Credit Managers analyze a customer’s ability to pay their debts. Depending on the credit assessment, they may wish to link the acceptance of a particular order to the creditworthiness of the customer.
A Credit Control Area is an organizational unit assigned to a Company Code used to set credit limits for customers. A Client can contain one or more Credit Control Areas. However, a Credit Control Area can be assigned to only one Client. A Credit Control Area can contain one or more Company Codes; however, a Company Code can only be assigned to one Credit Control Area. It is possible to create a list of allowed credit control areas in which case the assigned credit control area serves as a default. If a Customer master record is created in several Company Codes, it is also possible that the Customer can be allocated to several Credit Control Areas.
When defining Credit Control Areas, the following must be specified: Description Currency When defining a Credit Control Area, the following can be, but are not required to be, specified: Risk Category Credit Limit Note: If specified, these values will default into the Customer master record of a new customer at the time it is created.
Maximum allowed Customer credit limits can be maintained at two levels: Globally across all Credit Control Areas (at the Client level). For a Credit Control Area. In the above example, a maximum allowed global credit limit of $2,000,000.00 is set for Customer A. The maximum allowed credit limit for any one Credit Control Area is $500,000.00.
In the system, a customer’s credit limits can be maintained by assigning maximum permitted credit limits and actual current credit limits. Current Credit Limits Assigned are the credit limits of a particular Customer that have been set as of the current date. Total Amount: the total of the individual Credit Control Area limits that have been assigned to the Customer. Largest Individual Limit: the highest credit limit assigned to the Customer in one of the Credit Control Areas. This amount cannot exceed the maximum individual credit limit. Maximum Permitted Credit Limits: Total Amount: overall credit limit that can be assigned for the Customer across all Credit Control Areas. Individual Limit: maximum credit limit that can be assigned for a Customer in any one specific Credit Control Area.
The System can calculate the following data for every Customer in a Credit Control Area: Receivables: total of open Customer Invoices (Financial Accounting Documents). Special Liabilities: total of Special G/L Transactions which are marked as credit limit-relevant (i.e., down payments). Order Value: sum of open Sales Orders, Deliveries, and Billing Documents. Credit Exposure: sum of the totals in the above three fields. For further flexibility, an Update Group can be assigned to a Credit Control Area, which specifies what credit statistics (such as open order value, open delivery value, or open invoice value) are updated based upon the document (Sales Order, Delivery Note, Billing Document or Financial Accounting Document) being posted.
The type of system response to credit checking is defined in the Sales Order Type. The above responses are defined as follows: Warning Message: the Sales Order is created. Error Message: the Sales Order is not created. Warning Message with Delivery Block: The Sales Order is created, but no subsequent delivery can be processed. Automatic ( Automated Credit Checking ): allows further complexity in the credit checking function. Customers can be assigned a Risk Category, which is a criterion used to define the system response to credit checking. A, B, and C were used primarily in versions of the system prior to V3.0. Automated Credit Checking (D) is almost always used. The system supports the following types of credit checking: Static Credit Checking Dynamic Credit Checking
The above components of the Static Credit Check are defined as follows: Open Sales Documents - Value of the Order items that have not yet been delivered. Open Delivery Documents - Value of Delivery items that have not yet been invoiced. Open Billing Documents - Value of Billing Document items that have not yet been forwarded to the Financial Accounting module. Open Items (A/R) - Value of open Accounting Documents (not yet paid by the customers)
The same definitions as the previous page apply to the above components of the Dynamic Credit Check. The difference between Static and Dynamic Credit Check is that a credit horizon can be configured in the system that will exclude Sales Orders to be delivered beyond the Horizon Date from the credit exposure calculation.
The system can be configured to return a message if a Sales Order exceeds a certain user-configured amount, regardless of whether that amount exceeds the customer’s credit limit. The credit check is carried out by Credit Control Area. Since a Sales Organization is assigned to a Company Code, and a Company Code is assigned to a Credit Control Area, the Credit Control Area is, consequently, also defined for a particular Sales Organization.
The following are defined in the Customer Credit Management Record area of the Customer master record in the Financial Accounting (FI) module: Risk Category : A way to classify customers according to their risk of not paying debts on a timely basis. In combination with the Document Credit Group, it defines how the system responds to a customer transaction that causes the credit limit to be exceeded. Credit Representative Group : A selection criterion for reporting and document release functions. Block : An indicator that will not allow a Sales Order, Delivery Note or Goods Issue to be created for the Customer. Last Internal Review : Date of the last Credit Representative assessment of the customer’s credit limit. This review could result in an increase, decrease or no change to the customer’s credit limit. Next Internal Review : Date of the next scheduled Credit Representative assessment of the customer’s credit limit. Credit Info. Number : Credit agency reference number (Duns). Rating : Credit agency rating.
The following are defined in SD for automated credit checking: Document Credit Group : Enables the combining of Order Types and Delivery Types for credit control purposes. Using the Document Credit Group, Automated Credit Checking options can be set for different points in the Sales Cycle (Sales Order, Delivery Note, Billing Document). Activation of credit check at item level . The user defines whether each Item Category (i.e., stock item, free of charge item) is to be included in the credit checking function.
The Credit Representative can create a list of the blocked sales orders and deliveries. The list can be generated by Credit Control Area, Credit Representative Group, and / or Risk Category. The Credit Representative can investigate the customer’s credit situation and either leave the document on credit hold or release it. The user can view this information in Credit Management under the following application-side menu path: Accounting Financial Accounting Accounts Receivable Credit Management Exceptions Blocked Sales Doc.
Responding to the serious effects that uncollectable customer receivables can have on a company, Credit Management functionality has been extended and enhanced through the addition of Risk Management. Risk Management helps in determining the credit worthiness of customers and ensuring their reliability in making payments. Risk management specifically refers to the usage of the following forms of secure payment methods: Letters of Credit, both confirmed and unconfirmed Export Credit Insurance with or without a letter of credit Payment Cards In a Sales transaction, if none of the above Risk Management documents are used, Credit Management alone will be used to manage the credit risk. If one of the above payment guarantee forms is available, the credit check will only be performed on the amount not covered by the Risk management document. For example, if a customer places an order for 1000 dollars and has a letter of credit for 600 dollars, the credit check will only be performed against the remaining 400 dollars.
Several options are available for determining the credit control area of a transaction. The 4 options now available are: 1. A user exit can be defined to determine the appropriate credit control area. This user exit can only take advantage of header level data within the sales order. 2. The sales area of the payer can be used. The system refers to the field “Credit Control Area” on the appropriate Billing View of the Payer Master Record. 3. Sales areas can now be assigned to a specific credit control area through configuration. 4. The Company code of the sales organization is the final check that is available in determining the Credit Control Area. This check is the standard in versions through 3.1 and still serves as the default in 4.0.
You can use the Early Warning List if you are using the A/R Summary within distributed credit management or within a non-distributed environment. Depending on how current the A/R Summary is, the check (during SD processing) is against A/R Summary or the actual data. Reading actual data is less performance efficient, especially in a distributed system. You can use the Early Warning List to determine which customers in credit management are to be viewed as critical customers within credit checks in SD. In this context, a critical customer is one who would not pass the individual checks (made using the information in the A/R Summary) now or in the near future due to the data stored in automatic credit control. The Early Warning List allows you to do checking based on ad-hoc criteria and/or based on the customizing for the automatic credit control. You have flexible selection criteria to limit the number of customers to be displayed. Two such categories are credit control area and risk category. You can adjust the range of the data to be displayed so that it meets your information needs by defining your own display variants in the output lists. You can use the general list viewer functions to format the list.
Depending on how current the A/R Summary is, the check (during SD processing) is against either the A/R Summary or the actual data. Reading actual data is less performance efficient, especially in a distributed system. Note that you must have created an A/R Summary for the selected customers using program RFCMCRCV. If you work in a distributed environment (ALE scenario with decentralized SD systems and a central FI system) the existence of an A/R Summary is a precondition for the credit checks in SD, as well. In a non-distributed environment (i.e., one central system), you may specify in Customizing that credit checks in SD are still based on the actual data while you create the A/R Summary for the Early Warning List only.
To create an A/R summary in the client A customer must be created in a company code and corresponding credit control area Customer credit master data is maintained The appropriate flag for Credit Mgmt is set - the indicator is set in the client in which accounting is run. To perform customizing, follow the IMG menu path: Accounting Financial Accounting Accounts Receivable and Accounts Payable Credit Management Credit Control Account Define Preliminary Settings for Credit Management Several local SD systems (distributed credit management system) can now use the A/R summary to carry out active credit management against a central FI system. The A/R Summary can be used to reduce the number of times data is accessed from the database A/R should be run periodically.
To create the AR Summary, invoke transaction FCV1 or follow the menu path: Accounting Financial accounting Accounts receivable Credit management Tools Create AR Summary The system uses the permitted aging in days and hours to verify whether the data in the A/R summary is still acceptable for credit check purposes. If the summary created earlier is still within the aging limit, the system will not create a new summary but instead will read the one created earlier. If the age rate for the A/R summary is exceeded during a credit check the document is blocked. It is possible to set the age limit of the A/R Summary either directly in the program (A/R summary) criteria screen or in Customizing for Sales and Distribution, following the IMG menu path: Sales and Distribution Basic Functions Credit Management/Risk Management Credit Management Define Automatic Credit Control Output of the A/R summary The number of customers in the relevant CC area for which the summary was created Creation time and the logical system stored In the credit overview (RFDKLI40) and the credit master sheet (RFDKLI41), it is possible to display the relevant A/R summary data
Credit Management - The process of establishing customer credit limits, establishing credit checking policies and monitoring Customers against those criteria. Credit Control Area - An organizational unit assigned to a Company Code used to set credit limits for customers. Credit Limit - The maximum credit exposure allowed for a customer. If it is exceeded, the system will provide a user-configured response. Automated Credit Checking - The system’s most complex method of credit management, which incorporates the use of Risk Categories and the ability to use either Static or Dynamic Credit Checking. Static Credit Checking - A method of credit checking that calculates total credit exposure as the sum of open Sales Documents, open Delivery Documents, Open Billing Documents and Open Items (A/R items not yet paid). Dynamic Credit Checking - A method of credit checking similar to Static Credit Checking with the addition of a delivery horizon that will remove items set for delivery beyond a user-defined date from the total of open Sales Documents. Risk Category - A code used to classify customers according to their risk of not paying debts on a timely basis. In combination with the Document Credit Group, it defines how the system responds to a customer transaction that causes the credit limit to be exceeded.
Document Credit Group - An element defined in the Sales & Distribution module for Automated Credit Checking that enables the combining of Order Types and Delivery Types for credit control purposes. By using it, Automated Credit Checking options can be set for different points in the Sales Cycle (Sales Order, Delivery Note, Billing Document). In combination with the Risk Category, it defines how the system responds to a customer transaction that causes the credit limit to be exceeded. Risk Management - The process of assessing a customers creditworthiness through the use of secure forms of payment such as Letters of Credit Early Warning List - Helps determine which customer accounts may become critical with regard to credit checks prior to a such a problem actually occuring A/R Summary - A summarized form of accounts receivable information that makes credit checking more efficient by reducing the need to read actual data.
SAP FI Credit Management | http://sapdocs.info
Chapter 19 Credit Management <ul><li>Credit Management is the process of establishing customer credit limits, establishing credit checking policies and monitoring Customers against those criteria. It is configured in both the Financial Accounting (FI) and Sales & Distribution (SD) modules. </li></ul><ul><li>Chapter Objectives </li></ul><ul><ul><li>Provide an understanding of how credit limits are set and maintained for customers. </li></ul></ul><ul><ul><li>Provide an understanding of the hierarchical relationships between Credit Control Area, Company Code, and Customer. </li></ul></ul><ul><ul><li>Identify and understand the functionality of monitoring credit limits for Customers using Automated Credit Checking in FI and SD. </li></ul></ul>
Credit Management Customer Customer Sales Rep. Credit Check Customer Credit Limits <ul><li>Accept Order </li></ul><ul><li>Accept Order / </li></ul><ul><li>Block Delivery </li></ul><ul><li>Refuse Order </li></ul>Used to Set and Control Credit Limits for Customers Sales Order Customer Credit Information Check
Credit Control Area Credit Control Area Credit Control Area Client PepsiCo. CCAA Company Code 123 Company Code 456 Customer A Customer A Customer A Customer B Customer C Example: Client Credit Control Area Company Code Customer CCBB Company Code 999
Defining a Credit Control Area Step 1: Define a Credit Control Area Step 2: Assign Company Codes to the Credit Control Area
Assigning Credit Limits Per Customer CCAA < = $ 500,000.00 CCCH < = $ 500,000.00 CCAA + CCCH < = $ 2,000,000.00 <ul><li>2 levels of credit limit: </li></ul><ul><li>Globally across all Credit Control Areas </li></ul><ul><li>Per Credit Control Area </li></ul>Example: Customer A Global Limit: $2,000,000.00 Credit Control Area Limit: $500,000.00 PepsiCo. Customer A Customer A Client CCAA Credit Control Area CCCH Credit Control Area 123 Company Code 999 Company Code
Maintaining Credit Limits Per Customer Maximum amount that can be assigned per Credit Control Area Maximum sum amount that can be assigned across all Credit Control Areas Highest limit already assigned for an individual Credit Control Area Total limit already assigned across all Credit Control Areas
Monitoring Credit Limits for Customer Postings: Increase these amounts Clearings: Decrease these amounts Special G/L Transactions such as down payment Receivables from sales Open Sales Orders, Deliveries and Billing Docs. Total receivables, Special G/L Trans. and outstanding order value
<ul><li>A: WARNING MESSAGE </li></ul>Credit Checking SALES ORDER TYPE B: ERROR MESSAGE C: WARNING MESSAGE WITH DELIVERY BLOCK D: AUTOMATIC (AUTOMATED CREDIT CHECKING) STATIC ONLY STATIC or DYNAMIC Check Credit Limit (Select One)
<ul><li>+ </li></ul>Static Credit Check OPEN SALES DOCUMENTS OPEN DELIVERY DOCUMENTS OPEN BILLING DOCUMENTS OPEN ITEMS (A/R) + + CREDIT EXPOSURE
<ul><li>Dynamic </li></ul><ul><li>Component </li></ul>Dynamic Credit Check Static Component OPEN DELIVERY DOCUMENTS OPEN BILLING DOCUMENTS OPEN ITEMS (A/R) OPEN SALES DOCUMENT WITHIN HORIZON + + + Credit Exposure
Automated Credit Checking Features <ul><li>STATIC CHECK </li></ul><ul><li>DYNAMIC CHECK </li></ul><ul><li>ON BASIS OF MAXIMUM DOCUMENT VALUE </li></ul><ul><li>WHEN CHANGES ARE MADE TO CRITICAL FIELDS </li></ul><ul><li>ON DATE OF NEXT INTERNAL REVIEW </li></ul><ul><li>ON BASIS OF OVERDUE OPEN ITEMS </li></ul><ul><li>AGAINST HIGHEST DUNNING LEVEL </li></ul>Credit Checks <ul><li>WARNING WITH BLOCK </li></ul><ul><li>ERROR </li></ul>System Reaction <ul><li>WARNING </li></ul>
Automated Credit Checking Configuration in FI Credit Control Areas (CCA) EURO Europe CCCS North America Risk Categories RO1 High Risk RO2 Medium Risk RO3 Low Risk Credit Representative Groups 001 Europe 002 North America Customer : 6 Credit Control Area : EURO Risk Category : R02 Credit Representative Group : 001 Credit Limit : 10,000 USD Customer Credit Management Area Credit Representative Part Func. Pers.No. Mail KB 012 Jones
Automated Credit Checking Configuration in SD 01 Sales Order 02 Delivery 03 Goods Issue Document Credit Groups OR . . . Sales Document Types = Automated Check D Active TAN AGN Yes Item Categories X Factors influencing credit: Credit + Risk + Document Control Category Credit Area Group
Reviewing and Releasing Credit Holds Credit Account Order Credit Value Risk Status Customer A 351 1000.00 Medium Dynamic Chk Customer X 567 200.00 High Dynamic Chk Customer Y 595 50000.00 Low Static Chk Credit Control Area CCXX Credit Rep Group US Release the order(s) Blocked SD Orders
Risk Management + Sales Order 101 Sold-to #6 Net value $1000 XYZ 10 500 ABC 20 500 Letter of Credit for customer 6 of $600 3. System performs a credit check against remaining $400 of the sales order. 2. The system determines that letters of credit are allowed and finds one for this customer valued at $600. 1. At sales order entry, the sytem determines what types of payment guarantees are allowed for the payer and document type. Risk Management Payment Cards Export Credit Insurance Letters of Credit Credit Management Manual Checks Static/Dynamic Checks
Credit Control Area Determination Options A User Exit at the Header Level Billing View of the Payer Master Record The Sales Area of the transaction Company Code of the Sales Organization Order of checks for determining the Credit Control Area First Last
Early Warning List <ul><li>Creates a report on customers who are likely to become critical </li></ul><ul><li>The Early Warning List derives its information from the A/R Summary. It is necessary to run the A/R Summary on a timely basis to ensure up to date information. </li></ul><ul><li>Management can use the results of these reports to determine a course of action on clients. Automatic actions can also be set in customizing. </li></ul>
A/R Summary in distributed and non-distributed systems SD Creating SD - Documents FI Report: RFCMCRCV Non distributed systems: CHECK a) perfor- mance+ b) Distributed systems: CHECK a) b)perfor- mance? A/R Summary Creates Actual Data CHECK Report: RFDKLI42 Early Warning List via RFC
AR Summary <ul><li>It contains all credit information for an account in compact form </li></ul><ul><li>Can be used for SD credit checks both in distributed and non-distributed credit management </li></ul><ul><li>Increases efficiency in non-distributed systems as repeated read of open items is avoided </li></ul>Preliminary settings are done here.
AR Summary - Aging Settings A/R Summary aging settings in A/R A/R Summary aging settings in SD