Automate Doubtful Customer Transfer & Provision Creation

Doubtful%20Customer%20Transfer%20and%20Provision%20Creation

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 creteria. 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 creteria that should be taken into consideration for Doubtful transfer and provision creation.

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 fullfill 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 Customer Doubtful Transfer. Provision account should be maintaind in the customizing

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 transfered 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 procceed to post the payment by using the Tcode F-28 or other. In this step, It’s important to used 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 creteria 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 creteria and a provision posting is updated accordignly.

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%.

If you want to reduce the volume of bad debt and avoid recurring to recovery service. Financial department should develop a strong Cash Management strategy with different levels of control.