How to set up Intercompany Process in SAP

Sometimes goods or services are purchased from a related concern within the same organization. Thus, this translates to one division of a parent company purchasing from another one to fulfil its sales order. Hence the sales order of former becomes purchase order for the second.

Example: A  multi-national company ABC Limited manufactures and distributes laptops. There is a single plant in Japan which is  assigned to company code of Japan. The sales orders are received in various countries and this should automatically raise a PO to Japan. So, if any order is received from end customer in USA, an automatic PO must be raised from USA company code to Japan.

This article describes the steps in which you can set up an automatic Intercompany Process in SAP.

Understanding Intercompany Processes in SAP

SAP link units inside one group for buy and sell tasks. It keep data tidy while tax and currency show correct on both sides of process. That cut end month surprises by removing hidden gaps in invoicing and accounting posts. You can set price rules once and have the system apply them every time. All entries post with the same document flow ID, which make the audit process clear and easy.

Key points

• View all sales orders and purchase orders for multiple units in a single SAP screen
  
• Track cost and stock levels across all company codes in real time without manual updates
  
• Keep ledgers in sync via system rules for clear audit trails and faster closing cycles

Common Scenarios

Intercompany Sale

One unit sells goods or services to another unit in the same corporate group. For example, USA office orders laptops from Japan factory under one master contract. SAP create the sales order in one code and the purchase order in the other. Pricing, tax rates, and delivery dates flow into the PO fast. The system post revenue in one code and cost in the other.

Effect: This shorten the order cycle and cut data mistakes, so you close deals quickly and avoid invoice mismatches.

Key takeaways

• Zero double entry stops most manual mistakes and speeds up the order process
  
• Legal and tax steps apply on both ends, so compliance is built into every transaction
  
• You get clear document links for trace and audit, making reviews much faster and easier
  

Intercompany Stock Transfer

Units move stock without logging a sale in SAP, so you avoid extra billing steps. A Japan warehouse ships screens to a US repair center under one transfer order in SAP. SAP use a stock transport order to handle this move and track each step in real time. The system post a goods issue at source code and a goods receipt at target code. It also adjust stock and cost in both ledgers immediately after the transfer is confirmed.

Effect
Your inventory counts stay accurate and you avoid hidden stock losses after each move.

Key takeaways

• Moves execute with no extra billing runs or manual updates
  
• You keep stock levels correct in both codes at all times
  
• The audit trail shows each issue and receipt clearly, making compliance checks simple and quick
  

Classic vs. Advanced Intercompany Processing

In classic setup you must enter a sales order and then create a purchase order by hand. This mean more clicks and more chance of missing data fields. Advanced processing auto generate the PO once you save the SO. You only need to set the rule in SPRO and run the config one time.

Key benefits

• Order entry time cuts sharply thanks to system PO creation rules
  
• Error rate drops since users no longer copy data by hand
  
• Maintenance effort drops over time as rules run without manual checks

Steps to Set Up an Automatic Intercompany Process in SAP

1. Create headquarters as a vendor

Using XK01 create the headquarters as a vendor in the purchase organization of the buying company code. In above example, this is the USA entity.

2. Maintain the purchase order information at Sales Organization Level

For the entity which is placing order to the headquarters, maintain the purchase information as shown below:

3. Click the automatic PO for item category

Navigate to the menu node of the SPRO and mark the Automatic PO checkbox for the respective item category.

4. Maintain purchase info records

In general, a particular material can be procured from different vendors (dealers) if a single source of supply doesn’t meet the company requirements. Here’s how you can Configure Multi-Vendor Quotas in SAP ERP Within Purchasing!

To get an approval a request document called Purchase Requisition which contains information such as materials, services, delivery date and quantity needs to be prepared.

Maintain the purchase info records as shown below:

• Effect

Whenever a new sales order is raised in the buying organization (in above example USA), it automatically creates a purchase order to the headquarter organization (Japan).

Key Aspects of Intercompany Processes in SAP

Intercompany processes let units within your group trade goods and services smoothly. SAP handles orders, deliveries, and billing across company codes without manual copies. Once you set up rules, SAP runs all intercompany steps automatically.

Intercompany Sales

Intercompany sales track orders between units within one corporate group. SAP automatically builds a purchase order in the buying code when you save a sales order.

This flow ensures stock moves and financial entries sync across both codes. It reduces manual steps and cuts errors when trading goods between units.

• Automation: SAP creates matching purchase orders automatically
• Visibility: Both sending and receiving units see order details instantly
• Stock Updates: System posts goods issues and receipts right away
• Financial Sync: Revenue posts in one code while cost posts in another
• Pricing Rules: Set intercompany prices once; rules apply every time
• Audit Trail: Links all intercompany transactions under one document flow
• Compliance: Applies tax and legal settings per company code

Advanced Intercompany Sales

Advanced intercompany sales let you handle drop-ship and third-party billing processes across your units. You configure extra steps, like invoice triggers and billing replication, in SAP.

This setup reduces errors in complex flows and ensures each unit sees correct customer and vendor invoices. Teams avoid manual billing entries and speed up revenue recognition.

• Drop-Shipment: Manages goods sent directly from one unit to external customers
• Third-Party Billing: Automates billing when one code sells via another
• Invoice Replication: Copies invoices between company codes without manual work
• Custom Rules: Apply extra logic for pricing or tax during intercompany sales
• Automated Alerts: Notifies teams when specific events occur in the flow
• Multi-Currency: Supports trades in different currencies with real-time rates
• Error Handling: Flags mismatches automatically for quick fixes

Event-Based Revenue Recognition

Event-based revenue recognition links intercompany sales to specific events, such as delivery or service completion. SAP posts revenue entries automatically when the defined event occurs.

This approach keeps your accounting accurate without manual journal entries. Teams trust system-driven postings and cut down on reconciliation work each period.

• Trigger Points: Define events like delivery or service completion to start revenue
• Automated Posting: SAP generates entries based on these events
• Multi-Phase Recognition: Spread revenue across multiple milestones if needed
• Rule Customization: Tailor event rules per company code or contract
• Real-Time Updates: Revenue posts immediately when events happen
• Audit Trail: Logs each recognition entry with event details for reviews
• Compliance: Meets reporting standards by following set recognition rules

Intercompany Billing

Intercompany billing creates invoices between related units after goods move or services finish. SAP bundles all relevant charges into a single billing document each cycle.

This billing flow speeds reconciliation and cuts invoicing work. Teams see clear charges and can process payments faster without manual cross-charges.

• Consolidated Invoices: Combines multiple intercompany charges into one document
• Cycle Billing: Runs billing at set intervals, like daily or monthly
• Chargebacks: Automatically applies costs back to the original unit
• Custom Billing Rules: Set discounts, taxes, or fees per company code
• Currency Conversion: Converts amounts using defined exchange rates
• Document Flow: Links billing docs to original orders and deliveries
• Reporting: Offers clear intercompany billing reports for analysis

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How to Set up Rebate Agreement in SAP