Contract Accounting.fica

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September 2004 • www.FICOExpertOnline.com

SAP Financial Accounting (FI) deliversthe standard Accounts Receivable (FI-

AR) module to track accounts receivable transactions. This module is tightly inte-grated with the Sales and Distribution(SD) module to enter and process cus-tomer master data, shipping, billing, andreceivables.

As requirements became more complexand the data volume increased substan-tially over the last couple of years, SAPdeveloped a module in FI for tracking A/Rdata. This application component isknown as Contract Accounts Receivableand Payable (FI-CA). SAP promotes FI-CA as a subledger application alternativefor the FI-AR module and AccountsPayables module (FI-AP). I will focus onthe FI-AR capabilities of contractaccounting, since SAP developed morenew functionality related to A/R than A/P.I will show you the strengths of both func-tionalities so that you can determinewhich one best matches your needs.

FI-CA was developed to deal with a largenumber of different customers and differ-ent types of receivables. FI-CA is mainlyused in industry-specific SAP compo-nents, which by nature have manycustomers and many different receivabletypes. Examples industries are the publicsector, utilities, insurance, and telecommu-nications. Even if you do not fall into oneof these industry groups, you can still usecontract accounting. The industry solu-tions for FI-CA have been available since1999. An industry-neutral version wasintroduced in 2002.

FI-CA is not only tightly integrated withthe core SAP components like FI,Controlling (CO), Customer RelationshipManagement (CRM), and SD, it also has

the capability to deal with customers andpayments over the Internet by using SAPBiller Direct, which allows your companyto use electronic bill presentment andpayment (EBPP).

Tracking MultipleReceivables TypesAssume that following business scenarioexists in your company: You are requiredto track the receivables by customer/service in different receivable balancesheet accounts. In the FI-AR module, acustomer can only be linked to one singlereceivable account (reconciliationaccount). Although you could use theworkaround of the special G/L indicators

Although both Accounts Receivable (FI-AR) and Contract Accounts Receivable and Payable (FI-CA) track accounts receivable transactions, there are important differences between the twomodules. The author compares your options and presents the benefits and drawbacks of each.

FI-CA or FI-AR: Which Module Best Fits Your Needs?

by Martin Ullmann, Manager, Ariston Consulting

AA bbuussiinneessss ppaarrttnneerr is a customerwithin FI-CA. The business partnercontains central data such as name,address, and bank details.

All invoices and payments areposted to a ccoonnttrraacctt aaccccoouunntt, whichis assigned to a business partner.The contract account containscontrol information like paymentmethods, payment conditions, ordunning procedures.

AA ccoonnttrraacctt oobbjjeecctt is an optionalmaster data object that can beassigned to a contract account andbusiness partner. The contractobject allows for the segregation ofreceivables below the contractaccount.

Glossary>>

SAP delivers FI-CA in a couple ofdifferent flavors to deal withindustry-specific requirements.FI-CA is the preferred A/R solu-tion in following industrysolutions

• IS-T: Industry Solution forTelecommunications

• IS-U: Industry Solution for theUtilities Industry

• IS-M: Industry Solution for Media

• FS-CD: Industry Solution forInsurance

• IS-PS-CA: Industry Solution for thePublic Sector. This component isalso known as PSCD (PublicSector Collections andDisbursement).

Note>>

Master data concept within FI-CAFigure 1

Master data examples within industry solutionsTable 1

Component Industry Contract account Contract Explanation

IS-U Utility Water service location Service type One contract account is created for each service location, but each servicelocation can have multiple services, i.e., water, sewer, or irrigation.

FS-CD Insurance Car insurance Vehicle One car insurance contract account is created for each customer, but onecustomer can have multiple vehicles, which FI-CA classifies as differentobjects.

IS-PS-CA Public sector Property tax Property Within a local public sector organization, a property taxpayer can havemultiple properties, which are created as contracts.

8 © 2004 FI/CO EXPERT Reproduction prohibited. All rights reserved.

to track receivables in different reconciliation accounts, SAPintended the special G/L indictor to be used for special transac-tions like bad debt or security deposits rather than as a tool totrack receivables for different services.

This design that links a single receivable account to one customermakes it impossible to track different receivables for one cus-tomer in different accounts. The only solution to the abovescenario is to create multiple customers with different receivableaccounts, which has the disadvantage that the receivables cannotbe tracked in one customer account.

In comparison to FI-AR’s singular model, FI-CA has a multi-level master data concept. The highest level is the businesspartner. A business partner in FI-CA is equivalent to a customerin the FI-AR module. The second level is called a contractaccount. For each type of receivable, a contract account iscreated for a single business partner and one business partner canbe assigned to multiple contract accounts. Similarly, one contractaccount can have more than one business partner. In FI-CA, thereconciliation account is determined on the contract accountlevel, not on the customer level like in the FI-AR module.

If you build a master data structure in FI-CA based on the abovebusiness scenario, then one business partner would have multiple

contract accounts with separate receivable accounts linked to theindividual contract accounts. This makes it possible to track dif-ferent receivable types for one customer in multiple receivableaccounts, a task that is impossible using FI-AR.

Master Data Management in FI-CAAs previously described, a single business partner can have mul-tiple contract accounts in FI-CA. In addition, SAP offers a thirdmaster data layer within FI-CA. This third object is called con-tract or contract object. The purpose of this object is to furtherdistinguish the receivables within a contract account. The is nec-essary if you need to group receivables from multiple contractsinto one contract account and still want to separate the receiv-ables (Figure 1). The purpose and the functionality of thecontracts vary within the different industry solutions; however,the concept is always the same. See Table 1 for a list of exam-ples of contract accounts and contract combinations within thedifferent industry solutions.

One interesting feature within master data management is theability to create user-defined fields or new tabs and combinescreens using the Business Data Toolset (BDT) without any mod-ifications. BDT maintains and supports transaction data andmaster data.

Functional Features of FI-CA Let’s compare FI-CA’s functions with what is currently availablein FI-AR. Table 2 compares many aspects of the two modules’functionality. This table may help you decide whether FI-CAcould be an alternative for your organization. In the next section,I will describe the features with the most functional differencesin greater detail.

Security Deposits FI-CA’s security deposit funtionality can be used to manage cashand non-cash security deposits, for example payment guaranteesor letter of credits. Security deposits have a status of requested,received, or paid. These statuses allow the deposits to be

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managed. Each security deposit is created with a “valid from”and “valid to” date, which defines the validity period and alsoinfluences the interest calculation dates (Figure 2).

For cash security deposits, interest can be calculated for each lineitem. You can do this individually or in a mass process. In the FI-AR module, you can track security deposits with the help ofspecial G/L indicators and calculate interest on them. The maindifference is that there is no easy way to manage security depositrequests and non-cash security deposits. The only option is to usenoted items. Noted items (transaction F-38) are statistical itemsthat can be used for security deposit requests or letter of credits.

You have to use two FI-AR functions, special G/L indicators andnoted items, to cover the same functionality in FI-CA.

Installment PlansThe FI-AR module does not provide functionality for the man-agement of installment plans. In FI-CA, installment plans can becreated for outstanding receivables for different installmentplans, i.e., weekly or bi-weekly installments. The old receivablesare then cleared and new receivables are created. This allows foreasy tracking of installment line items. You can charge additionalcosts or calculate interest on the installment items upon creation.In Figure 3, a bi-weekly installment plan with four installmentsis created for all open items of a customer. The system then takesall open items and divides the total amount due into four install-ments with new due dates.

In this example, an installment plan with four installments iscreated for the total amount of $66.15 (Figure 4). The startingdate for the first installments is 07/23/2004. The next installmentdue dates are based on the interval type, bi-weekly in this case.

Cash Desk PaymentsOne of the main features in FI-CA is a robust cash desk compo-nent (Figure 5). With this component, you can manually post andassign payments at a cash desk. You can process the followingpayment types:

• Incoming cash payment

• Incoming card payment

• Incoming check paymentSecurity depositFigure 2

Functionality FI-AR FI-CA

Security deposits Limited functionality. Security deposits canbe created as “noted” items.

Comprehensive solution available for cash and non-cash securitydeposits. Interest can be calculated for cash security deposits.

Installment plans No solution available Installment plans can be created for open receivables

Electronic bank statements (EBS) EBS payments are fully supported EBS payments are fully supported

Account debit payments Automatic account debits are supported viaACH debit functionality

Automatic account debits are supported via ACH debit functionality

Cash desk payments Limited functionality via check deposit orpayment functionality

A robust cash desk solution that allows for cash, checks, and creditcard payments

Credit processing Credit processing with check issuance Credit processing with check issuance

Dunning Multiple dunning levels and proceduresavailable

Each dunning level can be customized with different activities

Collection agencies No solution available Comprehensive solution. Doubtful receivables can be interfaced todifferent collection agencies

Reporting A variety a standard A/R and aging reportsare available

A limited number of reports are available. SAP expects that cus-tomers use Business Information Warehouse (BW) for reporting.

Functional comparison between FI-AR and FI-CATable 2

10 © 2004 FI/CO EXPERT • Reproduction prohibited. All rights reserved.

• Postal order (wire transfers)

• Outgoing cash payment

• Outgoing check payment

From an organizational point of view, branch offices are createdfor different departments. Within these branch offices, you cancreate separate cash desks, which provides a segregation of thesingle cash desks within an organization.

Within the FI-CA cash desk, you can apply payments to openreceivables by selecting open items by business partner or con-tract account. You can post additional payments directly torevenue accounts by using the TrPostg to key. This key is a shortaccount assignment key for transfer postings. Accounts andaccount assignments — i.e., cost center or internal orders — areassigned to each key in Customizing. This is advantageousbecause users only have to know their respective short assign-ment keys in order to record revenue correctly.

In comparison, the FI-AR module does not have functionalitythat allows you to process both customer payments and revenueposting from a user-friendly, one-screen transaction. Paymentsagainst open receivables can be applied using transaction F-28(incoming payments) and incoming checks can be depositedusing transaction FF68. If you deal with a lot of incoming pay-ments by check, cash, or credit card and need to apply thesepayments against open receivables or just record the payment asrevenue, there is no good alternative in the FI-AR module.

DunningWith FI-CA’s dunning functionality, you can automatically senddunning notices, or payment reminders, to your business partners

to remind them of overdue payables and to request payment. Youcan also trigger user-defined dunning activities, i.e., transferitems to a collection agency.

Dunning takes place in two steps. In the first step, the dunningprogram determines:

• The contract accounts to be dunned and the items due for dunning

• The valid dunning procedure and the related dunning levels forthe individual items

• The dunning groupings in which the items are summarized

The dunning functionality uses this information to create a pro-posal structured by dunning groups.

In the second step, the dunning program triggers the relevantdunning activities for the individual dunning groupings. You arefree to choose the criteria by which dunning notices are grouped.

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Create a weekly installment planFigure 3

Bi-weekly installment plan items Figure 4

Cash desk payments entry screenFigure 5



Martin Ullmann has more than 10 years of experience with SAP R/3. He is a manager with Ariston Consulting, which specializeson the high tech, utility, and public sector industry. His main area of expertise lies in the FI/CO area with focus on new compo-nents, integration, enhancements, and business process improvements. Martin can be reached via email [email protected].

For example, you can create a dunning grouping using any orcombination of the following criteria: business partner, currency,company code, or dunning recipient. You can define additionaldunning criteria and group them as needed. You can also definedunning activities as required. For instance, a dunning level cantrigger the printing of a dunning notice or lead to the terminationof a contract. The dunning activities are industry-specific, butyou can also customize them based on your requirements.

You can also calculate dunning charges and request them fromyour business partners. Calculation of interest on items due isalso possible during the dunning run. You can post the chargesand interest relevant to the general ledger (G/L). By specifyingamount limits in Customizing, you can prevent negligibleamounts from being dunned. The system records all dunning datafor each item in a dunning history.

In terms of creation of dunning notices and charges, no differ-ences exist between the FI-AR and FI-CA module. You can do alot more than just creating dunning notices in FI-CA by means ofthe dunning activities. SAP delivers user exits or events thatallow you to program your own dunning activities as needed.Table 3 shows an example of multiple dunning levels with differ-ent dunning activities.

Collection AgenciesIf a customer does not pay his receivables and all measures havebeen taken to collect the receivables, many companies use collec-tion agencies to prevent losing the receivables. FI-CA enablesyou to manage postings connected to submitting receivables to acollection agency and the exchange of information with thosecollection agencies. Files are created for items that are submittedto collection agencies.

FI-CA also allows for the automatic processing of incoming filesreceived by collection agencies for collected payments from theagencies. In comparison, the FI-AR module does not provide any

functionality that can handle the automatic exchange of informa-tion to and from collection agencies.

ReportingOne of the weak points of FI-CA is its limited reporting function-ality. SAP expects that customers who use the FI-CA module alsohave Business Information Warehouse (BW) installed. The FI-AR module has better and more standard reports available and itwill take considerable time and effort to develop these reports inFI-CA without using BW. SAP has recognized these shortcom-ings and promised improved reporting capabilities in futurereleases.

Is FI-CA an Alternative for You?As shown in the previous examples, FI-CA incorporates moreA/R functions than just processing invoices and payments andmaintaining master data. These functions are necessary if youdeal with a large customer base and a high volume of invoicesand payments. This is the case with a utility, insurance, ortelecommunications company or in the public sector. My descrip-tion of FI-CA functionality can be a starting point for yourdecision process. If you determine that the described functionsare necessary for your business, than FI-CA could be a valuablealternative to the standard FI-AR component.

Dunning level and activity exampleTable 3

Dunning level Dunning activity Comment

1 5 % dunning charge and creation of dunning notice

FI-AR and FI-CA allow thecreation of dunningcharges and notices

2 Automatically creation of awork order in order to shut-off services (utility industry)

Only possible in FI-CA

3 Forward open receivables tocollection agencies

Only possible in FI-CA

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Contract Accounting.fica