Você está na página 1de 37

Process Definition Document

Accounting for Bad Debts and Writeoffs


Author: IBM
Error: Reference source not found Error: Reference source not
found
Version: 1.0

Process Definition Document

Document Management
This is a snapshot of an on-line document. Paper copies are valid only on the day they are printed. Refer to
the author if you are in any doubt about the currency of this document.
Project ID:
Title:
Status:

BDAR2160
Accounting for Bad Debts and Writeoffs

Release:
Business Owner:
Team:
Author:

Data Created:
Created By:

Client Organization
This document requires pertains to the following components of the client organization:

Versioning
The following document versions have been released:
Version

Date

Description

Revised By

Approvals
This document requires the following approval signatures:
Name

Title

Signature

Date

Attachments

Notes

Copyright IBM Corporation 2005

v1.0

Process Definition Document

Contents
1.

Document Details.....................................................................................................4

1.1

Overview....................................................................................................................................... 4

1.2

Process Model............................................................................................................................... 5

1.3

Process Steps............................................................................................................................. 13

1.4

Suppliers, Inputs, Outputs and Customers..................................................................................23

1.5

Requirements.............................................................................................................................. 23

1.6

Risks and Opportunities.............................................................................................................. 24

2.

Organizational Change...........................................................................................25

2.1

Organization Change Impacts..................................................................................................... 25

2.2

Business Benefits........................................................................................................................ 26

2.3

Business Realization................................................................................................................... 27

2.4

Key Performance Indicators........................................................................................................ 28

2.5

Enablers...................................................................................................................................... 28

3.

Design.....................................................................................................................29

3.1

Key Design Decisions.................................................................................................................. 29

3.2

Integration Considerations........................................................................................................... 33

3.3

Application GAPs......................................................................................................................... 34

3.4

Data Standards Needs................................................................................................................ 35

3.5

Regulations and Control Objectives............................................................................................ 35

4.
4.1

5.
5.1

Testing.....................................................................................................................36
Scenarios.................................................................................................................................... 36

Training...................................................................................................................37
Business Process Procedures..................................................................................................... 37

Copyright IBM Corporation 2005

v1.0

Process Definition Document

1.

Document Details

1.1 Overview
This chapter identifies the document and the business environment to which it relates, describes the contents
of the document, and states its purpose.
Summary
Description

This document describes the system currently used by CLIENT to write-off bad
debts and accounting for bankruptcies. The freight and non-freight operations have
different procedures and this document details the standard procedures to be used
in SAP.

Triggers

Dependencies

Copyright IBM Corporation 2005

v1.0

Process Definition Document

1.2 Process Model


This chapter contains a detailed process model outlining all major steps and decision points involved in this
process / process variant.
Proposed New Processes

D e f e r r e d R e c e iv a b le s - R e f e r r e d t o C o lle c t io n A g e n c y / L e g a l
D e p a rtm e n t
In fo rm e d o f th e
d e c is io n t o
m o v e c u s to m e r
acco unt /
in v o ic e t o
d e fe r re d

C o m m e r c ia l

A R D ept

D e t e r m in e t h a t t h e
r e c e iv a b le s h o u ld b e
d e fe r r e d ( c o u ld b e a t
a n y tim e d u r in g t h e
tr a c in g p r o c e s s )

Is th e c u s to m e r
a f r e ig h t
c u s o tm e r?

Y es

D is c u s s
com m e
c o lle c t ib
c h a rg e

D e t e r m in e if t h e
in v o ic e s h o u ld b e
r e v e r s e d ( c le a r e d ) c o r r e c t io n o f e r r o r ;
c h a r g e b a c k a g a in s t
s a le s

R e s p o n d b a c k to
A R d e p t w it h in 5
b u s in e s s d a y s t o
s to p th e d e fe rre d
r e c e iv a b le p r o c e s s

H a s C o m m e r c ia l
r e s p o n d e d w i t h in
5 b u s in e s s d a y s

s it u a t io n w it h
r c i a l. A s s e s s
ilit y o f ty p e o f
(d e m u rra g e )

D id
C o m m e r c ia l
a g re e to d e fe r

Y es

N o

D o n o t s e n d to
c o lle c t io n
a g e n c y / le g a l
de pt

N o

S e t d u n n in g
b lo c k a t th e
c u s to m e r le v e l

N o

Y es

Is th e
r e c e iv a b le >
$ 2 5 ,0 0 0 o r a
m is h a p

Y es

Y es

N o

N o

Is th e
r e c e iv a b le >
$1 00

P aym ent
A p p lic a t io n ( g r o s s
p a y m e n t a g a in s t
c u s to m e r a c c o u n t;
c o m m is s io n
expense)

N o

R e v ie w o n - lin e t h e
p ro g re s s o f
c o l le c t io n a g e n c y /
le g a l d e p t o n a
q u a r t e r ly b a s is

D id C P R
r e c e iv e
chequ es?

N o

W rite - o ff re c e iv a b le

Y es

C o lle c t io n
A gency

C r e d it D e p t

S end cheque/
le t t e r in d i c a t in g
s t a t u s & in v o i c e
f o r c o m m is s io n

R e c e iv e
c u s to m e r
a c c o u n t / ite m

C a n c e l c r e d it

Le gal D ept
L a s t S a v e d : J u ly 1 0 , 1 9 9 7
d r a w in g 2

1 1 :5 9 A M

Copyright IBM Corporation 2005

A re th e re a n y o th e r
c la im s o u t s t a n d in g
fo r th is c u s to m e r ?

R e c e iv e
c u s to m e r
a c c o u n t / it e m

Y es

C P R a il P r o je c t
P age 1 of 1

v1.0

Process Definition Document

D e f e r r e d R e c e iv a b le s - R e f e r r e d t o C o lle c t io n A g e n c y / L e g a l
D e p a rtm e n t
C o m m e r c ia l

A R D ept

T a k e a c tio n o n
a c c o u n ts th a t th e
c o lle c t io n a g e n c y
h a s n o t b e e n a b le
t o g e t r e s u lt s

I s t h is a c c o u n t t o b e
s e n d to a n o th e r
c o l le c t io n a g e n c y ?

N o

I s t h is a c c o u n t t o
b e fo rw a r d e d to
t h e c o lle c t io n
a g e n c y le g a l
d e p t?

N o

I s t h is
a c c o u n t to
b e fo rw a rd e d
t o C P R le g a l
d e p t?

N o

Is th e
r e c e iv a b le
$2 50 o r
le s s ?

Y es

Y e s

Y es

Y e s

S h a d o w in d ic a t e s n e x t s t e p s r e q u ir e d .

W r it e - o f f r e c e iv a b le

N o

Is th e
r e c e iv a b le >
$2 5 0 a nd <
$ 5 0 ,0 0 0 ?

N o

A s s is ta n t
C o n t r o lle r
a p p r o v e w r it e o ff

Y es

J
M a nag e r
a p p r o v e w r it e - o f f

J
W r ite - o ff r e c e iv a b le

C o lle c t io n
A gency

C r e d it D e p t

L a s t S a v e d : J u ly 1 0 , 1 9 9 7
d r a w in g 3

1 2 :0 0 P M

Copyright IBM Corporation 2005

C P R a il P r o je c t
P ag e 1 o f 1

v1.0

Process Definition Document

D e fe r r e d R e c e iv a b le s - B a n k r u p t c y
C u s to m e r

C u s to m e r Is in
fin a n c ia l
d if f i c u lt y

AR D ept
C u s t o m e r is in
fin a n c ia l
d if f i c u lt y

Legal D ept

T ru s te e /
R e c e iv e r

C u s t o m e r is in
fin a n c ia l
d if f i c u lt y

C u s t o m e r is in
fin a n c ia l
d if f i c u lt y

C r e d it D e p t

Is th e c u s to m e r
b a n k ru p t?

N o

Y es

H a s th e c u s to m e r
a p p lie d fo r A s s ig n m e n t
in B a n k r u p t c y
( p ro p o s a l) o r C h p . 1 1
in U S A ?

Yes

N o

A s s e s s th e
s itu a tio n to
d e te r m i n e if
c r e d it s h o u ld
b e c a n c e lle d

D o not cancel
c r e d it

C ancel
c r e d it

H a s th e
c u s t o m e r f ile d
under C C A A ?

Y es

C a n c e l c r e d it

R e v ie w c r e d it.
U p d a t e if
r e q u ir e d .

B lo c k b illin g

D o not can cel


c r e d it

N o
L a s t S a v e d : J u ly 1 0 , 1 9 9 7
d r a w in g 4

1 2 :0 0 P M

Copyright IBM Corporation 2005

C P R a il P r o je c t
Page 1 of 1

v1.0

Process Definition Document

D e fe r r e d R e c e iv a b le s - B a n k r u p tc y
C u s to m e r

A R D ept

Lega l D ept

T ru s te e

C r e d it D e p t

H a s le t t e r fr o m
tru s te e b e e n
r e c e iv e d ?

Y e s

Is C P R a
s e c u re d
c r e d it o r

N o

N o

D o e s th e
c u s to m e r h a v e
a n y o u t s t a n d in g
r e c e iv a b le s ?

Y e s

N o
L a s t S a v e d : J u ly 1 0 , 1 9 9 7
d ra w in g 5

P r o v id e f o r , if
n o t a lr e a d y , a n d
c o n t in u e to
tra c e

Y e s

W r ite o f f e n t ir e
b a la n c e . W h e n
c a s h is r e c e iv e d ,
re c o r d a g a in s t b a d
d eb t e xp en se.

F o llo w u p w it h
th e tr u s te e to
d e t e r m in e w h y
C P R is n o t o n
t h e lis t

D o n o t h in g

1 2 :0 1 P M

Copyright IBM Corporation 2005

C P R a il P r o je c t
P age 1 of 1

v1.0

Process Definition Document

D e fe r r e d R e c e iv a b le s - B a n k r u p t c y
C u s to m e r
A R D e p t
L e g a l D e p t
T r u s te e

G
C r e d it D e p t

C a n c e l c r e d it

B lo c k b illin g

H a s le t t t e r
fr o m tr u s te e
b e e n
r e c e iv e d ?

Y e s

Is C P R a
s e c u re d
c r e d ito r

Y e s

N o

N o

D o e s th e
c u s to m e r h a v e
a n y o u ts t a n d in g
r e c e iv a b le s ?

Y e s

N o

L a s t S a v e d : J u ly 1 0 , 1 9 9 7
d r a w in g 7

P r o v id e f o r , if
n o t a lr e a d y , a n d
c o n t in u e t o
tra c e

W r i te o f f e n ti r e
b a la n c e . W h e n
c a s h is r e c e iv e d ,
r e c o r d a g a in s t b a d
d e b t e x p en se .

F o llo w u p w it h
th e tru s te e to
d e t e r m in e w h y
C P R is n o t o n
t h e lis t

D o n o th in g

1 2 :0 1 P M

Copyright IBM Corporation 2005

v1.0

Process Definition Document

D e f e r r e d R e c e iv a b le s - B a n k r u p t c y
C u s to m e r
AR D ept
Legal D ept
T ru s te e

C r e d it D e p t
Y es

S h o u ld C P R
s e ll th e
r e c e iv a b le

Y es

N o

A p p ly p a y m e n t
a n d w r ite o ff th e
r e m a in in g
b a la n c e

R e c e iv e c a s h

In d ic a te th a t
r e c e iv a b l e is
d e fe r re d a n d
1 0 0 % p r o v id e d
fo r. C o n tin u e to
tr a c e .

R e c e iv e le tte r
fr o m tr u s te e /
r e c e iv e r o n t h e
r e s u lt s o f t h e
p ro p o s a l

W a s th e
p ro p o s a l
a c c e p te d

Y es

N o

N o

L a s t S a v e d : J u ly 1 0 , 1 9 9 7
d r a w in g 8

1 2 :0 2 P M

Copyright IBM Corporation 2005

S h o u ld C P R
s e ll th e
r e c e iv a b l e

N e g o t ia te d lo n g te rm p a y m e n t
a g re e m e n t

W r it e - o ff r e c e iv a b le

C P R a il P r o je c t
P age 1 of 1

10

v1.0

Process Definition Document

D e fe r r e d R e c e iv a b le s - N e g o tia te d L o n g - te r m P a y m e n t A g r e e m e n t s
C u s to m e r

A R D ept

C a ll to in fo r m
C P R c o ll e c t i io n
s p e c ia lis t th a t
cannot pay.
M a k e a n o ffe r
w it h c r e d it
m anager

F r o m 'D e f e r r e d
B a n k ru p tc y '

I
M ake
r e c o m m e n d a t io
n a s to w h e th e r
c r e d it s h o u ld b e
c a n c e ll e d

A ssess w hat
c u s to m e r c a n
pay

Is th e b a la n c e to
b e d e fe r r e d <
$ 1 0 , 0 0 0 a n d w i ll
b e p a id in 6
m o n th s .

Y es

C o lle c t io n
s p e c ia lis t
m a k e s d e c is io n
to c a n c e l c r e d it

U p d a te
c u s to m e r
m a s te r fo r
tr a c in g te r m s
a n d p a y m e n ts

S e n d le tte r to
c o n fir m .
T e m p la te s to b e
d e v e lo p e d b y
le g a l
d e p a r tm e n t.

S ig n th e le tte r
a n d r e tu r n to
C PR

In fo r m m a n a g e r
o f d e c is io n

P u t in c u s to m e r
file

N o

M anager
m akes
d e c is io n

S h o u ld th e
le g a l d e p t b e
in v o lv e d ?

N o tifie d o f
c u s to m e r
p ro p o s a l

C r e d it D e p t

R e c e iv e c a s h . N o b a n k r u p tc y p r o c e s s ; t r a c in g
p r o c e s s . Y e s - c a s h r e c e ip t s
a n d p a y m e n t a p p lic a tio n
p ro ce s s

No

P e r f o r m c r e d it
r e v ie w f o r in p u t
o n th e d e c is io n

Y es
N o tifie d o f
c u s to m e r
p ro p o s a l

C o m m e r c ia l

P r o v id e in p u t
o n th e d e c is io n

In fo r m
C o m m e r c ia l o f
d e c is io n

Legal D ept
W r ite le tte r

T ru s te e

L a s t S a v e d : J u ly 1 0 , 1 9 9 7
d r a w in g 9

1 2 :0 2 P M

Copyright IBM Corporation 2005

C P R a il P r o je c t
Page 1 of 1

11

v1.0

Process Definition Document

W r ite -O ffs

AR D ept

C re a te w rite o ff e n try

C o m m e r c ia l

L a s t S a v e d : J u ly 1 0 , 1 9 9 7
d r a w in g 1 1

1 2 :0 3 P M

Copyright IBM Corporation 2005

C P R a il P r o je c t
P age 1 of 1

12

v1.0

Process Definition Document

1.3 Process Steps


This chapter outlines each step involves in the process / process variant, the application in which it is
executed and how it is accessed.
Step

Application

TCode

Menu Path

Current Process
The current process for accounting for bad debts and writeoffs are documented below. These processes
have been standardized and are illustrated in a process flowchart after the description of the current process.
The impact of the new standardized processes on SAP design are described in the previous section.

Description

Non-Freight Treatment

Freight Treatment

Standard Process

Definition of Bad Debt

Bad debt losses are


basically the credit losses
that the Company incurs
when customer cannot pay
their debts.

same as non-freight.

Bad debts are defined as


receivables that have
been traced by CLIENT
collection specialists and
are determined to be
uncollectible
Receivables in dispute
are not deemed to be bad
debts.

Bad debt losses are


grouped as follows:
Bad Debt Accounts
(Uncollectible/Bankruptcies)

The categories of bad


debts are split into a
general provision and a
specific provision. The
specific provision is based
on those receivables sent
to a collection agency,
legal department, or due to
bankruptcy or other
reasons for being
uncollectible.

Reduced Settlements
Outstanding Waived for
Business Reasons

Currently in non-freight,
reduced settlements and
outstanding waived
items for business
reasons are recorded as
a bad debt (presumably
to the appropriate cost
center). Should these
write-offs be coded back

Copyright IBM Corporation 2005

13

v1.0

Process Definition Document

Description

Non-Freight Treatment

Freight Treatment

Standard Process
against revenue / costs
that are being recovered;
thereby moving these
costs that are due
operational decision
above the line (person
responsible for the
decision will be
evaluated on why the
initial item had to be
changed)?

Accounting for Bad


Debts

The charge to Income for


doubtful accounts is derived
by applying a fixed
percentage, calculated in
light of bad debt experience
of corresponding prior
periods, to the sales for the
period. What is the fixed
percentage for 1997?
To record estimated bad
debts (end of Accounting
period)
Dr. Bad Debt Expense
853003
Cr. Allowance for Doubtful
accounts
R09AC3
The resulting allowance will
be reviewed from time to
time by the Assistant
Manager and/or the Senior
Collection Clerk to ensure
that it is not materially more
or less than the amount
which would be required on
the basis of providing for the
probable loss on accounts
outstanding at the balance
sheet date. Adjustments to
this allowance must be
made at the end of the
accounting period.
Under this method the
following procedures must
be adhered to:

Copyright IBM Corporation 2005

provision for bad &


doubtful accounts is
set based on the
following:
age of receivables
(10% of 91-180 age
total, 30% of 181-270
age total, 60% of 271365 age total, 90% of
365+ age total)
customer specific (set a
specific $ allowance
based on receivables
associated with high
risk customers)
industry specific (set a
specific $ allowance for
historically high risk
industry groups)
collection agencies &
legal (100% allowance
for customers identified
as type 6)
The level is adjusted
once annually in Oct or
later, but before yearend unless the
adjustment required is
material to the entity.
An analysis is
undertaken,
recommendations to
management are sent

14

The general provision for


doubtful accounts is
calculated based on
applying a fixed
percentage against the
receivable outstanding
that are not currently
deferred. This fixed
percentage is derived
from past experience and
averages between __%
and __%. As CLIENT is
implementing non-freight
AR initially, the fixed
percentage will be __%,
which is representative
of __.
The bad debt expense will
be recorded in which cost
center.
DR. Bad Debt Expense
CR. Allowance for
Doubtful
accounts
Any recovery of
receivables provided for
will be recorded against
the bad debt expense and
allowance.

v1.0

Process Definition Document

Description

Non-Freight Treatment

Freight Treatment

as soon as it is known that


an account is uncollectible it
should be written off or
written down to its estimated
realizable value. To do so
prepare the write-off form
and explanation and submit
along with complete file to
the Senior Collection Clerk
(this excludes accounts
which are to be referred to
the Law department for
collection, see Referral to
Law Department
procedures).

and adjustments made


when approval is
received. A separate
provision is established
for each entity.

the Senior Collection Clerk


will review the file and either
approve for write-off and/or
write down to $1.00 and
make recommendations on
the write-off form and pass
on to the Assistant Manager
for his/her approval. If not
acceptable the Senior
Collection Clerk will return
the file to the Coordinators
for further handling.
the Assistant Manager will
make recommendations and
approve and pass on to the
Manager and/or return the
file for further handling.

Standard Process
DR. Cash
DR. Allowance for Dbtfl
Acct
CR. Bad Debt Expense
CR. Customer Account

Apart from the acctg


entries against bad
debt expense which
result from provision
adjustments, items are
written-off on a regular
basis throughout the
year when it is
determined they are
uncollectible and when
approval has been
received to do so. CR is
taken in appropriate
entity agents suspense
with DR to the entitys
bad debt expense. Any
taxes included would
be recovered at this
time.
Such items above may
or may not have been
included in the
provision. Nonetheless
no entries for the
provision are taken
unless the amount is
material in relation to
the entity involved.

There is a need to have


a specific and general
account to segregate the
types of provision.
Any receivables
determined to be
uncollectible, or sent to a
collection agency / legal
department will be
completely provided for
and will be part of the
specific provision.
A report will be produce
listing those receivables
that have been provided
for. This report will be
provide a continuity
schedule of the items
hitting the bad debt
expense and allowance for
doubtful accounts.
For freight items, the
provision for bad &
doubtful accounts is set
based on the following:
age of receivables (10% of
91-180 age total, 30% of
181-270 age total, 60% of
271-365 age total, 90% of
365+ age total)
customer specific (set a
specific $ allowance based
on receivables associated
with high risk customers)

Copyright IBM Corporation 2005

15

v1.0

Process Definition Document

Description

Non-Freight Treatment

Freight Treatment

Standard Process
industry specific (set a
specific $ allowance for
historically high risk
industry groups)
items with collection
agencies or legal (100%
allowance for items
referred)

Also, freight items with


collection agencies , etc
are not written-off
immediately and must be
available for viewing by the
CS.
Authority for Write-Off

less than $2,500 Assistant


Manager Accounts
receivable
less than $5,000 Manager
Accounts Receivable
less than $10,000 Manager
Expenditure Accounting
over $10,000 Executive Vice
President & Chief Financial
Officer
To record waiving of
outstanding for business
reasons
Dr. Originating RN and
Account**
Various
Cr. Accounts Receivable
C/R07DA3

less than $251


Collection Specialist

Write-offs can arise from


the following situations:

less than $5,001


Managers

small balance differences


(ie: less than $9.99
between the invoice
amount and the payment
amount) will be
automatically written-off by
the system during payment
application.

greater than $5,000


and less than $250,001
Director
greater than $250,000
Comptroller
Entries are processed
by a separate group
which, for audit and
control purposes, does
not include any of the
above positions.

if the receivable is less


than $100 CAD, it will be
written-off by the collection
clerk instead of being sent
to a collection agency or
the legal department. The
$100 is the estimated
threshold where CLIENT
costs to collect the
receivable is equal to the
payment of the $100.
There will be exceptions
where we will want to
pursue such items with a
collection agency.
if the collection agency or
legal department cannot
collect and the receivable
is $250 or less, the
collection specialist will
write-off the receivable. If

Copyright IBM Corporation 2005

16

v1.0

Process Definition Document

Description

Non-Freight Treatment

Freight Treatment

Standard Process
the receivable is greater
than $250 and less than
$5,001, then the
managers approval is
required. If the receivable
is > $5,000 and <
$250,000, then the
Directors approval is
required. If > $250,000 the
Comptrollers approval is
required.
business decision to writeoff the receivable. This
may occur if the operations
/ engineering/ commercial
cannot substantiate the
charges or have made the
decision to reverse the
charges as a gesture of
good faith (the receivable
is due from a heavy
volume/CURRENCY
customer).
negotiated settlements
bankruptcies if CLIENT is
not a secured creditor.
The basis of this decision
is that CLIENT does not
trace bankrupt accounts
and technically the
creditors do not receive
much.
We do trace bankrupts
depending on
circumstances.
Where does the cost go
to?
By making the approval
limits higher than in the
current process, managers
can concentrate on those
receivables that require
their attention. To monitor
the receivables being
written-off, a report will be
created in SAP in the
format of a continuity
schedule.

Copyright IBM Corporation 2005

17

v1.0

Process Definition Document

Description

Non-Freight Treatment

Freight Treatment

Standard Process
The accounting entries for
a write-off are:
DR. Bad Debt Exp - Writeoff
CR. Customer Account
Accounting entries for tax
recovery are taken at time
of write-off IF a reserve is
not created for the item. If
a reserve is created then
recovery takes place when
the reserve is removed.
If a written-off amount is
recovered, then
DR. Cash
CR. Bad Debt Exp - Writeoff
If write-off included taxes
then recovery must reverse
that condition based on
tax rate in effect on original
invoice.

Referral to a
Collection Agency /
Legal Department

When all alternatives of


collections have been
exhausted and there are no
circumstances surrounding
the account which would
make the referral to a
Collection Agency
detrimental, e.g. sensitive
customers, the Collection
Coordinator(s) must:
submit the account for writeoff approval using the writeoff form to the Senior
Collection Coordinator for
proper approval and/or
other approvals (see
Authority for write-offs)

Copyright IBM Corporation 2005

Collection Specialist
outlines a plan of
action based on
circumstances
surrounding each
case
Plan is reviewed for
approval at appropriate
level based on policy
guidelines
Commercial is advised
of plan and given time
to comment, object, etc.
Companys decision is
relayed to the customer
If situation is still not

18

The proposed process


does not write-off the
receivable at the time
that the receivable is
sent to the collection
agency / legal
department. At the time
of transferring the
receivable to a collection
agency / legal
department, the
receivable is fully
provided for.
The write-off of the
receivable occurs when
the collection agency /
legal department cannot

v1.0

Process Definition Document

Description

Non-Freight Treatment

Freight Treatment

Standard Process

once proper approval has


been received enter the
account in the on-line
referral to either Dun &
Bradstreet and/or Creditel
as indicated in the write-off
form. A copy of the referral
form must be filed with the
customers file

addressed the file is


passed to the agency

collect and it is decided


that the receivable will
not be sent for further
collection routines. It is
at this time that the GST
is recoverable.

forward copies of all


pertinent details, including
statement of account,
copies of bill(s),
correspondence etc. to the
collection agency to which
the account was referred

We monitor results
Process item based on
results of agencys
efforts
Pay out fees for the
service as required.
The item remains in
A/R for the duration but
is classified as type 6
once given to the
agency or legal.

Variety of situations result


from third party collection
handling, but fees are
incurred almost always.
Accounting treatment
differs depending on result.
Fees are handled
separately and charged to
an RN.

process a credit entry in the


AR System to remove the
balance outstanding which
must be equal to the amount
written-off
process a journal entry in
GL System crediting
account R07DA3 and
debiting account R09AC3
and the proper tax account
(see Bad Debts Tax
Procedures)
annotate the file as having
been referred to a collection
agency and file in the
collection agencies section
diary account for follow-up
review
Tax Procedures:
The Company is entitled to
deduct from the G.S.T.
payable, 7/107th of the
amount written-off in respect
to taxable supplies on which
tax has been remitted. The
adjustment for bad debts
must show up as part of the
adjustments on the G.S.T.
return and should be
included in the reporting
period in which the bad debt
is written-off.

Copyright IBM Corporation 2005

19

v1.0

Process Definition Document

Description

Non-Freight Treatment

Freight Treatment

Standard Process

Collection Specialist
obtains
documentation to
confirm bankruptcy
status

If the customer is
bankrupt and has not
filed under government
protection, the situation
will need to be assessed
to determine if credit
should be cancelled. In
other words the decision
to cancel or maintain
credit is dependent on
the insolvency protection
sought and obtained
through COUNTRY and
COUNTRY laws. For
example, CCAA status is
generally accompanied
by a court order forcing
conditions, including
credit, upon suppliers.

Amounts subsequently
recovered from accounts
previously written-off (or
written-down) should be
credited to the allowance for
doubtful account. Also
where a bad debt previously
written-off is recovered,
7/107th of the amount
recovered must be added to
the G.S.T. payable.
To write-off accounts
(Uncollectible)
Dr. Allowance for Doubtful
accounts R09AC3
Dr. GST Payable
R511C3
Cr. Accounts Receivable
C/R07DA3
Bankruptcies

A debtor (either an
individual or firm) faces
bankruptcy, when it is
financially insolvent , i.e. it
has liabilities in excess of
$1,000 and is unable to
meet its debt obligation as
they come due. An insolvent
debtor may voluntarily file
for bankruptcy by making an
assignment, or its
creditor(s) may force the
insolvent debtor into
bankruptcy by petition
through the courts for a
receiving order.
An alternative to bankruptcy
is when an insolvent debtor
makes a proposal (or
proposal for arrangement).
This allows the debtor to
extend time for repayment
of some or all of the debt.
When one of the above
mentioned situations occurs,
a Trustee is assigned to the
case. The Trustee has the
ability to seize, foreclose, or
repossess the secured

Copyright IBM Corporation 2005

general advice is sent


to other departments
and a complete picture
of what is CP and what
is owed to the
customer is finalized
if available, set off is
considered
a proof of claim is filed
with the trustee unless
amount owing is <
$500.
if < $5,000 write-off
immediately (unless
proposal is filedawait
results, then decide)
if > $5,000 < $10,000
review circumstances
of each case and
decide whether to writeoff
if > $10,000 write-off

20

If the customer has made a


proposal that has been
accepted, the balance of
the receivable is not
written-off. Basically the
customer has asked for
extended payment terms,
and hence should continue
to be traced based on the
new payment terms and
predetermined payment

v1.0

Process Definition Document

Description

Non-Freight Treatment

Freight Treatment

Standard Process

assets for disposition and


often operates the insolvent
debtor business.

only when case closed


or payout is disclosed

amount (if known). See


the tracing / dunning
process.

Filing Procedures
All bankruptcies over
$500.00 are handled by the
Revenue Accounting
Department in Montreal. For
insolvent debtors with
balances less than $500.00,
please submit for write-off
(see write-off procedures).
When you are faced with the
above mentioned situation
during the collection
process, you must:
Obtain the name and
address of the Trustee
handling the bankruptcy
including the list of secured
and unsecured creditors
Ensure that CLIENT
Company is listed among
the creditors
Contact the Supervisor
Credit in the Revenue
Accounting Department to
ensure they have a record
of the bankruptcy in
question. If they have no
record obtain all pertinent
documentation from the
Trustee and forward to the
Supervisor Credit
Forward to the Supervisor
Credit, a statement of
account , listing all bill(s)
outstanding including bill(s)
which may have been
previously written-off,
ensuring the statement is in
balance with our records,
and it includes copies of all
the bill(s) in question

monitor files as
required depending on
circumstances and
chances of recovery.
Accounting
CR appropriate agents
suspense, etc
DR appropriate bad
debt expense
DR appropriate
deferred accts
collectible
CR appropriate
bankruptcy provision
Recovery of taxes
(GST, PST, HST) is
taken only when no
provision is established
or when the provision
taken is reduced to
zero.
When policy indicates
item should be
removed from deferred
accounts collectible CR
that account and DR
bankruptcy provision as
required

If amount > $500 a claim is


filed. Further handling is
determined by
circumstances. If filing
relates to the expected
rehabilitation of the
customer (proposals or
intent to file a proposal in
Cda and Chapter 11 filing
in COUNTRY) then handle
as a long term payment
agreement. Also, such
filings may generate a
possibility for the sale of
the receivables to a
company which speculates
as to the value of the
eventual payout. Offers
from such companies
should be considered. In
all other situations
(Chapter 7 filing, etc) writeoff without reserve being
established.
NOTE: Box on maps on
pages 17 & 18 which read
is CLIENT a secured
creditor dont describe the
right condition. The more

The Supervisor credit will


confirm via Merlin that they
have taken over the
collection of the outstanding

Copyright IBM Corporation 2005

The action taken is


dependent on the
circumstances of each
case. When freight is
involved we are almost
always an unsecured
creditor and expectations
for monetary recovery are
very low. Handling should
reflect the level of return
expected. If total owing is <
$500 no claim is filed and
write-off takes place
immediately without
reserve being established.

21

v1.0

Process Definition Document

Description

Non-Freight Treatment

Freight Treatment

Once confirmation is
received from the
Supervisor Credit, they will
perform the following
Journal entry for the amount
referred to them:

Standard Process
correct question is Will
CLIENT have a high
probability of recovery.
This occurs when we are a
secured or preferred
creditor or when as an
unsecured creditor, a
proposal , intent to file a
proposal or a Chapter 11
filing occurs.

Dr. Provision for Doubtful


Accounts Account
R35CD3 $xx.xx
Cr. Miscellaneous A/R Main
Account
R0DA3
$xx.xx
Therefore you must process
an entry in the A/R System
to remove the bill(s)
outstanding and reconcile
GL to A/R. Please ensure
that the word Bankruptcy
is entered in the description
field of each credit you
process in A/R.

Copyright IBM Corporation 2005

22

v1.0

Process Definition Document

1.4 Suppliers, Inputs, Outputs and Customers


This chapter outlines the process / process variants supplier / customer and inputs / outputs.
Supplier

Inputs

Outputs

Customers

1.5 Requirements
This chapter lists all user requirement specifications that will be met through the design and construction of
this process / process variant.
Project ID Title

Title:

Description:

Dependencies:

Technical
Review:

Title:

Description:

Dependencies:

Technical
Review:

Category

Copyright IBM Corporation 2005

Release

Geo(s)

Application

Status

Select Value

Select Value

23

v1.0

Process Definition Document

1.6 Risks and Opportunities


This chapter outlines all risks that could disrupt the projects ability to deliver this process / process variant
and all opportunities that might result from its construction.
Date Created Risk

Type

Opportunities

Copyright IBM Corporation 2005

24

v1.0

Process Definition Document

2.

Organizational Change

This chapter identifies anticipated changes to the organization and related benefit resulting from the
implementation of this process / process variant.

2.1 Organization Change Impacts


Project
ID

Title

Status

Type

Select Value

Program
Business
Related
Accountability Accountability BEN

Select Value

Title:

Description:

Title:

Description:

Copyright IBM Corporation 2005

25

v1.0

Process Definition Document

2.2 Business Benefits


Project Title
ID

Status

Select Value Select Value Select Value

Select Value Select


Value

Select Value

Select Value Select Value Select Value

Select Value Select


Value

Select Value

Title:

Description:

Key Capability:

Probability
Description:

Key
Dependencies:

Title:

Description:

Key Capability:

Probability
Description:

Key
Dependencies:

Type

Occurrence

Category

Range

Probability

Copyright IBM Corporation 2005

26

v1.0

Process Definition Document

2.3 Business Realization


Related VALUE
BEN
Low

VALUE
High

BASELINE
Value

BASELINE
Source

BENCHMARK
Client

BENCHMARK
External

Title:

Calculation
Rationale:

Key Value
Assumptions:

Title:

Calculation
Rationale:

Key Value
Assumptions:

Copyright IBM Corporation 2005

27

v1.0

Process Definition Document

2.4 Key Performance Indicators


Related Title
BEN

Baseline

Target

Tolerance

Business
Owner

Title:

Description:

Assumptions:

Formula:

Title:

Description:

Assumptions:

Formula:

2.5 Enablers
Related Related
BEN
OCI

Title

People
Process
Technology

People
Process
Technology

Copyright IBM Corporation 2005

Type

28

Description

v1.0

Process Definition Document

3.

Design

This chapter identified early design decisions made to support this process / process variant, anticipated
integration points with other processes / functional areas and anticipated Application GAPs / Data Standards /
Regulation and Control Objectives that will have to be addressed in the Realization Phase..

3.1 Key Design Decisions

Decisions
In SAP when recording Write/offs the Posting With Clearing Transaction (F-30) will be used. The following
fields will be populated:
Document Type: Z8 Write/off
Ref. Document: Internal Document file number
Header Text: Write/off Type, e.g. BAD DEBTS, SETTLEMENT, BANKRUPTCY, etc.
Posting Key: 11
GL Account: 12900
Tax Code: Must be the appropriate tax code to recapture the tax included in the invoice(s) being written off.
Example if GST is to be recovered, i.e it was included in the invoice being written-off tax code SD would be
used.
Tax Jurisdiction: The corresponding tax jurisdiction of the invoice(s) being written-off
Text: The reason for the write-off and/or any appropriate remarks
Allocation: The SAPs Customer Master Number

Description
This section of the BDD is divided into 6 subsections:

Bad Debt Expenses Definition/Current Process Non-Freight

Business Design - Specific Bad Debts

Business Design - General Provision

Business Design - Write Offs

Current Processes

Proposed New Standardized Processes

Copyright IBM Corporation 2005

29

v1.0

Process Definition Document

1. Bad Debts Expenses (Non-Freight)


Definition (Bad Debt Losses)
Bad debt losses are basically the credit losses that the Company incurs when customer cannot pay their
debts. Such losses, as distinguished from amounts which are uncollectible because of damage to goods or
failure to meet a specified quality or standard, are bad debt losses. Therefore, bad debt losses are an
expense of selling on credit. And if revenues and expenses are matched, bad debt losses must be matched
against sales.
Bad debt losses are grouped as follows:

Bad Debt Accounts (Uncollectible/Bankruptcies)

Reduced Settlements

Outstanding Waived for Business Reasons

Allowance Method of Accounting for Bad Debts


The charge to Income for doubtful accounts is derived by applying a fixed percentage, calculated in light of
bad debt experience of corresponding prior periods, to the sales for the period.
The resulting allowance will be reviewed from time to time by the Assistant Manager and/or the Senior
Collection Clerk to ensure that it is not materially more or less than the amount which would be required on
the basis of providing for the probable loss on accounts outstanding at the balance sheet date. Adjustments
to this allowance must be made at the end of the accounting period.
Under this method the following procedures must be adhered to:

as soon as it is known that an account is uncollectible it should be written off or written down to
its estimated realizable value. To do so prepare the write-off form (see appendix # 5) and
explanation and submit along with complete file to the Senior Collection Clerk (this excludes
accounts which are to be referred to the Law department for collection, see Referral to Law
Department procedures).

the Senior Collection Clerk will review the file and either approve for write-off and/or write down to
$1.00 and make recommendations on the write-off form and pass on to the Assistant Manager
for his/her approval. If not acceptable the Senior Collection Clerk will return the file to the
Coordinators for further handling.

the Assistant Manager will make recommendations and approve and pass on to the Manager
and/or return the file for further handling.

Referral to a Collection Agency


When all alternatives of collections have been exhausted and there are no circumstances surrounding the
account which would make the referral to a Collection Agency detrimental, e.g. sensitive customers, the
Collection Coordinator(s) must:

submit the account for write-off approval using the write-off form (see appendix # 5) to the Senior
Collection Coordinator for proper approval and/or other approvals (see Authority for write-offs)

once proper approval has been received enter the account in the on-line referral to either Dun &
Bradstreet and/or Creditel as indicated in the write-off form. A copy of the referral form must be
filed with the customers file

Copyright IBM Corporation 2005

30

v1.0

Process Definition Document

forward copies of all pertinent details, including statement of account, copies of bill(s),
correspondence etc. to the collection agency to which the account was referred

process a credit entry in the AR System to remove the balance outstanding which must be equal
to the amount written-off

process a journal entry in GL System crediting account R07DA3 and debiting account R09AC3
and the proper tax account (see Bad Debts Tax Procedures)

annotate the file as having been referred to a collection agency and file in the collection agencies
section

diary account for follow-up review

Tax Procedures:
The Company is entitled to deduct from the G.S.T. payable, 7/107th of the amount written-off in respect to
taxable supplies on which tax has been remitted. The adjustment for bad debts must show up as part of the
adjustments on the G.S.T. return and should be included in the reporting period in which the bad debt is
written-off.
Amounts subsequently recovered from accounts previously written-off (or written-down) should be credited to
the allowance for doubtful account. Also where a bad debt previously written-off is recovered, 7/107 th of the
amount recovered must be added to the G.S.T. payable.
The business designs arise out of the standardized processes.

2. Business Design - Specific Bad Debts


A receivable is sent to the collection agency or legal department when the collection specialists have
exhausted their means of collection through the tracing process. Based on past experience, when a
receivable is sent to the collection agency, it is unlikely that the money will be collected. Since it can be
reasonably estimated that the receivable is uncollectible, the receivable should be fully provided for or written
off.
If the receivable is written off (ie: removed from the accounting books), there is no way to monitor those
receivable sent to the collection agency or legal department. By fully providing for receivables sent to the
collection agency or legal department, the receivable is reduced to a nil net realizable value while still
allowing CLIENTs collection specialists the ability to report on those receivables sent to outside sources.
Decision: When the receivable is transferred to the collection agency or legal department, record a bad debt
provision for 100% of the receivable.
The Allowance for Doubtful Accounts account can take two forms. The first form is that this account can be
a general ledger account, where an entry needs to be made to record the doubtful receivable. With this
alternative, reference needs to be made to the customer account and the receivable. To analysis this account
for what customer/invoices comprise this account, data will need to be manipulated. The second alternative
for the Allowance for Doubtful Accounts account is make this account a reconciliation account that contras
the Current Receivable account. Using special GL indicators, the allowance can be shown on the customer
account as well as reflected in a separate GL account for financial reporting purposes. This alternative

Copyright IBM Corporation 2005

31

v1.0

Process Definition Document

enables the collection specialists to have a complete view of the customer account (ie: current receivables,
deferred receivables, and provisions made for this customer).
Decision: To provide a complete view of the customer account, any provisions made specifically to the
customer account will shown on the account. The originating invoice will then be on the same screen and
can be easily accessed.
The provision can be recorded manually or automated. Since all receivables sent to the collection agency or
legal department are deemed to be uncollectible, the dunning block field will be populated manually by the
collection specialist with the value indicating that the receivable is sent to a third party. This dunning block
field can be used to trigger the automatic recording of the provision via an ABAP program that will run on a
nightly batch.
GST is recoverable at the time when the receivable is written-off, and should not be pursued if a provision
has been created for the receivable. Only when no provision exists should taxes (GST, PST, HST, etc) be
recovered.
Decision: To reduce the number of manual entries to record the specific provision, an ABAP will be written to
perform the entries. GST will be recoverable at the time of write-off.
3. Business Design - General Bad Debts
A general provision for doubtful accounts is calculated by applying a percentage based on past experience to
the all receivables To be completed with calculation.
NOTE: From a freight perspective we have not been informed of any decision / agreement which would alter
the current method of establishing a general provision.
4. Business Design - Write Offs
Receivables will be written off when the receivable is not collected by the collection agency or legal
department or when it is determined that the customer is bankrupt and the prospects for recovery are
essentially nil.
The write-off will be processed by a group which is separate from the individuals who have authority to writeoff in order to provide control and security to the transactions. There are two ways to write off the receivable:
manual entry and clearing or automatic clearing
General Note
Current freight treatment involves separate accounts for each of the entities associated with CLIENT. Nothing
in this document suggests this will change, however, it was our understanding entity receivables would in the
future be purchased so all would be under the CLIENT entity name.

Copyright IBM Corporation 2005

32

v1.0

Process Definition Document

3.2 Integration Considerations

Copyright IBM Corporation 2005

33

v1.0

Process Definition Document

3.3 Application GAPs


Project
ID

Title

Standard Configuration
Procedural Work-Around
Report
Interface
Conversion
Enhancement
Form
Workflow
Portal
SOA Composite Application

Standard Configuration
Procedural Work-Around
Report
Interface
Conversion
Enhancement
Form
Workflow
Portal
SOA Composite Application

Title:

Description:

Resolution
Rationale:

Business
Organization
Impact:

Title:

Description:

Resolution
Rationale:

Business
Organization
Impact:

FIT GAP Approach

Application

RICEF
Priority
Select Value

RICEF
Complexity
Select Value

Select Value

Select Value

Copyright IBM Corporation 2005

34

v1.0

Process Definition Document

3.4 Data Standards Needs


Project
ID

Data Name

Existing Standards
Indicator

Security Considerations

3.5 Regulations and Control Objectives


Project
ID

Regulation ID

Regulation Name

Control Objectives

Copyright IBM Corporation 2005

35

v1.0

Process Definition Document

4.

Testing

4.1 Scenarios
This chapter identifies any process scenarios that might be used to test this process / process variant for
accuracy.
Project
ID

Title

Description

Copyright IBM Corporation 2005

36

v1.0

Process Definition Document

5.

Training

5.1 Business Process Procedures


This chapter identifies all business process procedures which support this process / process variant.
Project
ID

Title

Description

Copyright IBM Corporation 2005

37

v1.0