In SAP ERP it is possoible to Automate Doubtful Customer Open item transfer and create the corresponding Provision.
When Customer Open Item are overdue, the accounting department may want to treat them as a bad debt based on thier own criteria. For this, the account receivable team perform some manual activities to:
- Do Doubtful Customer Transfer
- Create Provision
The above closing periodic tasks may be part of automatic processes.
For this, the business should define the criteria that should be taken into consideration for Doubtful transfer and provision creation.
1. Customizing
The Business can decide to consider debt as bad debt based on their own criteria. For an example, let’s assume that the accounting department wants to apply the following rules;
For this, you need to create a provision method and fulfill as described above. The customizing can be done by following the below steps:
Remark:
The Special G/L “E” should indicate the appropriate account for Doubtful Customer Transfer. Provision account should be maintained in the customizing
2. Process
After process configuration like above, this business flow should be working like following. Two cases to consider for better understanding:
Like configured;
The Customer Open Items due since 6 months will generate a provision of 50% of the due amount. The Customer Open Items due since 1 year will generate a provision of 100% of the due amount.
The Tcode F103 will allow you to do Doubtful Customer Transfer and the Tcode FAGL_104 will allow Provision Creation.
Fortunately, in some cases, it happens that the business receives a payment for the transferred open items.
Two cases to consider; Total or Partial Payment.
2.1 Total Payment for Customer Open Item due since 1 year
If without recurring to recovery service, an incoming payment is received for the due amount. In SAP, you can proceed to post the payment by using the Tcode F-28 or other. In this step, It’s important to use the Special G/L “E”. As a result of this operation, the Doubtful Customer line item will be cleared.
After this step, the Tcode FAGL_104 is relaunched again with the appropriate criteria and the provision posting is reversed.
Below an illustration of the process
Remark:
To make this illustration easy to understand, this example contains simple amounts without VAT. Also, in this case, with Open item due since 1 year, the provision is 100%.
2.2 Partial Payment for Customer Open Item due since 1 year
In case you are not as lucky as in the previous case, and you have received only an incoming payment with the half of due amount. In SAP, you can also procceed to post the partial payment by using the Tcode F-28 or other. In this step, It’s also important to used the Special G/L “E”.
After this step, the Tcode FAGL_104 is relaunched again with the appropriate criteria and a provision posting is updated accordingly.
Below an illustration of the process
Remark:
To make this illustration easy to understand, this example contains simple amounts without VAT. Also, in this case, with Open item due since 1 year, the provision is 100%.
For partial payment, it is important to use the residual payment to clear the initial open items. This makes the provision program generates new provisions with the remaining due open items.
3. Conclusion
If you want to reduce the volume of bad debt and avoid recurring to recovery service. Financial department should develop a strong Credit Management strategy with different levels of control.
