Configure and customize automatic credit management

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Sandeep Agarwal
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Configure and Customize SAP Automatic
Credit Management
September 7, 2013 | 9,031 Views |
FIN (Finance)
SAP ERP | enterprise resource planning | sap erp financials
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Introduction
Credit management is the management of credit facility granted to customers
as credit exposure allowed. Credit facility is just like telling our customers that
they need not pay immediately, they can pay at a future point of time after

receiving the goods or services. But, this payment at a future point of time
involves risk. So, according to the risk foreseen, the amount and time of credit
(Credit Exposure) granted changes. For some customers, the risk perceived
may be high such that we may demand payment in advance.
This credit management comes partially under preview of Sales and Distribution
(SD) and partially of Account Receivables (AR).
Key challenge: Reducing credit risk without hampering the supply chain.
Dealing with Bad Debt: Before getting involved, ask yourself:
How do I react to a bad debt?
Do I block orders from important customers, or do I grab a phone?
What is the volume of blocked orders my F&A department can handle?
Can I afford to block customers (small customer base)?
What do I save?
What is the cost in terms of damage?
Credit Management in SAP
Assuming that we already have SD and AR implemented, credit management
can be broadly used to:
Assign credit limit to customers
Facilities like the credit master sheet or early warning list help you
monitor the customer’s credit situation
Automatic credit limit checks as well as to specify the points at which
they have to be carried out
Automatically alert the credit representative of a customer’s critical credit
situation as soon as order processing starts and he may be able to check a
customer’s credit situation quickly and reliably, and, in line with the appropriate
credit policy, to decide whether the customer should be granted credit.
Credit Check
Every customer is having a certain credit limit, which is measured and
maintained by Finance people. Credit check is done for each and every
order/SD documents generated.
Credit check is performed at the following stages of Sales order cycle, Credit
check settings present in each SD document is responsible for interacting with
FI module.

Figure 1:Stages of Credit Check
Configuration Setting
Define Risk Category
SPRO > Financial Accounting > Account Receivable and Accounts Payable > Credit
Management > Credit Control Account > Define Risk Categories
Figure 2:Define Risk Category
Define Credit Control Area
SPRO > Enterprise Structure > Definition > Financial Accounting > Define
Credit Control Area
Figure 3:Define Credit Control Area

Figure 4:Define Credit Control Area – Details
The type of update chosen controls when the values of open sales orders,
deliveries and billing documents are updated depending upon the type of
document being generated. One of the following update groups can be chosen
as available in standard SAP
Blank – If the field is left blank, the SD documents are ignored and
only open receivables and open special G/L items are used for
calculating credit exposure.
000012 – When a new order is created, the open order value is
added to the credit exposure. When the order is delivered, the open
order value is subtracted and the open delivery value added to the
exposure. On billing the delivery, open delivery value is subtracted
and the open billing value is added to the exposure. When billing
posts to accounting, the open billing value is subtracted and the open
A/R value added to the exposure. The exposure is finally reduced
when the cash is applied against open A/R.
000015 – Calculates exposure without considering open sales order
value. When the order is delivered, the open delivery value is added
to exposure. On billing the delivery, open delivery value is subtracted
and the open billing value is added to the exposure. When billing
00018 – This is relevant for non-delivery-relevant orders only. When
a new order is created, the open delivery value is added to the credit
exposure. When the order is billed, the open delivery value is
subtracted and the open billing added to the exposure. When billing

Note: SAP recommends the use of update group 000012
Organizational Unit in Credit Management
The organizational unit used in credit management is Credit Control Area. It
represents the area where customer credit limits are specified and monitored.
Depending on the relationship between credit control area and company code,
the credit management can be categorized as:
Decentralized credit management
Every company code has its own credit control area. Hence, we
can define credit limits for a customer separately for each company
code. This method delivers benefits such as the local payment
cultures can be respected, each company code has the
independence to make its own decisions.
Centralized credit management
Multiple company codes are clubbed under the same credit control
area. So, if the customer transacts with company codes which are
under the same credit control area, the limit is set for all the
company codes combined together.
If the currencies of these company codes are different from that of the credit
control area, the receivables are converted to the credit control area currency to
check with the credit limit set. Centralized credit management has benefits such
as easier analysis of credit policy and modifications required, the focus is
shifted to other important areas such as bad debt reductions and improved
customer relations as there is only a central credit team that needs to be
consulted irrespective of the geography etc.
Figure 5: Organisational Unit in Credit Management

Assigning Company Codes to a Credit Control Area
SPRO > Enterprise Structure > Assignment > Financial Accounting > Assign
Company Code to Credit Control Area
Figure 6: Company Codes to Credit Control Area
Assigning Sales Area to a Credit Control Area
SPRO > Enterprise Structure > Assignment > Sales and Distribution > Assign
Sales Area to Credit Control Area
Figure 7: Sales Area to Credit Control Area
Define Credit Groups
SPRO > Sales & Distribution > Basic Functions > Credit Management and Risk
Management > Credit Management > Define Credit Groups.
The credit group specifies which subsequent transaction can be blocked for
processing, if the credit limits are exceeded.You can use the default credit
groups or create new once.

Figure 8: Define Credit Groups
Assigning Sales Documents and Delivery Documents to
Credit Group
SPRO > Sales and Distribution > Basic Functions > Credit Management/Risk
Management > Credit Management > Assign Sales Documents and Delivery
Documents > Credit Limit Check for Order Types > Credit Limit Check for
Delivery Types
Figure 9: Credit Limit Check for Order Type
Figure 10: Credit Limit check for Delivery Type

Simple Credit Check Vs Automatic Credit Check
a. High-volume, low-value requires automation and efficient handling
through grouping, with as little personal handling as possible (refuse
orders as much as possible)
b. Low-volume, high-value requires individualization with emphasis on
reporting and blocked orders or deliveries that can be checked and
unblocked.
Figure 11: Simple Credit Check Vs Automatic Credit Check
Simple Credit Check
The simple credit check compares the payer customer master record’s
credit limit to the net document value plus the value of all open items.
In case the value of the document and open items is more than the credit
limit:
System may respond with a warning message in the sales order [OR]
Warning message and a delivery block [OR]
Error message, which will cause the document not to be saved.
Automatic Credit Check Variations & Recommended Use
Automatic Credit Check – Gives extra parameters to define credit checks
like Credit Control Area, Risk Category and…

Figure 12: Automatic Credit Check Maintenance
STATIC CREDIT LIMIT DETERMINATION:
1. Open Sales Orders + Sales Order Value
2. Open Delivery
3. Open Billing
4. Open Receivables
Recommended Use: This is seen to be safer to use as compared to
Dynamic Credit Check as it covers all documents due to varying business
needs. For high volume and very low risk customers (e.g. Risk Category 001),
it is good practice to put deliveries on block and leave the orders untouched.
This prevents a level of check.
DYNAMIC CREDIT CHECK:
1) 2) 3) 4) Above Mentioned
5) Horizon Period : Eg. 3 Months.
Here the System will not consider the Open items 1, 2, 3 & 4 values for
beyond 3 months.
Recommended Use: If the business is always likely to have fast moving
items leaving no chances of Open Orders, Open Deliveries etc for long time
period, this is good to use. There can be other business considerations to
include only Open items within certain period
Maximum Document Value

The sales order or delivery value may not exceed a specific value which is
defined in the credit check. The value is stored in the currency of the credit
control area. This check is useful if the credit limit has not yet been defined for a
new customer. It is initiated by a risk category which is defined specifically for
new customers.
Recommended Use: Use it for Credit Group 01 (Orders) and high risk category
customers which you always want to review beyond a particular value. It may
also be used for prepaid or one-time customer with Max doc value.
Critical Fields:
This Credit check is initiated by document changes done in credit sensitive
fields. One such example is terms of payment. When this field changes, a
check is done on the data in sales order against the data in the customer
master.
Date of Next Review
System uses the date of the next credit review as a trigger for an automatic
credit check. If you process a sales order after a customer’s next review
date has already gone by, the system automatically carries out a credit
check.
Overdue Open Items
The relation between open items which are more than a certain number of
days overdue and the customer balance may not exceed a certain
percentage. These values are defined in the customizing for automatic
credit control.
Recommended Use: Use it for Credit Group 01 (Orders) in conjunction
with Static Credit Check for slightly higher risk category customers, where
you don’t want to have more than a certain % of open items. The values
may be reduced with increase in risk category values.
Oldest Open Item
The oldest open item may not be more than a specified number of days
overdue.
Recommended Use: Use it for any Credit Group 01 or 02 (Orders or
deliveries) in conjunction with Static Credit Check for slightly Low-Medium risk
category customers.
Maximum Number of Dunning Levels Allowed
The customer’s dunning level may only reach a specified maximum value
exceeding which the item may be blocked if so configured.
User-Defined Checks- For e.g. Cheque received from a customer
bounced, then subsequent orders may get blocked.

Credit Management at work
For each customer, credit limits are specified in the particular credit master
record. If the customer exists in multiple credit control areas, individual limit can
be specified for each credit control area. In addition, a central credit limit can
also be specified for all the credit control areas under which the customer
exists. Then, the total of the credit limits for each credit control area should not
exceed the central credit limit.
FD32 (FI T code) is used to set credit limit and credit risk category for the
customer.
Figure 13: Credit Limit for Customer
Overview Screen
It gives an overview of credit settings of the customer.
Customer‘s credit limit, credit exposure, percentage of credit limit used
and horizon (as applicable in dynamic credit check) are presented as
status
Payment history along with the average number of days taken for
payment is shown
Payment data contains details such as authorized cash discount and
unauthorized cash discount that was available for cleared items, the
outstanding receivables in sales days
Dunning data consists of dunning area for the customer, when he was
last dunned and the dunning level reached during the last dunning run
Control contains the credit risk category of the customer, date of the last
check on customer credit limit, if the customer is blocked for credit

management business transactions, the credit representative group
responsible for the customer, the payment history classification, the
financial standing of the customer and date when the credit check of the
customer was carried out last.
Figure 14: Overview Screen
Central Data Screen
It gives an overview of central credit limit settings of the customer.
The maximum permitted credit limit as a total of limits across all credit
control areas to which the customer is assigned
The maximum permitted individual credit limit that a customer can have
under any one credit control area
The currency in which the two maximum limits are specified. This is
because we can enter the central data in any currency of choice,
independently of the currencies of the control areas
The currently exhausted credit limit as a total (percentage) across all
credit control areas to which the customer is assigned (should be less
than or equal to max limit)
The currently assigned largest credit limit across all credit control areas
to which the customer is assigned (should be less than or equal to max
limit)
Date on which the most recent general information about the customer
was obtained

Figure 15: Central Data Screen
Status Screen
Shows the customer’s actual individual details according to particular credit
control area
The credit limit for the credit control area, credit account if the limit is to
be specified for a group of customers, the percentage of credit exposure,
horizon date to be taken into consideration, the receivables, special GL
transactions and the order value not yet transferred to FI used for the
credit exposure calculation as well as the amount of secured receivables
is shown under credit limit data
The credit risk category, credit representative group, customer credit
group and customer group used mainly for sorting or reporting, the
reference data for customer credit review, if the customer is blocked for
credit management business transactions, the last and next internal
review date for the customer credit limit as applicable to the particular
credit control area are shown under Internal data
The date of last external review, the credit information number as
applicable to external agency, the classification of payment history of the
customer as well as the financial standing is shown under external data

Figure 16: Status Screen
Credit Check at work in Sales Order creation
When sales order is created (SD), system verifies the credit limit used by the
customer by communicating with values set in FD32 (FI)
Figure 17: Credit Check
Release Sales Documents from Credit Block
Block will be released if the Agent discussed with Customer and / or
payment is received from Customer. VKM1, VKM3 and VKM5 are key T
codes used to release Sales and Delivery documents from Credit Block. For the
document selected, the following options are available:
Grant the credit and release the document

Reject the credit and cancel the document
Forward the blocked document to another processor
Recheck the blocked document
Reassign the blocked document and specify a new sequence of
documents. This enables to give priority to and release several
documents with a low document value until their credit limit is completely
used up, instead doing so for a single document with a high document
value that has already exceeded its credit limit.
Figure 18: Release Credit Block
Reports
RFDKLI10 – Customers with missing credit data
RFDKLI20 – Reorganization of credit limit for customers in credit control
areas
RFDKLI30 – Central and credit control area related data for customer
(short overview)
RFDKLI40 – Overview credit limit (extensive)
RFDKLI41 – Credit master sheet
RFDKLI42 – Early warning list
RFDKLI43 – Master data list especially for printing customer cards along
with data from external systems
RFDKLI50 – Mass change for master data in credit management
RFDKLIAB – Display changes for credit management data
RVKRED06- Checking blocked credit documents
RVKRED08 – Checking sales documents which reach the dynamic
credit check horizon (periodic report)
RVKRED09 – Checking the credit documents from credit view (released
documents are checked only if the validity period for the release is up)

Alert Moderator
RVKRED77 – Reorganization of open credit, delivery and billing
document values especially when update errors occur
RVKRED88 – Simulation reorganization credit data SD
23 Comments
Dear Sandeep,
Thanks for your knowledge sharing. It is too useful for me.
Regards
Subhash P.
subhash pandit
September 11, 2013 at 10:55 am
Very thorough and well researched Sandeep.
Good job here!
Regards
Gulshan
Gulshan Batra
September 11, 2013 at 2:54 pm
Advait Kulkarni

This is really helpful Sandeep.Thanks for sharing
Advait
September 11, 2013 at 3:06 pm
Nice document.. thanks for detail explanation !!
Karteek k
June 11, 2014 at 6:56 am
Hello Sandeep,
Nice explanation and it is really helpful.
Thanks for sharing your knowledge and keep sharing.
Regards,
Lakshmi S
Lakshmi Kumari Sama
June 12, 2014 at 6:20 am
Dear Sandeep,
I would like to ask more about dynamic credit check. If I set at 3 options as follow:
– Dynamic
– Document value
– Open items
1. How the system work? SAP will check from Dynamic -> Document value -> Open
items or Open items -> Document value -> Dynamic?
2. After SAP have checked and display credit blocked message. If system found
credit blocked from ‘Document value’ and ‘Open items’ , How SAP display credit
blocked message? Message come from ‘Document value’ or ‘Open items’?
Thank you in advance,
Jurairat D.
Jurairat Damrongtham
June 20, 2014 at 10:36 am

Thanks Sandeep. This is a ready reference document for credit management
Thanks,
V V
Vinod Vemuru
June 20, 2014 at 11:14 am
A comprehensive blog on Credit Management. Good work done.
G. Lakshmipathi
Sir—in document” Configure and Customize SAP Automatic Credit
Management”.—please correct the flaw as mentioned in my comment–
thereby the people who follows this ,will get correct information..
I dont know why moderator approved this again even after my alert…
Phanikumar
G Lakshmipathi
June 20, 2014 at 11:30 am
Phanikumar Valiveti
June 21, 2014 at 3:59 am
Sandeep:
Thanks for share this info.
Very useful .
Regards Antonio Martinez
Jose Antonio Martinez
June 20, 2014 at 12:42 pm

Good work–i appreciate being an FI guy your presentation including SD is very
nice…
Sorry to tell you that there a mistake in your document while sharing about dynamic
credit check about Horizon period.
as per you–
“”“””5) Horizon Period : Eg. 3 Months.
Here the System will not consider the Open items 1, 2, 3 & 4 values for beyond 3 months“”””
No— here-actually system will divides this 1,2,3,4 as two parts—2,3,4 will be fixed called as static
part and the the first option 1 will be called as dynamic part(open sales orders)
(2,3,4 will be taken in credit calculations if lying beyond 3 months)
the only difference is whether open sales order(with confirmed delivery schedule lines)–has to be
considered in credit calculations or not(if lies in these 3 months–then this open sales order value
will be added in credit calculations–otherwise no)
See F1 at dynamic credit check in OVA8–you will get more clarity.
Please change this flaw in your presentation–once after confirming…
Phanikumar
Phanikumar Valiveti
June 20, 2014 at 3:03 pm
Hi Sandeep,
Good document thank you for sharing knowledge.
Regards ,
Sada Bandla
Sada Bandla
June 20, 2014 at 4:30 pm
Sandeep Agarwal
Please check Phanikumar V comments, retest the scenario and change your blog if
necessary.
G. Lakshmipathi
G Lakshmipathi
June 21, 2014 at 5:45 am

Many thanks for sharing valuable document….
Sreekanta Marikeri
July 7, 2014 at 2:13 pm
Very helpful document..thanks for posting
Ashok J S
July 11, 2014 at 8:32 pm
nice document…
Kundan Kumar
July 13, 2014 at 10:38 am
Hello,
Thanks for the document, very usefull, during an Audit review with a client i came
accross with the next question:
Reviewing this process with a client I verified that when the Customer excided the
credit limit assigned in SAP, the system automatically blocked the purchase
requisition. In order to release it the Credit, the Clerk needed the Management
authorization and this was done manually and outside SAP. Once she had the
authorization sheet signed the clerk manually released the PR.
I wonder if it is possible to configure a SAP work flow in order to release credit block
as when the control is manually performed it could be easily override.
Thanks in advance
Regards
R MG
November 5, 2014 at 5:08 pm

Nice doc of great value. Good job.
Venkata Seshagiri Rao Mullapudi
July 6, 2015 at 2:11 pm
Hi,
Nice document.
Regards
Karthi
Karteek k
May 6, 2016 at 7:37 am
Good job!!
Nilima Choudhari
September 13, 2016 at 8:45 am
First of all, thanks for your effort in preparing the document.
But one clarification in this, For Dynamic Credit Check, the horizon period is only for
the Open Sales Orders and not for all Items.
Regards
G.Venkat
Venkatanarayanan G
April 5, 2017 at 8:43 am

Add Comment
Dear Sandeep:
Thanks for your comments. Very good post.
I’m working as a Credit Manager and I need to have several Sold To’s (Same VAT
code), but different payment conditions and different Credit Limits.
How can I do that setting in FD32 Screen?
Cheers,
Luis Ortiz Gracia
April 24, 2017 at 10:13 am
Hi
I’m wondering if anyone is having the same issue I have.
We have the full credit up and running, I released from the credit perspective a Sales
Document with VKM3, but the Business Unit keeps working on the order and the
Hold is triggered automatically again. So they have to come to us and request a
credit release again; (eventhough it was approved already).
Is there anyway I can configure the Sales Order to avoid going back on hold after it
has been released for the first time?
I’ll wait for your comments
Regards
Jesus Alberto Rodriguez
June 1, 2017 at 4:10 pm
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