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Doubtful receivables & Bad Debt

Doubtful receivables & Bad Debt :

Product Companies/Service Providers, using SAP, have a large customer base . Out  of them some may delay or default for payment, after the invoicing is done.

This leads to doubtful receivables and ultimately, if not payed , a bad debt.Lets understand this with the below example.

A company has done a credit sale to a customer. Suppose the customer has gone bankrupt or has been liquidated.In that case,first of all the

Company would classify the receivable amount as doubtful receivable.

Then after a particular time frame, it will create a provision for a certain percentage of the

receivable or the entire receivable . After this, there are 2 possibilities.

1. Customer will pay the money back

2. Customer wont pay the money back.

In each of the cases, the receivable amount needs to be cleared.

SAP provides specific functionality to map and handle this entire scenario.Given below are the detailed steps.

1. Setting up a  Special GL indicator and creating and assigning a particular GL account to it.

t code: FBKP

Maintain a Special GL indicator(say D) , which is to be maintained as the special gl account for BAD Debt provisioning.

Then maintain special GL Account against the recon account.

2. Define Provision method, timeline for reclassification and also the timing and percentage for the reserve creation

t code:OB04 .

Define the Receivable Provision Methods.

In Per, maintain the month .

If 3 is maintained there, it would mean after 3 months of the item is due, this

item is due for being reclassified to a Special GL Account

In Months,maintain a value and in Perc 1, maintain a percentage.

Is 3 is maintained in Months1 and 50 is maintained Pec1, it would mean after 3 months of the item is due,

50% of the due amount can be maintained as a reserve.

Same would apply for Perc2 and Perc3

3. Define the Debit and Credit accounts for Provision for Doubtful Receivables

t code  : OBXD

maintain the Bad Debt expense account in debit section and a Provision Account in Credit section

3. Now run F103 .

It will create transfer posting , with the above provision method entered on selection screen . Lets see the accounting entries created for the same.

Initially, during the credit sale

Customer Dr 8000

Sales Cr    8000

Now if this has crossed the time line and is due for reclassification

F103 will run and this will post as below

Special GL Account Dr 8000

Customer Cr 8000(it will clear the customer item of step 1)

4. Now run F104

If number of days in arear ,has crossed the time line and is due for provision posting

F104 will run and this will post as below

Expense Account Dr 8000

Provision Account Cr 8000

5. After this, there are 2 possibilities.

a. Customer may pay the money back

Cash Account Dr 8000

Customer Account Cr 8000(it will clear the Special GL account item of step 2)

Then run F104 again. It will reverse and clear the entry of step 4.

Provision Account Dr 8000

Expense Account Cr 8000

b. Customer wont pay the money back.

Expense Debit 8000

Customer Credit 8000

In the above entry, we have to knock off the customer spl gl entry and debit an expense account.

Then run F104 again. It will reverse and clear the entry of step 4.

Provision Account Dr 8000

Expense Account Cr 8000

F103 and F104, can set up as monthly batch jobs to handle the monthly doubtful receivables and bad debts, if any.

This is how Doubtful receivables & Bad Debt are handled in SAP. Please provide your valuable comments and suggestions.



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  • Hi Rudra

    Crisp and clear document. Thanks for sharing.

    As you rightly said, the Special G/L indicator might not always be 'D' which is used. It is dependent on the client preferences.

    Also, the same settings apply to services as well, not only products.



    • Hi Sowmya,

      Thanks for the comments .

      Yes, this is basically relevant in case of all receivables, which can be because of the sale of a product or service. I will Update the document shortly.Thanks again for pointing out.



  • Hi Rudra

    A very nice document

    Few comments from my side to improve the document

    1) The Provision account - Is this a normal account or a recon account? And is it Open Item managed?

    2) The accounting entries if customer pays the money back -

    Does the Customer a/c needs to be manually knocked off against the Special GL? I think if you add this clarity in the doc, it would help

    3) The accounting entries if customer does not pay the money back -

    The scheme of entries is not clear to me.. What you gave is

    Expense Debit 8000

    Customer Credit 8000

    Then run F104 again. It will reverse and clear the entry of step 3.

    Provision Account Dr 8000

    Expense Account Cr 8000

    The Expense Debit has already been passed earlier when provision was booked and Customer Cr was passed when Special GL was booked

    . In my opinion, the accounting entry should now produce Provision A/c Dr and Special GL Cr, because now it is confirmed that the customer wont pay.. Hence, the net impact would be Expense Dr and Customer Cr

    4) Last, If PER = 3 and M1 = 3 and M2 = 6, what does this mean for Provision accounting?

    It is clear that at the end of 3 months (PER), the entry is reclassified to Special GL

    Whether the 1st Provision be booked at the end of 3 months or 3+3 months? Similarly, the 2nd Provision be booked at the end of 3+3 months or 3+6 months?

    Br, Ajay M

    • The config for OB04 is both for F103 and F104.

      The value in Per. is used for F103. So, if the item is due for more than 3 months, F103 reclassifies the document.

      The next columns are for F104, the months item due and the provision made as explained by Rudra

    • Hi AJay,

      Thanks for the comments. Please find my responses below.I will get these added in the document.

      1) This is normal Balance sheet account and is not needed to be open item managed.

      2) Yes, it has to be manually knocked off.

      3) when customer does not pay, we,in anyway, have to knock off the receivable entry sitting on the special GL indicator. So we will manually post the below entry

      Expense Debit 8000

      Customer Credit 8000

      This expense account is not the same expense account maintained in the customization for bad debt provision(OBXD) . The idea is to knock off the Customer line item and show it as an expense, finally when we are sure customer is not going to pay at all.

      and when we run F104 after the above posting, system finds that the special GL entry in customer account has been knocked off, and so it reverses the doc posted in step 4(and not in step 3).

      4) 1st provision will be booked at the end of 3 months from net due date and at the end of 6 months from net due date, 2nd provision will be booked.

      Thanks again for all your comments and input. I will update the document with all these info to make it more complete. Please also let me know,, in case you want to add or change anything else 🙂 .



      • Hi Rudra

        Thanks for incorporating the changes I suggested. Was bit afraid initially to write my comments, but somehow I did 🙂

        So, what I understand is

        1) If customer pays money - > Cash Dr and Customer Cr

        2) If Customer does not pay money -> Expense Dr and Customer Cr

        3) In both the cases 1 and 2, the Customer Cr will be used to knock off the Special GL posting upon reclassification

        4) After Knocking off Spl GL, when we run F104, it will reverse the provision posting as well by itself. I am assuming this is automatic and system will identify by itself

        Lastly, do we need to assign The Provision Method somewhere - To the comp code / Chart of accounts or somewhere else?

        Br, Ajay M

        • Hi Ajay,

          You are always welcome to give comments and suggestions.. 🙂 ..It a both ways learning..

          Thanks again for the same..It helps in improving the quality of the document...

          You are correct in point 1,2 and 3.

          The provision method we define at Chart of Account level. In OBXD . Then we can use the method in the selection screen of F103 and F104.



  • Hello Rudra,

    It is really a good doc and requesting you to pls clarify the Ajay's points in order to increase the worth of the document in to a great extent 🙂

    Thanks & Regards,

    Lakshmi S

  • Hi Rudra,

    Thanks for Blog.. I am doing the same ... but in

    Now if this has crossed the time line and is due for reclassification

    F103 will run and this will post as below

    IN SM35 Running Batch its asking Bill Portfolio ...

    and continued w/o project


    With Regards,


  • Hi Rudra,

    I'm doing the process of PDD by F103 and FAGL_104 transactions.

    In QAS environment could do and validate the entire process until the recording, then transport the requests for the PRD environment.

    When the key user was doing releases in F103 and FAGL_104, the system has not done more to correct accounting.

    We are using the NewGL, I have reviewed all the settings DEV, QAS and PRD and found no difference, I do not know where to check. Have you ever had this problem?

    I appreciate any help, Go Live was day 05/01, open already called in SAP and they could not find the error.



  • Hi,

    nice process but limited. What about the process where the whole customer goes bankrupt and you want to bring over all items to your doubtful receivables account, even the ones that are not overdue. How does SAP tackle this.


  • Hi Rudra,


    How do we post the document in step 5b when the customer is unable to pay? Can you please give more details on step 5a like a more detailed example perhaps?