Introduction:

Companies with a large number of clients may experience payment delays or invoices that are past due for an extended period of time, creating questionable receivables. An organisation might need to submit provisioning entries for these uncertain receivables as part of the month-end procedure.

Main issue:

The real invoice is paid, and a new open item is generated under a Special G/L indicator by using conventional transfer posting and provisions for dubious debts (transaction codes F103 and F104, respectively). The issue is that while creating the report, it becomes challenging to locate the original invoice number, and the provision entry does not post profit center-wise as it did on the invoice.

To fix these problems, we can post a provision for Doubtful receivables using the Value adjustment key. This blog provides a detailed explanation of the solution.

Solution:

The fundamental setup for flat-rate value adjustments, the prerequisites for conducting the process, and the steps to run the process will all be covered in this blog.

  1. Simple flat-rate value adjustment arrangement

a. Value Adjustment Key:

Setting up the Value Adjustment Key is the first step in key configuration. It can be made specifically for each Country key (optional) or for Valuation Approaches (for different accounting principles). We can specify the number of days after which an open item needs to be taken into account for valuation as well as the percentage of adjustment against the value adjustment key.

The posting amount is determined by the PT (Posting Type) (net, gross etc). For a given key, we can also construct several entries based on the number of days and percentages.

For instance,

Key AR can be set to 100% for 200 days, 50% for 100 days, 25% for 50 days, and so on.

If we select the “Valuate Manually” check box and leave the % field empty, the system will suggest the items to be processed during the valuation proposal run even if we do not want the provision to be automated and posted only manually.

SPRO Route:

Business Transactions > Closing > Evaluate > Valuations > Define Value Adjustment Key SPRO > SAP Reference IMG > Financial Accounting (New) > Accounts Receivable and Accounts Payable

OB 7 T-Code

The configuration displayed below refers to a valuation area rather than a particular country. The configuration is set up so that the entire invoice amount (100%) will be regarded as provision if an invoice is open for more than 100 days and the value adjustment key is kept in the customer master.

b. G/L accounts for automated adjustment postings:

In this section, we must keep track of the Expense accounts and Provision accounts in relation to the Reconciliation Account, in this example, the Customer Reconciliation Account.

SPRO route:

Financial Accounting (New) > Accounts Receivable and Payable > Business Transactions > Closing > Evaluate > Valuations > Define Accounts SPRO > SAP Reference IMG

OBB0 T-Code

2. A requirement to carry out the process is:

For provision posting, only customers with a value adjustment key that is kept in the master will be taken into consideration.

Maintain the value adjustment key as indicated below in the customer master (BP).

3. Procedure for Provision for Doubtful Debts:

SPRO route:

Accounting > Financial Accounting > Accounts Receivable > Periodic Processing > Closing > Evaluate > Additional Valuations SAP Easy Access Menu

 T-code F107

To distinguish between multiple runs with the same reconciliation key date, use any five-character identification as the Run date, which should be the day on which you are running.

Click on keep.

Fill in the highlighted fields in the section below.

The deadline for taking open items into consideration is referred to as the “key date.”

Method Val -3 (Flat rate individual value adjustment)

Type of currency -10

ZZ valuation area

Check the “postings” box.

Dates for posting and reversal should be entered.

Add the document type for both the provision posting and the reversal (SA-normal JV document Type).

Then select options as displayed below,

Give further details here on which the valuation should be based. The client check box and company code are the two that must be filled in as a minimum, as is illustrated below.

Choose Execute.

Next, click Save on the screen below.

As indicated below, click Dispatch.

Click the dispatch button after selecting the checkbox as indicated below.

Click Show.

All open items, including those without a valuation key assigned in the customer master, are visible here. However, it will only display the provisioning value for those who have the value adjustment key set in the master and have passed the specified number of days (for instance, 100).

The results of filtering by valuation key and number of days are displayed below. Simply seeing the list and cross-checking it.

Click Backward then Forward as displayed below.

The provisional entries will be posted at this point.

The appraisal is executed when the below-highlighted space displays as finished.

To inspect the logs and check for issues, click More and then follow the below steps.

The document numbers of the posted papers will be shown if there are no errors.

The list of posted entries is displayed in a sample posting.

According to the invoice’s profit centre breakdown and the configuration’s specified number of days past due, the provisions are posted.

Note :

Individual value adjustment at a flat rate:
Provision entries are only made for open invoices that are past due (debits). However, the computer actually chooses both the Open Credits and the Open Debits (bills) (On account payments, Open Credit memo etc).
By utilising the flat rate individual adjustment (valuation method 3), it takes into account the following value for provision:

  1. Each group’s balance is determined (Customer in our case)
  2. If there is merely a credit balance, there is no calculation.
  3. If a customer has both credit and debit accounts, the credit amounts are deducted from the longest-past-due receivables. The provision is then considered for the remaining debit items.

Conclusion:

So, in this blog post, we went through the fundamental setups, requirements, and procedures for running the Doubtful Debts Provision utilising Value Adjustment Key. If you have used any other techniques to get the same results, or if you have any criticisms, please feel free to share.

Reference:

Provisioning for Past Due Accounts (2PD) (sap.com)