the invoice. That's "Accounts Receivable" basics.

Am I correct in thinking so?

No, you need to read on accounts receivable or talk to your FI guy. "Invoice correction" (which is basically a credit memo) should be used for wrong prices or delivery quantity, not to handle returns.

[former_member183501]

Hi

   If you have Invoiced $100  of 10 pc to  XYZ Company in which he wants to Return 1 pc of $10

   but he hasn't done payment for 10 pc yet.

Solution - In standard business process you should create Return Sales Order- Inbound delivery- Credit Memo , here remember one thing while creating SR Order you should mention (Invoice No in field - Name is so) through which it could be easy to Accounts department at the time of issuing Credit Note or Reconciliation)  of 1 pc once Credit memo is created then provide the documents to Concerned person (Accounts deptt) then inform Customer to pay Only $90 for 9 pc although you have created Invoice $100 & can provide Credit Note of $10 hence matter could be solved .

Thanks

Kamlesh

[moazzam_ali]

Hi

What is the business process in which customer returns the material before you make invoice or customer has paid invoice? You need to follow the standard process. If customer returns you material even before creating invoice then it is totally wrong approach. You need to create invoice and increase AR. Then create return with credit note and decrease AR. There is no other in between work around for this. In some scenarios we really need to change operational process as per SAP best practice. It is not advisable to change SAP process as per wrong business practice.

If material is sent to customer and invoice is not yet created then you can complete the delivery document with VL_COMPLETE Tcode and create a return order with an item category that is not relevant to billing. This could be a scenario but as I already said it is not advisable and recommended. VL_COMPLETE is a solution but it should not be a normal practice to use it.

Thank$

[joao_sousa2]

What is the business process in which customer returns the material before you make invoice or customer has paid invoice?

It's very normal for the customer to return the material before paying the invoice, which is his situation.

He was just confused because in some ERPs the credit memo ends up in Accounts Payable which is very bad design.

[moazzam_ali]

Hi

Paying an invoice and creating an invoice are two separate things. I thought that OP is talking about creating invoice. Paying invoice is normal process and it happens. Even if customer has returned material without paying invoice what would be the issue in raising credit note. It will reduce the AR and there will be no payment involved. Just an accounting entry and its reversal.

Thank$

[former_member182378]

Akshay,

Yes, if billing document is not created in the first place, then creating re credit memo does not make sense!

For this scenario, you don't have to create any billing document (not even Invoice Correction billing doc)

Generally, the RE order is made with reference to billing document. Therefore, the credit memo step needs to be done in the RE process.

[joao_sousa2]

Yes, if billing document is not created in the first place, then creating re credit memo does not make sense!

Except he said:

However, let's say that the customer returning the product hasn't yet paid the invoice

He didn't say the invoice wasn't posted, he said the invoice wasn't paid.

[former_member182378]

Thanks Joao!

Akshay,

In SAP if billing document is created (for the sale), then RE credit memo needs to be created. This is a clear & straightforward way of keeping transparency.

In the company, there are 2 departments, the Sales department (creating orders and billing documents in SAP) and there is the Finance department doing the clearing.

It will be better to go for the standard SD process - for sales and returns. & let finance dept. take care of collection.

[Former Member]

Okay, but a creation of a credit memo would increase accounts payable, won't it?  In this scenario a business would probably just want to decrease the amount in the invoice (and thus accounts receivable).

Say you sell 10 pcs to XYZ company for $100

XYZ returns 1 pc and thus a credit memo is created for $10

It is my understanding that Creating a credit memo would simply send $10 to the customer (even if the customer has yet to pay the invoice yet)

Ideally, all we would want to do is decrease the invoice (and thus acct receivables) by $10 and simply collect $90 from the customer

Let me know if this makes sense.

Thanks!

[joao_sousa2]

Okay, but a creation of a credit memo would increase accounts payable, won't it?

No, SAP doesn't work that way. A credit memo will post an opposite sign value in accounts receivable. If invoice is document A, and credit memo is document B, you will see in Accounts Receivable (FBL5N):

Document A:  + 1000

Document B:  - 200

Open value:   + 800

You really need to talk to your FI colleague.

[former_member182378]

Akshay,

As Joao hss explained, after 10 qty was sold a bill was created for 100 USD.

Next, customer returns 1 qty, worth 10 USD

The bill of the sale can not be changed.

A new bill (credit memo) will be created, which will lessen the payment to be done by the customer to 90 USD.

As one can not change the bill of the sale, another bill is to created for crediting the customer.

If you create another bill of 90 USD , the payment by customer becomes 100 + 90 = 190 USD, which is incorrect.