The term pricing is used broadly to describe the calculation of prices (for external use by vendors) and costs (for internal purposes, such as cost accounting). Conditions represent a set of circumstances that apply when a price is calculated. For example, a certain quantity of a particular product is ordered on a certain day from a certain vendor.. The variable factors here – the vendor, the product, the order quantity, and the date – determine the final price the company will pay. The information about each of these factors can be stored in the system as master data. This master data is stored in the form of condition records.
This component enables the company to store pricing stipulations agreed with the vendor (such as applicable discounts or surcharges, or stipulations regarding the payment of freight costs) in the system. It can be possible to enter these conditions in quotations, outline purchase agreements, and info records. There is also the option of entering general conditions at vendor level, for example. The system then applies the conditions in determining the price in purchase orders (POs). In addition, further conditions can be maintained directly in the PO itself.
There are three kinds of price in Purchasing:
- Gross price – Price without taking any possible discounts and surcharges into account
- Net price – Price taking any applicable discounts and surcharges into account
- Effective price – Net price after deduction of cash discount, with allowance for any miscellaneous provisions, delivery costs, and non-deductible taxes.
It is possible to enter conditions for items in respect of which an invoice is not expected to be received in purchase orders and outline agreements.
Time-Dependent and Time-Independent Conditions
A distinction is made between conditions that are valid for a certain period and conditions for which no special validity period can be specified. In the latter case, the validity period corresponds to that of the purchasing document. Whether time-dependent or time-independent conditions are created is determined via the document type.
Noted that if a percentage vendor discount is entered in a PO, this is a time-independent condition. However, if this discount condition is maintained in a contract, this is regarded as time-dependent.
Conditions Requiring Subsequent (End-of-Period) Settlement
It is also possible to store conditions that do not take effect immediately, but only at the end of a certain period. Settlement with regard to such conditions takes place subsequent to the settlement of vendor invoices relating to individual purchase orders.
Understand more about Pricing Conditions in this PDF file