4 Tips on How to Optimize the Bad Debt Process

  • by Gaurav Agarwal, Principal Consultant, SAP S/4HANA Finance, Infosys Limited
  • May 31, 2013
Learn how to adopt the standard bad debt process in SAP ERP Financials to ensure better integration to original items, better reporting, and more accurate provisioning as per various regulatory needs.
Key Concept

The bad debt process is a standard SAP functionality that allows you to do provisioning on the customer overdue items that are not likely to be recovered. It enables the tracking of such open items separately by using a special general ledger indicator, and also books the likely provision under an expense account in timely manner to avoid the sudden impact on a profit and loss account owing to a customer’s nonpayment.


Nearly all organizations have account receivables (customers), and there is always a risk of customers not paying their outstanding amount for invoices on time or even not paying anything at all. Therefore, companies need to make necessary provisions for such overdue items that are likely to be irrecoverable. Companies need to make these provisions to comply with various regulations such as the Sarbanes-Oxley Act and International Financial Reporting Standards (IFRS).

In this article, I cover enhancements to a standard SAP system for the following scenarios:

  1. How to ensure the proper profit center splitting during the transfer of doubtful items
  2. How to ensure consistency between original and new documents
  3. How to influence the treatment of credit items and the options available
  4. How to influence the treatment of payment for and write-offs of doubtful items

Before describing these scenarios, I first show you the steps for the standard process for bad debt in an SAP system. To complete a standard bad debt process in an SAP system, execute transaction code F103:  menu > Accounting > Financial Accounting > Customers > Periodic Processing > Closing > Valuate > F103 - Receivables Transfer Posting (Gross). This process reclassifies all overdue invoices and credit memos to a target reconciliation account using a special general ledger (G/L) indicator (standard special G/L indicator = E).


Gaurav Agarwal

Gaurav Aggarwal is SAP S/4HANA lead consultant at Infosys Limited. He has more than 14 years of experience, including 11 years in SAP Finance. He has expertise in both SAP FI and Controlling (CO) with integration to other modules in manufacturing and process industries. He is a chartered accountant and SAP Certified Financial Consultant. He holds a bachelor’s degree in commerce and is a techno-functional expert with thorough knowledge of the necessary ABAP for functional experts. He is a veteran in G/L, AR, AP, banking, FA, Travel Management, and closing cockpit and has handled greenfield implementation, upgrades and conversions, rollouts, and support projects.

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