Credit Management

Credit Management is a process in which Company sells a product / service

to customers on credit basis. The company collects payments from customer
at a later time, after sale of product. The amount of credit fixed by a company
for a customer is  called credit limit. The customer can Purchase the product
from a company within the credit limit, and when the credit limit is crossed,
order is blocked by the system.

Example- Consider a Company creates a credit limit for Customer of

2,00,000. Customer can purchase the product from the company on credit till
the credit limit 200,000 is reached. Customer gives an Order # 1 of amount
100000. Again Customer gives an Order # 2 of the amount 1,50000. Now, the
total open order crosses credit limit of a customer.Order 2 is   blocked by the
system due to credit limit reached.

  Here customer ordered a total of Rs. 2,50,000,while a customer credit limit is

Rs. 2,00,000.Here order 2 is over to the credit limit of a customer. So the
order 2 will be blocked by the system.Credit limit can be different for each
customer .

Types of credit checks:

1. Simple credit check:  Simple Credit Check = Value of all Open

Items + Value of the Current Sales Order. Note: Open Items are
invoices for which company has not received payment.
 2. Automatic Credit check - Automatic credit check allows  you to  evaluate
a transaction based on the credit rating of the customer, and ensures
appropriate further processing of the transaction document. The credit limit
check starts either automatically when you save a document or by selecting
Check Credit. Automatic credit checks are of 2 types-

1. Static Credit Check (Check for  credit limit against total value of open
sales order  + open delivery not invoiced + billing value of open billing
document  not passed at accounting).
2. Dynamic Credit Check (Check for credit limit against open sales order
not yet delivered + open delivery not invoiced + billing value of open
billing document  not passed at accounting + passed but not paid bill
amount).

Configuration settings:
Sales documents types – Credit limit check: Transaction code: OVAK
Path:
 IMG
 Sales and Distribution
 Basic functions
 Credit management/Risk management
 Simple credit limit check
 Choose sales document type OR
 Specify value
[ ] = No credit limit check
[A] = Run simple credit limit check and warning message
[B] = Run simple credit limit check and error message
[C] = Run simple credit limit check and delivery block
 Save and Exit
Define credit control area: Transaction code: OB45
Credit control area is an organizational unit that specifies and checks the credit limit for customers. A credit control
area can include one or more company codes. It means we can assign one credit control area to number of company
codes.
NOTE: Within credit control area the credit limit must be specified in the same currency.
Path:
 IMG
 Enterprise structure
 Definition
 Financial accounting
 Define credit control area
 Go to new entries
(OR)
 Choose existing credit control area
 Select it and click on copy icon
 Rename it and click on details icon
Specify currency [INR]
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Data for updating SD fields
Update [000012]: Open order value on time axis, delivery and billing document value. This field value controls
when the values are open sales orders, deliveries, billing documents are updated in LIS. We can specify the
following update groups for updating credit related statistics.
 Update group 000012:
Sales order: Increase open order value from delivery relevant schedule lines.
Delivery: Reduces open order value from delivery relevant schedule lines.
Increases open delivery value
Billing document: Reduces the open delivery value, increases open billing document value.
Financial accounting document: Reduces open billing document value
Increases open items.
 Update group 000015:
Delivery: Increases open delivery value.
Increases open billing document value.
Financial accounting document: Reduces open billing document value
Increases open items.
 Update group 000018:
Sales order: Increases open delivery value
Billing document: Reduces open delivery value.
Increases open billing document value.
Financial accounting document: Reduces open billing document value.
Increases open items.
Fiscal year variant [K4]: It indicates specific fiscal year variant for particular credit control area. The fiscal year
variant is essential when a credit control area covers multiple company codes whose fiscal years are different. Then
the values of the open orders are updated by posting period.
Specify risk category [001]: 001 = High risk
002 = Medium risk
003 = Low risk
This risk category entered in the related control area of the customer’s credit master record, which is automatically
created when a customer is created in a company code.
The credit master record is automatically maintained when at least one of the below fields is maintained for the
corresponding control area.
(A) Risk category
(B) Credit representative group
(C) Credit limit
Credit limit: The credit limit that we enter here in the specific credit control area of the customer’s credit master
record. This is automatically created when a customer is created in a company code (in XD01).
NOTE: This credit limit is not a total credit limit for the control area.
Representative group [001]: Define credit representative group in IMG.
 All company codes: If we want to tell to the system that, this credit control area is permitted for
postings in every company code we have defined.
 Save and Exit
NOTE: After this create Risk categories and Credit representative groups and come back to this step and assign
these values to our credit control area.
Risk category and Representative group defined and maintained by FI/CO consultants in IMG.
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Assign company code to credit control area: Transaction code: OB38
Path:
 IMG
 Enterprise structure
 Assignment
 Financial accounting
 Assign company code to credit control area
 Choose our company code from position button
 Click on assign button on the application tool bar
 Select our credit control area from the list and assign it
 Save and Exit
 Go to FD32 and check whether system created customer’s credit master data automatically or not.
System creates customers credit master data automatically when we (FI/CO) people) configure credit control area in
IMG.
So as to perform simple credit check we have to specify customer master payers limit in the credit control area, and
create customer master in XD01 transaction code.
 Specify reconciliation account number (GL account number)
 Payment history record: Check payment history record control in payment transaction tab. It is the
control parameter to update the payment details that are made by customers and system will show the
payment details in the FD32.
 Specify the credit control area in credit control area field in billing document tab.
 Save and Exit
 Go to VA01 and raise the sales order
Check the system responses in each and every level of sales document processing and check whether the system
blocked the delivery document (due to the setting in VOV8 of OR in check credit limit field [C] = Blocked for
delivery).
 To release the delivery go to VKM4 and release the delivery document.
Automatic credit check
We can configure credit related management functions that are to be carried out by the system automatically.
System automatically carries out credit related management functions by taking some factors into consideration.
In automatic credit related functions system gets the credit exposure of a particular payer by taking factors like:
(1) Open sales orders (that are raised, yet to pass to delivery process) +
(2) Open delivery documents (that are raised, yet to pass to PGI) +
(3) Open PGI documents (that are PGI process done, and yet to pass to billing document) +
(4) Open billing documents (that are raised, but yet to pass to accounting (FI) +
(5) Attachment/Time/Horizon period. Ex: 2 Months.
Horizon period: It is the period in which system will take the above sited all open documents into consideration
that falls during this period. This time period only applies for dynamic check. It will not be applied for static. As in
automatic credit check SAP provides Dynamic and Static methods.
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Configuration steps:
Define credit control area: Transaction code: OB45
Path:
 IMG
 Enterprise structure
 Definition
 Financial accounting
 Define credit control area
 Go to new entries
(OR)
 Choose existing credit control area
 Click on copy as icon
 Define our credit control area by changing the data
 Save and Exit
Assign permitted credit control area to company code
Path:
 IMG
 Financial accounting
 Accounts Receivable/Accounts Payable
 Credit management
 Credit control account
 Assign permitted credit control areas to company code
 Go to new entries
 Assign credit control area to company code
 Save and Exit
NOTE: Definition and assignment takes place in single step. Here we can assign ‘N’ number of credit control
areas to one company code.
Path:
 IMG
 Enterprise structure
 Assignment
 Financial accounting
 Assign company code to credit control area
 Choose our company code from position button
 Click on assign button on the application tool bar
 Select our credit control area form the list
 Assign
 Save and Exit
NOTE: If our client has different business areas, we can assign each business area with credit control area.
Ex: 0001 for business area ‘A’.
0002 for business area ‘B’.
0003 for business area ‘C’.
In this case the same customer master record can have different credit limits for different business areas.
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Define risk categories: Transaction code: OB01
Path:
 IMG
 Financial accounting
 Accounts receivable and accounts payable
 Credit management
 Credit control account
 Define risk categories
 Go to new entries
 Define our risk categories
Ex: 001 = High risk
002 = Medium risk
003 = Low risk
 Assign our risk categories to our credit control area

 Save and Exit

Automatic credit check steps

 Customer master should have been created by using transaction code XD01
 In VOV8 of OR check credit limit field must be [D] = Automatic
 FD32 should have been created and credit limit should have been specified/maintain
(When we define the credit control area system automatically creates FD32)
 In VOV8 of OR we should specify the credit checking method as: Simple, Static, Dynamic, Document
value, etc.
 Go to VA01 and raise the sales order. Check the system statuses regarding credit check
 Go to VL01N and check the system status, whether the system blocked the delivery or not
 So as to release the blocked document go to VKM4
 Maintain the selection criteria
 Click on execute icon
 Select the document
 Click on release icon
 Save and Exit
 Go to VL01N and raise the delivery process

 Go to VF01 raise the invoice