How SAP FICA and SAP Convergent Invoicing Applies to B2C Businesses

Business-to-consumer (B2C) business involves the process of selling products and/or services directly to individual customers.

Examples of B2C businesses include subscription products and services, transportation and hospitality, media and entertainment, and utility and telecom. These businesses do millions of transactions on a daily basis, making it difficult for a traditional finance system to handle the corresponding accounting needed for these transactions.

The SAP Finance & Contract Accounting (SAP FICA) module within SAP Convergent Invoicing (SAP CI) is a powerful tool that revolutionizes handling the voluminous transactions of B2C industries.

The best part of SAP FICA is that customers using SAP S/4HANA can utilize a standalone implementation without adding the other components of SAP Billing and Revenue Innovation Management. SAP FICA is equipped with various inbound APIs to integrate it with upstream third-party systems and downstream modules of SAP such as core finance in SAP S/4HANA, SAP FSCM Credit Management, Dispute Management, CO-PA, RAR, etc.

In this post, I will discuss the aforementioned B2C models and the corresponding applicability and usability of SAP FICA functionality.

Subscription Product Business: Billable Item Functionality

The future of almost every B2C business lies in adopting a subscription model. Subscription-based B2C businesses give their customers access to a pool of products or services through a recurring payment model. This is usually cheaper than having customers make a one-time purchase of any of those products. This creates a win-win situation for both buyers and sellers. The buyer gets multiple options for a cheaper price whereas the seller gets continuous revenue. Some examples of subscription-based businesses are e-books libraries, music streaming services, cloud software licenses, and monthly subscription boxes.

Let’s consider a classic example of a subscription business—an online library and study material site—to show how the billable item functionality of SAP FICA helps in managing the huge number of B2C transactions. This will result in converged and aggregated postings in SAP S/4HANA Finance.

The following definitions will help you understand the diagram more.

• BP: Business partners (customers, suppliers, stores, etc.)
• CA: Contract accounts (used to describe the relationship between a company and its business partner. This stores the corresponding details such as payment method, payment terms, clearing conditions, etc.)
• BITs: Billable items (created to bill a particular business partner a particular amount)
• BIT APIs: Standard API provided by SAP (creates a BIT from any external system against a business partner and contract account)

 Let’s dive deeper into the process flow.

1. The subscription platform collects and sends business partner master data, subscription sale data (with payment card details), and purchase data to SAP FICA using standard IDOC functionality. This creates or updates business partner records in SAP FICA and details payment methods, terms, and clearing conditions for each business partner.
2. The subscription charge, along with corresponding customer payment details, are sent to SAP FICA via RFC call to a standard billable item API on a daily basis. This will create billable items in SAP FICA for the corresponding business partner and its contract account. Any additional purchase transactions will follow the same process.
3. Aggregated billing and invoicing documents are created for each business partner, and invoices are printed accordingly. For each invoice, one contract account document is posted in SAP FICA. These documents are posted against the corresponding revenue/cost general ledger. Although they will look like an FI posting, they are not—and will not be stored in standard financial tables like BKPF, BSEG, and ACDOCA. An SAP FICA-specific open item will also be created for the corresponding combination of business partner and contract account.
4. The payment card billing functionality of SAP FICA will call the third-party API necessary to process the actual payment from the customer. This will post another document clearing the business partner open item.
5. The reconciliation key will then combine all the contract account documents; the aggregated amount is transferred and posted to the general ledger, reducing the number of lines in the books from millions to a few lines.

A couple of notes before moving on to the next example:

• The FI-GL transfer functionality transfers aggregated general ledger line items from SAP FICA to SAP S/4HANA Finance.
• A relatively new functionality, called AP/AR open item transfer, is now provided by SAP FICA wherein the open item can be transferred to SAP S/4HANA Finance for payment and clearing purposes. In our example, this functionality was used for transferring the open items of vendors/content providers and paying them using traditional SAP FI automatic payment run and electronic bank statement reconciliation.

Transport Business: Intercompany Functionality

The transport industry provides transport, shipping, and storage facilities to its customers. When these businesses expand internationally, there are huge B2C transactions that need to be processed. Transport businesses usually work on a commission-based model wherein agencies in different countries keep the commission and transfer the remaining freight revenue to a headquarters office. SAP FICA’s intercompany functionality can play a key role in handling the freight collection process.

We will consider the example of a cargo shipping company to show how this functionality helps manage and transfer huge numbers of B2C transactions to an HQ while keeping the commission with the agencies that brought them.

The following definitions will help you understand the diagram more.

• CoCd: Company code (used to describe a legal entity)
• US: United States
• JM: Jamaica
• IN: India
• IS: Israel
• ICO BITs: Intercompany billable items (triggered from the actual customer in the requesting company code)
• ICO Offset BITs: Intercompany billable items (triggered from intercompany customers in the supplying company code)

Here I describe the process flow. Note that in the design flow (on the FI Core side), postings related to any of the three agencies are shown in their agency company code, whereas in the HQ company code, all three agency-related postings are shown.

The shipping business starts with their in-house system to book, ship, track, and deliver items. This system sends the customer/vendor master and transaction data to SAP FICA. Two billable items are created in the SAP system: the first is the intercompany billable item for the agency company code, and the second is the intercompany offset billable item for the HQ company code. These are posted in the intercompany transactions section of the SAP system, as shown in these accounts.

Freight Income

Port Expense

Utility Business: Consumption Item with Partner Settlement Functionality

The utility industry sector provides utilities such as internet, electricity, water, and telecom to the end consumer. These types of businesses usually purchase supporting services from other vendors (e.g. network and tower services). These companies typically have contracts with each B2C customer to charge them periodically and then pay the supplying vendor their share for each end user’s consumption share.

Let’s consider the example of an internet broadband company to show how the consumption item with partner settlement functionality of SAP FICA helps process a large number of B2C consumption records, while at the same time triggering the corresponding transactions needed to pay supplying vendors their share.

The following definitions will help you understand the diagram more.

• CIT: Consumption item (line items storing consumption details for a business partner over a given time period)
• Rating: Gives the consumption item a price to create a billable item (stored in SAP Convergent Charging > Sales and Distribution > By Customer Logic in Event-30)
• Partner settlement functionality: Creates a consumption item for the business partner (triggered by the customer billable item)

The design flow would look like the following.

1. The company has a legacy metering system which maintains the database for customers and suppliers, and also records the monthly consumption of every customer. This system sends all the data to SAP FICA.
2. The consumption data in SAP FICA will create consumption items for each business partner. These will be rated to create the customer billable items. With the help of partner settlement, supplier consumption items can be created for every customer billable item that will be further rated to create supplier billable items with their revenue share. All customers and supplier billable items are then billed and invoiced. Customer open items are cleared, and all transactions are transferred to SAP S/4HANA Finance, whereas supplier open items are transferred and then paid via automatic payment run.

Media Business: Dependent Billable Items with Additional Billing Functionality

The media business industry sector provides consumers with a variety of content and experiences. It includes movie theaters, streaming platforms, music streaming services, online gaming portals, and live events. This industry is required to share a royalty of the media to vendors and content providers. This royalty is calculated based on the total revenue collected from the performance of the media.

Let’s discuss a music streaming company to show how the dependent billable items with additional billing functionality of SAP FICA help pay royalties.

The following definitions will help you understand the diagram more.

• Primary billable item (Primary BIT): the billable items created for each customer business partner (for sale transactions)
• Secondary billable item (Dependent BIT): the billable items created against each primary billable item (used for the royalty share of each stream)
• Additional billing functionality: the ability to add additional posting lines at the time of billing document creation (helps in general ledger posting by using a dummy business partner and business partner summarization in SAP FICA)

The flow would look like this.

1. The streaming service operates with the usual features of login and membership/subscription management. It will send the customer/vendor master data and the monthly subscription charge to SAP FICA. In addition, it will calculate the stream data of each song on the platform and send it monthly to the SAP system for royalty calculation.
2. In SAP FICA, customer billable items are created for each piece of subscription revenue. A customer revenue billable item and a dependent billable item are created to post unbilled royalties with an amount equivalent to 70% of the subscription revenue.
3. At month’s end, each individual song’s stream data is sent to SAP FICA. This will create a consumption item for each content provider. This consumption item is rated with the event-30 function, which will use total unbilled amounts and play data to calculate the royalty share for each vendor. Example calculations are shown below:

• Royalty (Vendor1) = (70 (Million Plays of Vendor1) * $0.70 (Million Total Un-Billed)) / 100 (Million Total Play of Both Vendors)
  • =~ $0.5 (Million Royalty Share of Vendor1)
• Royalty (Vendor2) = (30 (Million Plays of Vendo21) * $0.70 (Million Total Un-Billed)) / 100 (Million Total Play of Both Vendors)
  • =~ $0.2 (Million Royalty Share of Vendor2)

Conclusion

In conclusion, SAP FICA within SAP Convergent Invoicing offers B2C businesses powerful capabilities to manage complex and high-volume transactions. Whether it's subscription services, transportation, utilities, or media, SAP FICA's flexible and integrative features ensure efficient billing, invoicing, and revenue management. By leveraging functionalities like billable items, intercompany settlements, and partner consumption records, B2C businesses can streamline operations, reduce manual intervention, and ensure accurate financial postings, all while maintaining compliance with industry standards. Adopting SAP FICA can be a game-changer for businesses looking to scale while optimizing their financial processes.

This post was originally published 9/2024.