How to efficiently recognize unpaid receivables in FI-CA

How can a utility or other business using Contract Accounting efficiently manage receivables unlikely to be paid?  Utilities love to write off receivables.  There is significant financial benefit to this. Unfortunately, writing off a receivable closes it and prevents further processing, like a payment or collection when a customer miraculously calls back to restart service after having skipped out on the debt.

Receivable adjustment functionality in FICA provides the ability to financially recognize the probability of payment for receivables while simultaneously permitting any follow-up activities. Receivable adjustment functionality differs from (the more well known) write off processing in FICA and should be implemented as a prior step in the overall debt management process. [Dunning > Adjustment > Write Off ]

Using value adjustment, the open items are marked but they are left open for subsequent processing.  The amounts are aggregated and the postings made to transfer them from the receivables account into a bad debt account.

Items%20still%20open%20after%20IVA%20processing

Items still open after IVA processing

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Items cleared post write off

Subsequent Processing

Payments seamlessly apply against adjusted items whereas with written off items, significant intervention is required.

Payment%20applied%20directly%20against%20open%20IVA%20items

Payment applied directly against open IVA items

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Payment on account when items written off

Online access for customers seamlessly provides details for adjusted items.  Call center agents easily see overdue receivables which have been adjusted.

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IVA items shown in Service Cloud or Customer Engagement

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Written off items not shown to agent or customer

Using receivable adjustment functionality, accounting personnel can get accurate information about bad debt and easily understand scope of the expense and any recoveries made*.

In most legacy systems, some estimated calculation is done (e.g. .5% of open receivables) and journal posting made with no tie back to the subledger.  Receivable adjustment provides the means for accurately determining this amount based on actual amount and due dates, and then properly handling subsequent actions (reversal, payment, write off) by updating the calculated amount.

Legal restrictions may also forbid collection past certain time periods, or for certain accounts, e.g. bankruptcy. When no further collection activity should take place, then write off is the proper course of action.

I hope that the ensuing details make this functionality easier to implement and enables you to achieve simple and quick financial accounting utilizing standard functionality to its fullest.

Adjustment can be done in 2 ways – Doubtful and Individual Value Adjustment (IVA).  Doubtful processing is executed for 100%, all or nothing, while IVA can be done flexibly by time and % (and also manually for specific $ amount).  Adjustment triggers can be created via the dunning process – they can be created via dunning activity directly, or using value adjustment variant in the mass activity selection for FPRW.

In this post, I focus on various IVA calculation scenarios. Accounting for doubtful entries is very similar to IVA calculation type 02.

After receivable adjustment is executed for an open item, field DFKKOP-INFOZ is updated to reflect this but all other document fields remain as before.

There are ten standard defined calculation types available for individual value adjustments. Selection of the correct calculation type should be based on company requirements (and can be set per company code).

Adjustment postings are made via Value Adjustment mass transaction FPRV.

All adjustment postings are made to non-recon general ledger accounts.

Basic configuration

Calculation Type

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IVA calculation type settings per company code

Account determination:

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IVA accounting posting area 1302

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Reset alternative account posting area 1299

Scenario data

For a receivable of 111.41, including 5% tax (105.60 revenue and 5.81 tax), a partial payment of 20 has already been made. The remaining open item for 91.41 should be adjusted.  91.41 represents the net open amount while 86.64 is the gross open amount and 4.77 is the tax amount. Some subsequent payments are made to provide visibility of the adjustment postings and to show the usage of alternate accounts.  Write off would result in similar postings.  Reversals would obviously undo the full adjustment.

  • The calculation type ‘ ‘ defines that the value adjustment is calculated from the open net value of the receivable on the adjustment date. Partial payments received after the value adjustment only reduce the value adjustment if they exceed the non-adjusted portion of the receivable. The value of the tax is not adjusted.

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100% IVA: 86.64 is adjusted. This corresponds to the open net value of the receivable. (91.41 – 4.77 tax remaining unpaid).

50%25%20IVA%3A%2043.32%20is%20adjusted%2C%2050%25%20of%20the%20open%20net%20value

50% IVA: 43.32 is adjusted, 50% of the open net value

Payments have no posting effect until the open unadjusted 43.32 is cleared.

%2448%20payment%3A%2086.64%20%u2013%2048%20%3D%2038.64

$48 payment: 86.64 – 48 = 38.64

  • Calculation type 01 defines that the value of the open amount is adjusted. The value of the tax is also adjusted. The amount of 91.41 is split proportionately into 86.64 revenue and 4.77 tax and the values are adjusted.

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100% IVA – tax and revenue accounted separately

50%25%20IVA

50% IVA

%2410%20payment%20after%2050%25%20IVA

$5 payment after 50% IVA – partial revenue and tax adjustment is made

  • Calculation type 02 specifies that first the tax is considered and then the revenue (usually used for the U.S.A.). The tax is therefore considered paid, and the value of the remaining revenue amount is fully adjusted.

100%25%20IVA

100% IVA – all open amount is adjusted

50%25%20IVA

50% IVA

%2410%20payment%20after%2050%25%20IVA

$10 payment after 50% IVA

  • The calculation type 03 specifies that the value adjustment is calculated from the open gross value of the receivable on the adjustment date, but to a maximum of the open net amount of the receivable.

100%25%20IVA%3A%2086.64%20is%20adjusted

100% IVA: 86.64 is adjusted

50%25%20IVA

50% IVA – 50% of open amount (91.41) is determined for posting

$10 payment triggers no additional adjustment

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Additional $38 payment after 50% IVA – adjustment only after non-adjusted items are cleared

  • Calculation type 04 specifies that the value adjustment is calculated from the open net value of the receivable on the selection date. Partial payments received after the value adjustment reduce the value adjustment. There is no tax adjustment. In the example, 86.64 is adjusted, as is the case for calculation type ‘ ‘.

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100% IVA

50%25%20IVA

50% IVA

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$10 additional payment, results in partial subsequent adjustment

  • Calculation type 05 specifies that the calculation of the value adjustment always results from the remaining open gross amount. There is no tax adjustment. A differentiation is also made between legal and accounting value adjustments (for instance, for Slovakia and the Czech Republic). 91.41 is adjusted

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100% IVA

50%25%20IVA

50% IVA

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$10 payment after 50% IVA

  • Calculation type 06 is the same as calculation type 05, but if value adjustments are reset due to write-offs or payments, this is posted in alternate accounts as defined in posting area 1299

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100% IVA

%245%20payment%20after%20100%25%20IVA%20posts%20to%20alternate%20account%20from%20PA1299

$5 payment after 100% IVA posts to alternate account 140014 from PA1299

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50% IVA

%2410%20payment%20after%2050%25%20IVA%20posts%20to%20alt%20acct%20from%20PA1299

$10 payment after 50% IVA posts to alt acct 140014 from PA1299

  • Calculation type 07 corresponds to calculation type ‘ ‘. The value adjustment is calculated based on the open net value of the receivable. However, the resetting of value adjustments due to write-offs or payments are posted to alternate accounts as defined in posting area 1299.

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100% IVA

%245%20payment%20after%20100%25%20IVA%20posts%20to%20alternate%20account%20via%20PA1299

$5 payment after 100% IVA posts to alternate account 140014 via PA1299

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50% IVA

$10 payment does not trigger adjustment

%2438%20payment%20after%2050%25%20IVA%20posts%20to%20alternate%20account%20via%20PA1299

$38 payment after 50% IVA posts to alternate account 140014 via PA1299

  • Calculation type 08 specifies that the value adjustment is calculated from the open gross value of the receivable on the adjustment date. Partial clearings made after the value adjustment only reduce the value adjustment if they exceed the non-adjusted portion of the receivable. The value of the tax is not adjusted. If the value adjustment is reset, this is posted to alternate accounts as defined in posting area 1299 for the following business processes:
    • Reset due to payment of an adjusted receivable
    • Reset due to write-off of an adjusted receivable
    • Reset due to a change to a value adjustment (reduction of the percentage of the value adjustment or of the specified value adjustment amount) for an adjusted receivable
    • Reset due to sale of an adjusted receivable
    • Reset due to reversal of an adjusted receivable

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100% IVA

%245%20payment%20after%20100%25%20IVA%20posts%20to%20alternate%20account

$5 payment after 100% IVA posts to alternate account 140014

50%25%20IVA

50% IVA

$10 payment no adjustment

%2438%20payment%20after%2050%25%20IVA%20posts%20to%20alternate%20account

$38 payment after 50% IVA posts to alternate account 140014

  • The calculation type 09 ensures that the calculation of the value adjustment is carried out with an open net value of the receivable on the adjustment date and posts the reset of a value adjustment (for example on payment or during write-off) to alternate accounts (in accordance with IFRS 9) as defined in posting area 1299. The value of the tax is not adjusted.

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100% IVA

%245%20payment%20after%20100%25%20IVA

$5 payment after 100% IVA posts to alternate account 140014

50%25%20IVA

50% IVA

%2410%20payment%20after%2050%25%20IVA

$10 payment after 50% IVA

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Doubtful processing for reference

Appendix:

Table DFKKZW is populated when FPRW or FPZW is run. DFKKOP-INFOZ is populated (901) for open items at same time

Table DFKKZW2 is populated when FPRV is run.  And updated for each subsequent mass activity execution.

IVA recalculates tax amounts – it does not inherit them from the original open items being adjusted.  In most every case, this works as desired.  Event 2953 is available to adjust gross/net and tax amounts per line item.  Additionally if using calculation type 01, note 3118733 provides the ability to override the tax data and generate new/different tax lines.

* If write off functionality is used more liberally, e.g. write off then reverse then write off again, the recoveries will be significantly overstated resulting in accounting and reconciliation challenges. 🙂