The solution for effective credit and collections management

FSCM – Credit and Collections

INDEX Executive Summary Why implement FSCM C&C in your organisation? What needs to be done before FSCM C&C can be implemented in your organisation? What can FSCM ECC 6.0 C&C do in comparison with R/3? What is needed from a system landscape perspective? Some business implementation considerations per FSCM C&C module/ Best Practice Limitations of FSCM C&C 7 8 4 5 4 1 2

Executive Summary
Many finance departments in the present market struggle with their role in the organisation. Market conditions change rapidly therefore they want to play a more strategic role and spend less time with high labour intensive processes. Core financial processes are automated whereas other important financial processes are still very labour intensive and costly. The financial manager of today wants to optimize his department’s performance and do more for less cost. Nowadays improving cash flow is one of the most important key focus points

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SAP has developed FSCM to assist with this focus by optimizing the financial and information flows within 2 5 a company and between business partners. It delivers an integrated approach to present business environment challenges. Using SAP FSCM, companies can optimize their cash management, reduce the cost of invoicing, simplify accounts payable and accounts receivable, and lower the costs that occur through reconciliation or mistakes. SAP FSCM contains solutions for displaying accounts and invoices, paying over the Internet (SAP Biller Direct), efficient processing of disputes and withheld payments (SAP Dispute Management), managing credit default risks (SAP Credit Management), and an effective approach to collecting your receivables (Collections Management) Before implementing SAP FSCM a closer look has to be taken at the current business in order to assure an effective set up of the modules to be implemented. This White paper will explain the process and business questions to implement FSCM to enhance your organization to the fullest.

Figure 1: FCSM Credit and Collections focus Figure 2: System Scenario’s

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT

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Via process and system integration you can enhance your performance. too much cash tied up. The FSCM C&C modules in short will bring you: Financial Supply Chain Management CREDIT MANAGEMENT BILLER MANAGEMENT DISPUTE MANAGEMENT COLLECTIONS MANAGEMENT Cash Projection Finance Working Capital Market Risk Management Credit Risk Management Invoicing Collection Dispute Cases Payments CASH & LIQUIDITY MANAGEMENT TREASURY & RISK MANAGEMENT INHOUSE CASH Figure 1: FCSM Credit and Collections focus THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 2 . deteriorating cash flows and rising operating cost. All indicators that it’s time to evaluate your receivable management and strategy. increasing DSO. evaluate and manage credit and collections risks effectively? SAP FSCM optimizes the financial and information flows within a company and between business partners and banks. This will assist in determining the correct focus for the right people so that priorities are clear. SAP FCSM helps streamline your order to cash and invoice to pay process. increased risks.Why implement FSCM C&C in your organisation? Deteriorating markets causing an increase in overdue receivables. These range from payment systems to credit rating agencies. increase faster collections. reducing operating cost. more hours spent on logging and tracking disputes. and enhance cash flow forecasting. At the same time it comes with a repository of ‘standard build-in’ integration objects for a variety of (external) data sources and processing systems frequently used in the market. off line process where split information flows restrain payment flows and thus tie up large amounts of cash in your organization. It delivers an integrated approach to present business challenges. For many companies a financial supply chain involves a highly paper based. data processing and deliver information faster with less (human) effort. Another great area of interest at redesigning your financial supply chain is getting your teams responsibilities organized such that workload is ‘spread’ effectively. So what is the effect of all this? In short. Do you want to control.

shorter communication lines leaving less room for errors.in a structured way. On top of that your staff will have their own dash-board. • Low priorities and have a low business impact.Diversity in Customers .0 C&C do in comparison with R/3? Credit Limits First of all when switching on SAP FSCM Credit Management the Credit Management function in R/3 will be disabled and there is no need to maintain any more.Etc. The findings will be reported.g. If a credit What needs to be done before FSCM C&C can be implemented in your organisation? The objective for credit & collections management is to guarantee that customer payments are collected and processed quickly to supply a constant flow of cash into the business. where all information specific to their role is kept up-to-date and prioritized. What can FSCM ECC 6. payment history and sales history whereby the system facilitates external information (from e. The effect is that you can do more with less staff and/or increase the productivity of your staff. your business processes need to be analyzed first and important company and policy strategic decisions need to be taken. Before an FSCM implementation can be started at your company. FSCM in comparison to R/3 provides the opportunity to calculate a scoring rule per customer based on predefined parameters. The outcome will reveal strength and weaknesses in your credit & collections management and strategy as well as improvement options to enhance your organisation. A quick scan therefore needs to be performed to review the current key business THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 3 .through SAP . The functionality of credit limits is already part of SAP for a long time.Current Market . Findings will be classified as follows: • High priorities and have a big business impact.g. This then will be the basis for the FSCM implementation. Work with risk classes to control credit checks. Credit limits can be transferred or re-entered. The basis for efficient SAP FSCM system is a well functioning SAP ECC system. • Medium priorities and have a medium business impact. processes related to FCSM vs. Assigning limits to customer groups instead of individual customers. the current SAP configuration and identify areas of improvements (‘Gap analysis’). deliveries etc.FSCM-Credit Management will take you one step further to being ‘in control’ by: • Improved decisions support • Control your customer’s credit exposure with up-to-date credit-profiles • Integration of dispute and dunning information FSCM-Biller Direct supports your B2C business by: • Invoicing your business • Electronic payment for customers via a portal • Integrated approach between customer service and finance FSCM-Dispute Management reduces a companies DSO by: • Early detection of payment issues and disputes • Increase cash forecast accuracy • Effective & timely dispute resolution process FSCM-Collections Management effectively manages receivables: • Use of work list to distribute and prioritize cash collection • Proactive collection strategy • Dynamic and real time collection management With SAP’s FSCM workflow the staff involved (across companies) collaborate on issues . The quick scan will concentrate on the following areas: • Current Account Receivables and associated processes • Integration with Logistical Processes • Organization specific strategy & policies • Country specific legal requirements • Demographical factors such as: . a credit rating agency) to be uploaded in order to be part of the scoring rule determination. R/3 allows credit limits set up per customer for blocking of sales orders.Country specific characteristics . This includes e. followed by recommendations on which FSCM components to set up and what the implementation timeline will be.

Next to the above for connection of SAP Credit management to the mentioned systems NetWeaver technology SAP PI (Process Integration) is needed. when applicable. this is fully integrated with the Accounts Receivables processes for processing of payments.limit hierarchy applies then changes due to this upload will be automatically calculated to all levels of the hierarchy.7 the dispute option was already available in multiple areas of Accounts Receivables Accounting. ideally is that your company runs its business on mySAP2005. This however requires strong involvement of ABAP support. Configuration setting needs to be made for this. offsetting credit memo or manual clearing is processed.0 includes CVI (Customer Vendor Integration) which controls synchronization of * SAP Collections Management and SAP Dispute Management have to be set up on the same system if both are used Figure 2: System Scenario’s THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 4 . post residual item with incoming payment. The basis for a business partner resides in the customer master. line item display. In conjunction with other systems specific synchronisation solutions need to be developed. account clearing etc. A connection to My SAP ERP 2004 (ECC 5.0). E. ONE SYSTEM SCENARIO Biller Direct This application is new and provides the possibility for customers to manage their open items and create dispute cases from the web portal.g. Dispute cases From R/3 4. Thirdly workflow integration is possible between involved departments in resolving a dispute case. lockboxes or checks and automatic creation of dispute cases.0 efficiently. FSCM as functionality heavily relies on “business partners”. Biller Direct is developed in a “Java Environment” hence Java resources are needed when setting up this module.0. dispute cases could be created. SAP R/3 4. From there. With FSCM 6. SAP R/3 Enterprise. within Financial Accounting-Accounts Receivable. This portal also allows your staff and customers to work together more closely in order to resolve disputes using the same channel of communication. Secondly a direct connection exists between dispute management and collections management as part of the collection strategy. Therefore ECC 6. The update is then visible in the dispute cases. RFC connections will have to be set up which involves extensive testing. In CRM dispute cases are also viewable but since it’s Account Receivable driven changes can only be made from there. MULTIPLE SYSTEM SCENARIO What is needed from a system landscape perspective? In order to operate FSCM 6. Dispute cases created are automatically updated when payment. master data between SAP Financial Accounting and FSCM.6C or other external systems is possible.

credit memo clearing and other clearing transactions connected to a dispute cases automatically update the dispute case. payment history. From Biller Direct customers can create dispute cases themselves for e.g. external credit information part of a scoring rule? Allowing generous payment conditions for “low risk” customers or advance payments for “high risk” customers. Incoming payments. Credit Management communicates directly with Collections Management when defining a risk class of a specific business partner. Master Data needs to be transferred upon creation or synchronized in case of changes. Dispute Management SAP Dispute Management is fully integrated with Account Receivable and allows creating or updating a dispute case from an open item. The top node hierarchy can now determine how credit limits need to be divided over the lower levels. Customers can also view the status of a dispute case. Individual overspent without exceeding the top node credit limits can also be configured. the organization needs to determine the rules between not shipping and taking a risk. Credit Management Credit Management determines when a customer order or customer account needs to be blocked based on your settings and calculations. What drives a score for a specific customer or group of customers? The usage of internal and external hierarchies to implement different credit policies has also changed from the SAP R/3 functionality. THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 5 . invoice errors or partial payments. Any additional roles then are created within FSCM. credit agency systems). When a risk class changes. up or download attachments and communicate on time with the respective department that handles the dispute case. Biller Direct SAP Biller Direct is integrated with SAP Dispute Management. Some business implementation considerations per FSCM C&C module/ Best Practice Credit Management in AR vs. Collections Management Collections Management is closely integrated with Accounts Receivable.How does process integration with SAP ECC or other FCSM modules work? FSCM in general FSCM works with the concept of “business partners” These can be directly maintained within FSCM. This is then consolidated by FSCM and reflected in a risk score for central processing and monitoring. enter reason codes. There is also a possibility that residual items be converted to dispute cases manually or automatically when processing your bank statements. The relation between credit limits utilization and credit exposure can also be part of your collection strategy.g. Amount limits. customers and discrepancy reasons can be controlled. sales history. Thorough Credit Decisions have to be taken first In order to properly evaluate the creditworthiness of customers by the use of internal rating policies and external credit data to support quick and consistent credit decisions. The automatic creation of work lists and the collection strategy determined for collections specialists prioritizes the customers to be contacted and open items to be addressed. However most companies prefer the customer master as the leading master record for the business partner. In short what drives a credit score in FSCM? Do you want credit limit usage. Hence Credit Management integrates directly with modules like Account Receivables. For reporting a connection to BI and the “credit manager portal” are available. Credit Management in FSCM For companies that have a distributed landscape the option of choosing for Credit Management in FSCM is a favourable one since only in FSCM you can gather and process information of a business partners credit exposure from various SAP and non SAP sources. The communication platform for this is NetWeaver PI. Connection to non SAP systems is possible (e. your collections strategy will take this into account. Sales & Distribution and CRM.

reporting can be done on the frequency of missing information from your customer. A well configured set up is therefore crucial.O. The FSCM C&C modules contain basic set up by SAP where functionality can be enhanced by implementing standard delivered business add-ins (Badi). transactions in EBS can fail or post incorrectly for many reasons. T +31 (0)318 65 77 90 Meet the experts PROXYON BV Groot Zonneoord Estate Zonneoordlaan 17 NL-6718 TK EDE P. Even with the most sophisticated cash-management strategy. delivery documents etc. addition to these statistics. In order to process these disputes quickly and efficiently finance employees need to gather a lot of information from different department and have frequent contact with the customer. However.com www. All these communication lines are time consuming and even more important information gathered is often not logged in a structured and consist manner so that all parties involved can easily access important information. search strings can increase the hit rate. and fax or e-mail it to your customer.com THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 6 . Using the electronic bank statement functionality (EBS). To increase efficiency with handling and processing dispute cases a few best practises are to be considered for implementation: Dispute cases can be created automatically. requiring manual post processing transactions after initial upload of EBS. The main reason is that the strategies that need to be determined are company specific. In order to benefit from EBS all transactions both incoming and outgoing have to be analyzed for a specific period of time. Working with e. Box 305 NL-6710 BH EDE The Netherlands Control your external correspondence function. This will increase the effectiveness of FSCM. These all contribute to an increase of DSO affecting your cash flow significantly. When using the EBS function for processing payments the system can automatically create dispute cases based on a pre defined set of rules. It’s extremely important that you define your credit and collections policy and strategy well in order to get the most out of FSCM. companies can reconcile business transactions in real time with transactions that have been posted at their bank.proxyon. often few companies really fully utilize the full functionality and benefits of their EBS. Effective resolution of Invoice disputes Invoice problems and overdue payments can happen regardless of how effectively your have implemented your credit management. Limitations of FSCM C&C With every new system a few side remarks have to be made.g. In F +31 (0)318 65 77 91 info@proxyon. This function allows you to attach missing invoices. hence requirements can differ a lot.The use of Electronic Banking System (EBS) It’s clear for everybody that there are great benefits for companies by knowing their cash position at their bank as timely as possible. The advantage is that multiple bank statements can be uploaded at the same time decreasing processing time and increase timeliness of up to date receivable positions.