Deregulation: Payment on account is only possible using distribution lots

What causes this issue?

You attempted to post a payment on account that is assigned to invoicing
service provider &V1&. In deregulated scenarios, you can only post
payments and payments on account using distribution lots. A distribution
lot is a special form of payment lot in FI-CA.

System Response

The system cannot post the payment on account.

How to fix this error?

You have the following alternatives:
Use transaction FP05 to create a distribution lot manually and enter
selection criterion P for <LS>Invoicing Party</>.
Create a distribution lot in one of the following ways:
From bill processing
From the aggregated bill
From the clearing reset
You can find the relevant transactions in the <ZK>Utilities Industry</>
menu under <ZK>Intercompany Data Exchange -> Generate Postings and
Display Account Balance -> Processing Distribution Lot</>.

Procedure for System Administrators

The system issues an error message and will not allow you to continue with this transaction until the error is resolved.

Error message extract from SAP system. Copyright SAP SE.