Dunning Procedure in SAP S/4HANA – A Quick Guide

What is the Dunning Procedure?

Dunning Procedure is a systematic process that businesses use to remind customers of overdue payments through a series of escalating notifications such as, reminder letters, emails, or calls.

On many occasions, a customer may fail to pay an invoice on time for various reasons. Hence, Dunning helps ensure timely collections by sending notices at predefined intervals.

What Dunning Procedure helps in?

Dunning procedure also helps improve cash flow and minimize bad debts. As the delays continue, they gradually increase the urgency of these reminders, often adding late fees or interest to encourage prompt payment.

SAP S/4HANA accounts receivable capability provides a dunning procedure functionality. Since it is a collection management process, this feature is seamlessly integrated with SAP S/4HANA Collections Management.

Dunning Procedure Sub-Process

The SAP S/4HANA dunning procedure consists of three major subprocesses:

1. Create Dunning Proposals
2. Review and Edit Dunning Proposals
3. Print Dunning Notices or Perform Correspondence Processes for Dunning

We can create Dunning proposals based on the parameters of dunning programs, dunning and correspondence attributes on business partner master data, and transactional data (open invoices, due date, etc.).

Prior to printing, we can create, review and edit dunning notices. Further, we can create Dunning proposals as needed for the dunning program until dunning notices are printed. Once dunning notices are printed, the customer is updated during the dunning run.

Key Features of Dunning in SAP S/4HANA

• Automated Processing: Generates dunning letters for overdue invoices automatically.
• Multiple Dunning Levels: Escalates the reminder severity based on overdue duration.
• Interest & Charges Calculation: Allows adding interest and late payment fees.
• Customer-Specific Customization: Allows set Different dunning rules for different customers.
• Dunning History: Tracks dunning activities for audit and reporting purposes.

What is a Dunning Proposal?

A Dunning Proposal is a preliminary step in the dunning process where SAP compiles a list of overdue invoices before generating final dunning notices. This allows users to review, adjust, or exclude certain items before executing the dunning run.

How to Generate a Dunning Proposal?

To create a dunning proposal in SAP, follow these steps:

1. Run Transaction Code: F150
   • Enter the company code and dunning key.
   • Specify the date parameters for overdue invoices.
2. Proposal Execution
   • Select “Dunning Proposal” and execute.
   • The system compiles all relevant overdue invoices based on configured dunning parameters.
3. Review the Dunning Proposal
   • Use Transaction F150 or S_ALR_87012178 to check the proposal.
   • Review the list of invoices, dunning levels, and customers.
   • Modify or exclude invoices if necessary.

Finalize and Execute the Dunning Run

• If everything is correct, proceed with the final dunning run to generate dunning letters.

Steps to Configure Dunning in SAP S/4HANA

Define Dunning Areas

Dunning areas represent different segments of the business that handle collections independently. You can configure them in:
SPRO → Financial Accounting → Accounts Receivable and Accounts Payable → Business Transactions → Dunning → Define Dunning Areas.

Define Dunning Procedure

Configure the dunning procedure to determine:

• Number of dunning levels (e.g., soft reminder, first warning, final notice).
• Time intervals between dunning notices.
• Additional charges and interest calculation.

We can configure this in:
SPRO → Financial Accounting → Accounts Receivable and Accounts Payable → Business Transactions → Dunning → Define Dunning Procedures.

Assign Dunning Procedure to Customer Accounts

We must assign each customer master record a relevant dunning procedure. QWe can do this in Transaction Code: XD02 (Change Customer Master Data) under the Correspondence tab.

Define Dunning Levels

Dunning levels determine how overdue payments escalate over time. For example:

• Level 1: Friendly reminder (1-10 days overdue).
• Level 2: First warning (11-30 days overdue).
• Level 3: Final notice (31-60 days overdue).

Configure Dunning Charges and Interest Calculation

SAP allows charging dunning fees or interest on overdue payments. You can set up these rules under Define Dunning Charges and Define Interest Calculation Rules in the dunning procedure configuration.

Schedule Dunning Run (F150)

Once configured, run Transaction Code: F150 to execute the dunning process. This transaction:

• Identifies overdue invoices.
• Assign appropriate dunning levels.
• Generates and sends dunning letters.

Conclusion

The dunning procedure in SAP S/4HANA is a powerful tool for managing outstanding receivables efficiently. The Dunning Proposal provides an additional layer of control, allowing businesses to review overdue items before finalizing the dunning process.

By automating the reminder process, businesses can improve cash flow, reduce bad debts, and maintain good customer relationships. Proper configuration and regular monitoring of dunning runs ensure that businesses can systematically collect overdue payments on time.

Dunning Procedure Configuration: Watch Video