Virtual Payments for Uncollectible Receivable (Bad Debt)

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This blog post is about the new deliverable of uncollectible receivables, aiming to introduce the new Business Add-in (BAdI) for virtual payment and the related business scenarios. You can find the detailed information of the previous deliverables in the previous blog post Introduction of Bad Debt Relief solution.

Bad Debts with Late Payments Arriving

Before introducing the business cases where the new BAdI is applied for, we need to first understand two different types of bad debts with late payments arrival.
If the payee already paid the VAT amount to the tax authority but does not receive the payment eventually, the invoices are marked as uncollectible receivable by local courts. However, it may happen that the payments still arrive later and results in two scenarios below:

• Uncollectible Receivables with Subsequent Payments - The invoices are marked as bad debts but stay open (not cleared). Even if later the payer eventually pays the invoice amount, the payee can use the payment for real clearing.
• Uncollectible Receivables with Virtual Payments - It happens when the invoice is written off (cleared) but later the payment arrives from the payer. Virtual clearings stand for clearing documents which are not presented as real clearing to bad debt receivable items.

Business Scenarios with Virtual Payment

Note: The colors in the graphic represent different periods.

Example 1 - Written-off Bad Debt with Subsequent Payments

1. In January 2020 (Blue), the invoice is determined as bad debt, but the payee already paid the tax to the tax authority 100 euro. (If we take 10% as a VAT rate from an invoice with 1000 euro.) A credit memo (100 euro) is created for this VAT amount.
2. In January 2021 (Red), the invoice is cleared because the payee does not expect any payments in the future.
3. in January 2024 (Green), two incoming partial payment arrive, these two payments might be posted in Contract Accounting (FI-CA) as overpayments on account, or in Financial Accounting (FI), or might be used to clear other open receivable items because the originally bad debt receivable was cleared in January 2021.

Solution

Two late arriving partial payments, instead of being used as real clearing documents, that is, value filled in the field DFKKOP-AUGBL, are used as “virtual payments,” or assigned as “virtual clearing.” Accordingly, two debit memos are created (20 euro and 10 euro) to correct the VAT tax amount sent to the tax authority.
The final credit memo is 70 euro, because the original credit memo 100 euro (from invoice with 1,000 euro) is calculated with total debit memo amount 30 euro.

Example 2 - Written-off Receivable item with Subsequent Payments before the Bad Debt Marking

1. In January 2020 (Blue), the invoice is cleared with clearing reason 04 or 14 because the payee does not expect any payments in the future.
2. In January 2021 (Red), two incoming partial payments, total 300 euro, arrive. The clearing in this case is not allowed to reverse. Since the invoice was written off already, these two payments are assigned as virtual clearing to the invoice.
3. In January 2024 (Green), the receivable item was marked as bad debt because the sum of the partial payments is still lower than the receivable amount 1000 euro.

Solution

The invoice of 1000 euro is cleared with virtual payments totaling 300 euro and 700 euro left. The VAT amount is 70 euro. The credit memo is created for 70 euro. The virtual payments reduce the open item amount as a basis for credit memo calculation.

Example 3 - Reopened Bad Debt Receivable after Written-off Reversal with Payments

This situation occurs when the write-off is allowed to be reversed based on the local law. The write-off is reversable anytime or for certain business reasons, such as the write-off reason was wrong.

This diagram depicts if the write-off is reversable in example 1. The progress from January 2020 to January 2024 is the same as that in example 1. Until the end of January 2024, the invoice is left 700 euro unpaid and written-off after the virtual clearing with one credit memo 70 euro.

In December 2024 (yellow), if the written-off is reversed, the bad debt item is reopened and can be normally cleared if there are future payments.

If the write-off is reversed before the incoming payment arrives as shown above.

• In January 2024 (green), the invoice is reopened and can be normally cleared.
• In December 2024 (yellow), the incoming payments of 300 euro can be used to clear the 1000 euro as a real clearing process. No virtual payments/clearings are involved.

Technical Solution

To allow the virtual payments stated in the previous examples, a new Business Add-In method is introduced. You can use the BADI BADI_FKK_ID_TC_ANA and its method GET_VIRTUAL_CLEARING to implement your own logic of reading the information about virtual clearings and provide them to the bad debt analyses.

Note: The BAdI method GET_VIRTUAL_CLEARING is called by bad debt analyses for those bad debt items which are open (not cleared) or are cleared with irrelevant clearing reason. You can define the “irrelevant clearing reasons" in the existing customizing or defined by another BADI method CHECK_CLEARING_RELEVANT.

The payments for virtual clearings must be saved in the Z database table to provide bad debts analyses as the BAdI customer implementation. The recommended approach is as follow:

1. Prepare a Z data base table with fields for the payments for virtual clearings:
   

   Field	Short Description	Key Field
   TCRPD	Corrected Document Number	X
   TCRPR	Number of Corrected FI-CA Document Repetition Item (Remark: Maintain this field always as 0)	X
   TCRPL	Number of Corrected FI-CA Document Item	X
   AMBEL	Number of Payment Document	X
   BETRH	Amount In Local Currency With +/- Signs
   BETRW	Amount in Transaction Currency with +/- Sign
   WAERS	Currency Key

2. Create records for this database table once the payments are recognized relevant for bad debt receivables.
3. Follow the instructions when handling the records of this data base table:
   • Do not change the amounts over time.
   • If any payment is reversed, delete the record, and do not use the same payment number anymore.
   • Execute checks when creating records. That is, the sum of payment amounts must not exceed the bad debt items amount.
4. Implement the reading of database records as described in BAdI implementation instruction with minimum implementation of your own logic.
5. Use another database table to save historical information to see the changes of the records.

SAP Note

The general functions in this blog post can also be used for country/region-specific solutions, such as deliverables described in the SAP Notes for Slovakia.

3404104 - FI-CA SK: VAT Control Statement - Bad Debt Relief #10

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