In large organizations, multiple company codes are often created in SAP to represent legally independent entities within the same corporate group. While these companies are legally distinct, they regularly exchange goods, services, and financial transactions with one another. This is where the inter-company process in SAP becomes critical — ensuring seamless transactions, accurate accounting, and compliance with tax and transfer pricing regulations.
1. Understanding the Inter-company Process
Inter-company transactions occur when one company code supplies goods or services to another company code within the same group.
Inter-company Sales: One company sells finished goods or services to another.
Inter-company Stock Transfer Order (STO): Inventory is transferred between plants belonging to different company codes.
Inter-company Billing: The supplying company invoices the receiving company.
These processes ensure transparency, proper cost allocation, and compliance with corporate and statutory requirements
2. System Setup in SAP
a) Organizational Structure
- Define and configure company codes for each legal entity.
- Assign plants to their respective company codes.
- Create sales organizations and link them to the plants supplying goods in inter-company scenarios.
b) Master Data
- Customer Master: Each receiving company must be created as a customer in the supplying company’s sales area.
- Vendor Master: In certain cases, a supplying company is also created as a vendor.
- Material Master: Materials must be extended to both plants and sales orgs.
- Pricing Conditions: Special pricing conditions (e.g., PI01, IV01) are used for inter-company transactions.
c) Inter-company STO Configuration
- Configure document types for STO (NB or custom).
- Assign supplying plant to a supplying sales organization and distribution channel.
- Define pricing procedure that includes inter-company conditions.
- Configure account determination (OBYC) to ensure correct GL postings
d) Billing Setup
- Billing type IV (Inter-company Invoice) is used for these transactions.
- Output determination ensures invoices flow to finance for reconciliation.
3. Typical Process Flow
Inter-company Sales
- Sales order created in the receiving company code.
- Delivery from the supplying plant (belonging to another company code).
- Goods issue posted → COGS recognized.
- Inter-company billing raised by supplying company.
- Customer invoice issued by receiving company to the end customer.
Inter-company STO
- Stock Transfer Order (STO) created by the receiving plant.
- Delivery generated at the supplying plant.
- Goods issue posted → Stock reduced in supplying company.
- Goods receipt posted → Stock increased in receiving company.
- Inter-company invoice created for financial settlement.
4. Impact of Inter-company Transactions.
Financial Impact
- Supplying company posts Revenue / Inter-company receivable.
- Receiving company posts Inventory / Inter-company payable.
- Transfer pricing ensures profitability tracking at each entity.
Logistics Impact
- Inventory is physically and systematically moved across company codes.
- Delivery and goods receipt documents provide full traceability.
Taxation Impact
- Domestic or cross-border inter-company transactions may require GST, VAT, excise, or customs duty.
- SAP tax codes must be configured carefully to avoid compliance issues.
5.Governance in Inter-company Processes
a) Data Governance
- Consistency in customer/vendor master data across company codes.
- Regular maintenance of inter-company pricing conditions.
b) Process Governance
- Clear SOPs defining when to use inter-company sales vs inter-company STO.
- Standardized approval workflows for pricing and invoice settlements
c) Financial Governance
- Monthly or quarterly reconciliation of inter-company AR/AP balances.
- Controls for transfer pricing compliance with statutory guidelines.
- Restrictions to avoid manual postings into inter-company GL accounts.
d) Audit & Compliance
- Internal auditors often review inter-company transactions.
- SAP provides audit trail documents (sales order, delivery, billing, FI postings).
- Automation helps ensure transparency and reduces reconciliation effort.
Conclusion
The inter-company process in SAP is not just a system setup — it is a critical governance mechanism for large enterprises. By properly configuring organizational elements, pricing, STOs, and billing procedures, companies ensure that internal trade is efficient, financially accurate, and legally compliant.
When supported by strong governance practices — such as consistent master data, periodic reconciliation, and transfer pricing compliance — inter-company processes help organizations maintain transparency, meet audit requirements, and streamline global operations.
Inter-company Configuration and Reports
1.Configuration in SAP (SPRO & T-codes)
A) Organizational Setup
- Define Company Codes – SPRO → Enterprise Structure → Definition → Financial Accounting → Define Company (OX02)
- Assign Plants to Company Codes – SPRO → Enterprise Structure → Assignment → Logistics General → Assign Plant to Company Code (OX18)
- Define and Assign Sales Organizations – (OVX5, OVX3)
- Assign Sales Org to Plant – (OVX6)
B) Master Data Setup
- Customer Master: Create inter-company customer (XD01/VD01).
- Vendor Master (if needed): XK01.
- Material Master: Extend material to both plants (MM01).
- Pricing Conditions:
- Maintain inter-company pricing (VK11) → Condition types IV01, PI01, PR00.
C) Stock Transport Order (STO) Setup
- Define Document Type for STO – SPRO → Materials Management → Purchasing → Purchase Order → Define Document Types.
- Example: NB (standard) or UB (STO).
- Assign Delivery Type – SPRO → MM → Purchasing → Purchase Order → Set up Stock Transport Order.
- E.g., NB → Delivery type NLCC (inter-company).
- Assign Supplying Plant to Sales Org – SPRO → Enterprise Structure → Assignment → Sales and Distribution → Assign Plant to Sales Org.
- Shipping Data – Maintain supplying plant as delivering plant in OVX6.
- Billing Type – Assign IV (Inter-company billing) in STO config.
D) Account Determination (FI/MM Integration)
- OBYC settings → Ensure inter-company valuation GLs are mapped.
- WRX – GR/IR Clearing
- BSX – Inventory posting
- GBB – Offsetting entries
- PRD – Price differences
- UMS – Inter-company revenue/expense
E) Billing & Output Setup
- Billing Type IV/IVL → configured in SPRO → SD → Billing → Billing Documents → Define Billing Types.
- Assign output type RD00 (invoice print/email) in NACE.
2. Reporting in SAP
A) Logistics Reports
- Stock in Transit → MB5T
- Purchase Order History → ME2N (STO POs tracking)
- Material Document Report → MB51
- Goods Issue / Goods Receipt → MB03, MBRL
B) Sales & Billing Reports
- Inter-company Billing Document List → VF05
- Billing Due List → VF04 (to check pending inter-company invoices)
- Sales Order Reports → VA05 (open inter-company sales orders)
- Delivery List → VL06O
C) FI/CO Reports
- Customer Line Items → FBL5N (inter-company customers)
- Vendor Line Items → FBL1N (inter-company vendors)
- G/L Line Items → FBL3N (inter-company reconciliation accounts)
- Trial Balance → S_ALR_87012277
- Document Journal → S_ALR_87012287
D) Reconciliation / Governance Reports
- Inter-company AR/AP Reconciliation → FBICR3 (classic) or SAP FSCM tools in S/4HANA.
- Profitability Analysis → KE30 (check margins on inter-company sales).
- Stock Valuation Reports → MB52 (stock overview across company codes).
3. Best Practices for Governance
- Automate Inter-company Invoice Generation – Using VF04 batch jobs.
- Reconcile AR vs AP Monthly – Ensure FBL5N balances match with FBL1N.
- Use Transfer Pricing Controls – Ensure inter-company pricing complies with tax laws.
- Monitor Stock-in-Transit – Regularly check MB5T for open STOs not received.
- Audit Trail – Enable document flow tracking (Sales Order → Delivery → Billing → FI Document).
