This time I’ll cover the process in more detail and work through an example in an SAP system. I’ll reference the diagram below and provide some screenshots for each step (note that you can click on the thumbnails to see a full-size image).
One thing you may notice immediately from the diagram is that all contract pricing and chargeback data is available in SAP BW. SAP provides standard BW extractors and key figures for detailed contract and chargeback reporting.
Step 1. Condition Contract
The first step in the process is to create a pricing contract. Figure 1 shows the SAP Compensation Management contract entry screen. In this example the contract was received from vendor 3818 and it represents an agreement to sell material "MS" to customer CMS0000031 for $90.00 per piece.
I’ll also enter a comment about how this contract was received and attach a spreadsheet received from the manufacturer. The texts are fully customizable and a separate "attachment" button allows source documents such as spreadsheets, emails, and so on to be attached directly to the contract.
Step 2. Sales Order
Now I’ll switch over to the SD module and enter a sales order for the contracted customers and material. For contract-priced items, the order line item can be double-clicked to see the "Compensation Management" tab, which shows the contracts that were considered for pricing. The user can view the details for a contract by clicking on it.
Switching to the pricing conditions for the line item, we can see that SAP determined the WAC (condition ZWAC), contract price (condition PCHB) and expected chargeback amount (condition CHBK). The conditions are configurable, so it’s easy to create additional condition types such as discounts, surcharges or rebates.
In this example, the normal price for the item is $110.00 but the contract price is $90.00 so the sale is made at $90.00. WAC is $100.00, so the expected chargeback amount is the difference between WAC and contract price, or $10.00.
Step 3. Billing Document
Once the order is delivered, the wholesaler’s end customer is invoiced. The billing document has the same pricing conditions as the sales order. When it’s released to accounting the expected chargeback amount is posted as an accrual.
Like the sales order, the billing document has a Compensation Management tab at the line level for contracted items, but it also has a Compensation Management tab at the header level. This tab provides an overview of all chargeback "PPF actions" (outputs) generated for the billing document. Here we can see that the system automatically created a chargeback request when the billing document was saved.
The second sub-tab "chargeback overview" shows information about all chargeback documents related to this billing document. It’s possible to "drill-in" to any chargeback document directly from this screen.
Step 4. Post A/R and Accrue Chargeback
When the billing document is released to FI, the expected chargeback amount is posted as an accrual.
Step 5. Chargeback Request
Chargeback processing begins as soon as a chargeback-relevant SD billing document is saved. A chargeback request is automatically created from the billing document (it’s also possible to group requests into a "collective request").
SAP calls a chargeback request a "remuneration request". It’s represented in the system as an Agency Business document of type "CHBK".
The "chargeback workbench" transaction is used to monitor and control chargebacks at any point in the process. The standard workbench settings allow users to perform all document processing without ever leaving the workbench.
In Figure 8 I’ve listed some chargeback documents and selected the header and item data for the chargeback I created previously.
The chargeback request looks a lot like an SD billing document: it has header data, item data, texts, outputs, pricing conditions, and so on. Figure 9 shows a chargeback request.
The "invoicing party" is the vendor to whom we’re submitting the chargeback (3818) and the "payment reference" field is used to store the chargeback reference number received from the vendor in the chargeback response document (see below). Since I haven’t submitted the chargeback to the vendor yet, this field is blank.
The chargeback document has its own pricing procedure along with configurable rules for copying pricing conditions from the source billing document. This is a very powerful feature because it allows all kinds of new pricing in the chargeback. For example, the chargeback pricing procedure can be used to adjust chargeback amounts by vendor or product, to automatically post payment differences to a write-off account, or to post additional conditions such as rebate accruals.
Step 6. Send Chargeback to Vendor
The chargeback can now be submitted to the vendor. SAP provides a configurable output procedure for chargeback requests, and outputs can be triggered based on business logic or generated manually. Messages are entered on the chargeback document "output" tab. Figure 10 shows an EDI 844 message sent to the vendor.
Step 7. Record Vendor Response and Reconcile
The vendor reviews the submitted chargeback and provides a chargeback response (via EDI 849, email, or fax). A reference number is also included in the response and stored on the SAP chargeback document for future resubmissions.
For each line item the vendor will approve it and pay it, or specify a partial payment amount along with one or more rejection reasons.
For this example, we’ll assume the item was partially paid with a rejection reason code "WAC incorrect". The vendor expected WAC to be $99.95, but the WAC on the chargeback request was $100.00. Based on a $90.00 contract price, the vendor expected a chargeback request for $9.95 rather than the $10.00 that was submitted.
The system behavior for each type of rejection is fully configurable. In this example, the system has been set to automatically post the chargeback difference to a write-off account.
Rejections are recorded on the chargeback document as a "complaint", which links the chargeback to a "complaint document". Complaint processing is completely configurable: for each reason code additional fields, validations, triggers, and workflows can be defined.
Step 8. Release Chargeback to FI
The chargeback is now complete and can be released to FI. Based on the chargeback pricing procedure, the original chargeback accrual (for $10.00) is reversed and the actual amount paid ($9.95) is posted to chargeback revenue and as a credit on the vendor account. The difference of $0.05 is posted to a write-off account.
The chargeback release can be performed through various transactions. I’ll use the chargeback workbench – just clicking on the "execute" button will release all selected chargebacks to FI (see Figure 12).