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FICO vs FICA, why FICA for utility companies instead of Standard Account receivables.

Narasimha MS as you are on community and now we are connected, let me tag you here, as earlier efforts of finding you on platform stood null and void.

It’s worth mentioning you here, as below would never up and helpful for others without you.

Disclaimer: Read it as a story, this would be a long blog as first it explains how things work in FICO and why SAP needed to come up with FICA to address industry specific challenges.

Blogger say: Below will come handy, if reader holds basic FICO business understanding.

When it comes to billing in SAP ECC SD, Customer number act as a sub ledger account, having data maintained as payer.The invoice that we prepare is posted to account and then the reconciliation account.

(i.e whatever is the receivable amount along with the total amount and the revenue amount are posted to various revenue account and reconciliation account, and the customer account is posted/updated for the receivables)

That means customer number itself act as an account in case of customer master and we maintain a complete integrated master record for the customer, which involves the sales and distribution application data and accounting related data.

This is how flow happens in the case of standard accounts receivables.

Standard sub ledger in SAP and how they work in integration with the general ledger accounting system?

The basic process in SD start with sales order processing and then subsequently create a delivery document. Where the inventory consumption will happen and inventory goods issue will happen.

Then an accounting document is posted into the finance accounting and subsequently we prepare the invoice and it is posted to customer account as a receivable and all the details of the invoice which includes the values for the revenue account are posted to revenue account and total amount is posted to customer account

That means when we post to customer account, in parallel the amount is also posted to GL account along with the revenue accounts and tax accounts.

That’s how a kind of a integration happen between SD for generic business process and then the financial accounting.

Now why we are going for FICA (Finance and Contract Accounting) instead of Standard Account receivables?

Basically FICA is a cross application component, it’s an industry specific sub ledger accounting system used in various industry specific solutions like ISU, Telecom, Insurance.

If we compare it, business is B2C scenario, whereas in SD we consider it as B2B scenario, business is selling to another business.

Now in case of ISU, the distribution company is providing distribution services to a large population of consumers, which will be in millions.

And business itself has got periodic transactions. Every month performing meter reading activity, enter result, validate, prepare a billing doc, then prepare invoice.

Now if we follow the method of general ledger accounting and standard sub ledger accounting system like customer account, what would happen, for every invoice we have to post values directly into financial accounting.

But we are processing large number of invoices, lets say 20k invoices per day, so we can imagine amount of data that we have to post in financial accounting and over the month say 30 million invoices, that will further result in 30 million accounting documents.

So if we go in the direction of standard sub ledger accounting system, it leads to huge amount of data processing and posting into financial account.

To overcome this we have FICA. Basically, in case of ISU, we do not maintain a traditional customer master, because we don’t need that information as we are not going to create any sales order, delivery, billing

ISU has its own business process, so instead of using customer master record, we make use of BP. Business partner master record to represent the customer in our system.

But when we prepare a BP master, it got no accounting data, its not having any connection with the company code, we maintain a very general kind of data

Like what is the name, address of BP, identification details, the bank details. But it has got no information as far as accounting is concerned. Because we don’t have to maintain the customer record as we don’t have those application.

So question comes, when we create a BP, how we create a invoice and how do we post it to financial accounting?

That’s where we make use of FICA. Once we create a BP, we create a contract account, this CA (contract account) is the master record, what is maintained because of FICA and for FICA when we prepare CA, we maintain the accounting perspective.

Whatever is necessary information for posting of the contract account, that information is gathered and stored in CA. So CA becomes the account actually for the BP.

Why FICA instead of standard Account receivables?

FICA provides certain flexibility in terms of the account, once we create a BP, we can create one CA or more than one CA (customer has contract account for both, water and electricity), unlike in the case of standard customer master.

  • If we create a customer master record, customer number is an account, so we cannot say, I have a customer with 2 account, it has to be only one.
  • In FICA, when we create a BP, we follow it up with CA and we can create more than one.
  • FICA Supports mass and parallel processing as it deals with large number of data.
  • Optimized use of storage space due to special type of document structure

Bird eye

Every invoice will have a corresponding FICA document, which we can call it as open FICA document. Once the processing is completed for the day, all this FICA documents, which are open, are summarized using a reconciliation key.

Then these summarized values are transfer to Financial Accounting under periodic processing. So, instead of posting same GL account for 20k times (if 20k invoices), we are posting 1 total aggregated value to the particular GL account.

So, we can see how drastically we are bringing down the volume of data, that we are posting to financial accounting.

   

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  • Just awake and here is your pleasing comment…morning motivation, thanks a lot for going through the blog and sharing your humble feedback @abhishek 🙂