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Table of Contents What is Credit Management ? Types of Credit Management Simple Credit Check Dynamic Credit Check Organizational Structures & Master Data Customization Example What is Credit Management ? Most enterprises extend credit to their customers. This literally means, selling their goods and collecting money at a later point of time. The amount of credit extended is determined by the customer’s credit worthiness (Also called credit limit ) . The number of days for which credit is extended is based on the payment terms associated with that transaction. For ex., Customer A could be given a credit limit of $ 100,000 by the company. Credit limit Example Now lets say the customer orders goods worth $ 20,000 with payment terms of Net 45 2 % ( Meaning if the customer pays for the goods within 45 days of purchase, he will be given a 2% cash discount. So instead of paying $20,000, the customer would need to pay ($20,000 – 2% of 20,000) = $ 19,600. This is to encourage timely payment of their bills and improve cash flow). Credit limit and Credit Exposure The same customer could also place another order for $ 60,000 and still be within his credit limit. The customer is still within his credit limit
credit management can get pretty complicated and not all the scenarios will be covered in this document. Dynamic Credit Check Simple Credit Check This is very similar to the example we have discussed earlier. Automatic Credit check 1. even if the credit exposure . Static Credit Check 2. Credit Exposure in Simple Credit Check = Value of all Open Items + Value of the Current Sales Order. at the point of ordering (Order C) the customer’s total receivables ( Value of Order A + Order B ) along with his current order ( Order C ) is checked against this credit limit. Open items are orders that have been invoiced to the customer but the payment for the invoices have not been received yet. for old and seasoned customers. send a warning or an error message when the credit exposure has exceeded the credit limit of the customer. Credit Exposure = Value of all Open Items + Value of the current Order $ 110. Dynamic Credit Check Simple Credit Check alone is not sufficient for most businesses. Types of Credit Management Types of credit checks: 1. the order would be blocked.000 + 60.The value of Order A ( $ 20. there is a need to consider existing open orders and open deliveries as well. If the customer places another order for $ 30.000 more.000 = ( $ 20. Also. Instead of just considering open items only. Simple credit check compares the Customer’s credit limit to the total of all the items in the order and the value of all open items.000 ) and Order B ( $ 60. The customer now exceeds his credit limit So.000 ) This is a very simple example of credit management.000 ) put together is called the credit exposure of the customer.000 ) + ( $ 30. The system can be configured to either block the delivery. Since the customer exceeds the credit limit set for him. In reality. he now exceeds the credit limit set for him. Simple credit check 2.
Orders might start to pile in as early as June.000. In case of static credit check. Static Check Dynamic Check Horizon: The use of time horizon can be best explained with an example. However. High Risk. Order A for $ 50.000 is a Pre-Ordered to be delivered in November.000 to be delivered in December. Low Risk etc.000 the credit exposure would exceed the credit limit of $ 100.We determine how high a customer’s credit limit is to be when creating this data.exceeds the credit limit set for the customer. July. in August . Order B is placed for $ 40. a horizon of say 2 months would be used to exclude all orders for which the delivery has to be beyond the stipulated horizon. For the purpose of Credit Management. order C would not be blocked in case of dynamic credit check. Some examples of risk categories could be Medium Risk. in case of dynamic credit check. the credit exposure is already $ 90. So. Most orders for the holiday season are pre-ordered because of the holiday rush. If a regular order is placed in August for another $ 30. However.000. Dynamic Credit Management can be broadly divided into 2 components. SAP allows us to recategorize customers into different ‘Risk Categories’. for new customers credit needs to be strictly monitored. Dynamic credit check horizon Similarly for the month of December. Credit Open Deliveries + Open Invoices + Open Items Credit Open Sales Order Value with a Time period ( Called Time Horizon ) Organizational Structures & Master Data Monitoring Credit during SD Processing The master data for those customers whose credit we wish to monitor is created in SD. the order can still be processed because of the good payment history with the company. The delivery however is to be done in November or December. another order. Example of Horizon in Dynamic Credit Check For example. .
We can specify the system response if credit check is set. 2.Warning Message The document can be saved. 1.We can also specify if Credit check can occur at the time of Goods Issue.at the point of Order.The system can respond in the following ways: . Delivery or Goods Issue a check on the customer’s credit limit is to take place. in the same manner with regard to credit check.It is not possible to divide a company code into several Credit Control Areas.A Credit Control Area can include one or more company codes.Credit Control Area An organizational unit that represents the area where customer credit is specified and monitored. .We enter Credit Groups when we configure the Sales document types for Credit Management. Set Sales Documents and Delivery Documents for credit management We can specify in Customizing when.Credit Management takes place in the Credit Control Area. Define Credit Groups Credit Group groups together different business transactions which should be dealt with. credit group for goods issue 1. The following credit groups are contained in the standard SAP R/3 system: 01 = credit group for sales order 02 = credit group for deliveries 1.We can specify the Sales document and Delivery document types for which a credit check should be carried out. Path: IMG -> Enterprise Structure -> Assignment -> Financial Accounting -> Assign Company Code to Credit Control Area. Assign the company code to credit control area Customization Customization Settings for Credit Management in SD 1.
Risk Category of the Customer . Simple credit check compares the Customer’s credit limit to the total of all the items in the order and the value of all open items. • Automatic Credit check The automatic credit check can target certain aspects during a check and run at different times during order processing. 4. but a delivery block is automatically set.Credit Control Area .. Define type and scope of credit checks • Simple Credit check A credit limit check can be carried out when sales documents are created or changed. We can determine an automatic credit check for any combination of the following: .The check is carried out within one credit control area. . 1. Credit Management settings for Item Category A. 3.Credit group .Setting a Delivery Block The document can be saved. Path: IMG -> Sales and Distribution -> Basic Functions -> Credit Management/Risk management-> Credit Management/Risk management Settings > Determine Active Receivables Per Item Category. Set Sales and Distribution document items for credit management We can specify for each item category whether credit check is to be carried out.Error Message The document cannot be saved.
000 ( 200. by creating 3 Sales orders.00 Create an order with an order value of 200.000 Create a second Order.000 ) The credit exposure is now 800. Check the Credit Limit for the Customer. Transaction Code: FD32 Set the credit limit for customers using FD32 transaction Here the Credit limit is set at 1.000 Create a third order. because the total of the net document value and the open items value has exceeded the credit limit of the customer.000. Define automatic credit control Example Now lets see an example. The credit limit has been exceeded . Order value 2: 600. Transaction Code: VA01 Order Value 1: 200.Path: IMG -> Sales and Distribution -> Basic Functions -> Credit Management/Risk management -> Credit Manageemnt -> Define Automatic Credit Control.000 and the credit exposure is currently 0.00 We get the following error message when we create the Order. Now lets start creating the orders. Order value 3: 300.00 Create another order worth 600.000.000 + 600.000 The credit exposure now is 800.000.000.
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