Credit Management in Sales and Distribution

Applies to:
Credit Management in Sales and Distribution. For more information, visit the Enterprise Resource Planning Homepage.

Summary
This document illustrates what is SAP SD credit management and how to configure it in a systematic manner. It also explains how a new incoming sales order is checked against the customers credit limit. It shows how credit management supports the information flow between different departments within a company to make quick and efficient credit decisions.

Author:

Priyadharshini Shanmugasundaram

Company: Applexus Technologies Pvt Ltd Created on: 6 May 2011

Author Bio
Priyadharshini Shanmugasundaram is currently working as SAP Technical Consultant in Applexus Technologies Pvt Ltd.

SAP COMMUNITY NETWORK © 2011 SAP AG

SDN - sdn.sap.com | BPX - bpx.sap.com | BOC - boc.sap.com | UAC - uac.sap.com 1

........................ 3 Features ............................................................. 4 Automatic Credit Check: . 16 Disclaimer and Liability Notice .................................................................................................................................................. 3 Types of Credit Management .................com | UAC .................................................................................................................................................................sap................... 5 Checks: .............................................................................................sap.....................................................com | BPX .......sap................................................................................ 4 Dynamic Credit Check Determination: .............................. 12 Related Content ...............................................................................................................................................................................................................................................................................sdn....................................Credit Management in Sales and Distribution Table of Contents Credit Management ......com 2 ................................................boc.......... 17 SAP COMMUNITY NETWORK © 2011 SAP AG SDN ...... 4 Static Credit Limit Determination: ................................................................com | BOC ........................................................................................................................................................................................................................ 5 Settings .uac........................ 4 Simple Credit Check: ...........................................bpx...........................................................................sap........................................................................ 3 Purpose of Credit Management ..............................................................

i.If the customer’s credit limit is 20..he needs to pay (16.sap. the customer will get 2% discount). You can also specify at which critical points in the sales and distribution cycle(for example : sales order entry. The amount of credit extended is determined by the customer’s credit worthiness (customer’s credit limit).000 with payment terms of Net 45 2% i. according to your credit policy..com | BOC . This literally means. Features Credit Management includes the following features:  Depending on your credit management needs.000 and if he creates an order worth 16. goods issue) the system carries out the checks.00-15.sap. delivery.000 Sale Order B worth 12.bpx.000 Order delivered and money Paid within 45 days of purchase.com | BPX . Your credit representatives are in a position to review the credit situation of a customer quickly and accurately and.uac. identify warning signs earlier. The number of days for which credit is extended is based on the payment terms associated with that transaction. Credit Limit of Customer A is 20.600= 4400 Sales order A worth 16. decide whether or not to extend credit. Exceeds credit limit and blocked for delivery Purpose of Credit Management Credit Management enables you to minimize the credit risk yourself by specifying a specific credit limit for your customers. you can specify your own automatic credit checks based on a variety of criteria. selling their goods and collecting money at a later point of time.000 – 2% = 15600).000 20.sap.com | UAC .boc. Thus you can take the financial pulse of a customer or a group of customers.    SAP COMMUNITY NETWORK © 2011 SAP AG SDN .com 3 .e. During order processing the credit representative automatically receives information about a customer’s critical credit situation. Critical credit situations can also be automatically communicated to credit management personnel through internal electronic mail. and enhance credit related decision making.sdn.e.sap.Credit Management in Sales and Distribution Credit Management Most enterprises extend credit to their customers. if money is paid within 45 days of purchase.

sap. the order can be still processed because of the good payment history with the company.com | BPX . for old and seasoned customers. Risk Category: Based on the risk category the company decide how much credit has to give to the Customer.sap. even if the credit exposure exceeds the credit limit set for the customer.Credit Management in Sales and Distribution Types of Credit Management Types of Credit Checks:   Simple Credit Check Automatic Credit Check  Static Credit Check  Dynamic Credit Check Simple Credit Check: 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.com 4 . Open items are orders that have been invoiced to the customer but the payment for the invoices have not been received yet. This is broadly classified into two:   Static Credit Check Dynamic Credit Check Static Credit Limit Determination: Checking Group + Risk Category + Credit Control Area Checking Groups: Types of Checking Groups 01) Sales 02) Deliveries 03) Goods Issue At all these 3 levels order can be blocked. we need to consider open orders and open deliveries as well. High Risk (001): Low Credit Low Risk (002): More Credit Medium risk (003): Average Credit SAP COMMUNITY NETWORK © 2011 SAP AG SDN .sdn. Credit Exposure in Simple Credit Check = Value of all Open Items + Value of the Current Sales Order.sap. send a warning or an error message when the credit exposure has exceeded the credit limit of the customer.com | BOC .com | UAC . The system can be configured to either block the delivery. Also.sap.uac. Automatic Credit Check: Instead of just considering open items only.bpx.boc.

That is if the delivery period is after 4 months. The system considers the document only if the delivery period of the open document is within 4 months.com 5 . It is an Organizational unit that represents the area where customer’s credit limit is specified and monitored.com | BPX .sdn.boc. It is not possible to divide a company code into several credit control areas. Settings Credit Control Area: Credit management takes place in the credit control area.uac. 1) Open Doc 2) Open Delivery 3) Open Billing 4) Open Items 5) Horizon Period If the Horizon period is 4 months.sap.com | UAC .sap. the system will not consider the document.Credit Management in Sales and Distribution Dynamic Credit Check Determination: Dynamic credit check checks all these document value and check with the credit limit by considering the horizon period.sap.sap. 1. the system will not consider the above 4 documents for 4 months. Path: IMG -> Enterprise Structure -> Assignment -> Financial Accounting -> Assign Company Code to Credit Control Area SAP COMMUNITY NETWORK © 2011 SAP AG SDN . A credit control area can include one or more company codes. Assign Company Code to Credit Control Area.bpx.com | BOC .

we need not assign credit group to the Document type.sdn.com 6 . Management.com | UAC . If we are using simple credit check.sap.com | BOC .com | BPX .Using credit group we can define at what level the credit limit is checked for the customer.bpx. Define Credit Groups Path: IMG -> Sales and distribution -> Basic functions -> credit management/Risk management -> Define credit groups Credit Group is used to combine different document types for the purpose of credit.Credit Management in Sales and Distribution Settings for Automatic credit check: 2.uac.sap.sap. The following credit groups are contained in the standard SAP system: 01 = credit group for sales order 02 = credit group for deliveries 03 = credit group for goods issue SAP COMMUNITY NETWORK © 2011 SAP AG SDN .boc.sap.

sap.Credit Management in Sales and Distribution 3. Define Risk Categories Path: IMG -> Financial Accounting -> Accounts receivable and accounts payable -> Credit management -> define risk categories In order to classify customers according to the risk they represent and to trigger the relevant checks.com 7 .boc.com | UAC .sap. The risk category determines which checks the system should carry out when processing orders in Sales and Distribution.sap. you can assign a risk category to a customer.com | BPX . SAP COMMUNITY NETWORK © 2011 SAP AG SDN .uac.sap.sdn.com | BOC .bpx.

sap. If the credit check is set.bpx. Assign Sales documents and delivery documents for credit management.uac. 4.The document cannot be saved Setting a delivery block – The document can be saved but a delivery block will be set automatically.sap. Here we can specify for which sales document type or delivery document type the credit limit is to be carried out and at what point of time the credit check has to take place whether order or delivery or post goods issue. SAP COMMUNITY NETWORK © 2011 SAP AG SDN .sdn. Error message .com | BPX .Credit Management in Sales and Distribution Here you can notice that the credit control area ‘INFC’ is assigned to the risk category ‘001-Low Risk’.boc.com | BOC . the system will respond according to the following ways : Warning message – The document can be saved.sap.com 8 .sap.com | UAC .

sap.com | UAC .sap.uac. 5.com | BOC .sdn. Credit limit check for delivery types.sap. SAP COMMUNITY NETWORK © 2011 SAP AG SDN . Set Sales and Distribution document items for credit management We can also specify for each item category whether credit check is to be carried out. Path: IMG -> Sales and Distribution -> Basic functions -> Credit management/Risk Management -> Credit management/Risk management settings ->Determine active receivables per item category.bpx.boc.com 9 .Credit Management in Sales and Distribution Credit limit check for order types.com | BPX .sap.

com | BPX .com | BOC .sap.sap.com | UAC .sap.boc.com 10 .uac. SAP COMMUNITY NETWORK © 2011 SAP AG SDN .bpx.Credit Management in Sales and Distribution Here you can check the credit active checkbox to activate the credit check for the corres[ponding item category.sdn.sap.

sap.uac.sap.sap.com | UAC .sap.bpx.Credit Management in Sales and Distribution 6.com | BOC .com | BPX . Define Automatic credit control Here you can notice that the credit group 01 is assigned to the credit control area ‘INFC’. SAP COMMUNITY NETWORK © 2011 SAP AG SDN .com 11 .boc.sdn.

Open billing documents-The open invoice value is the value of the billing document items which have not yet been forwarded to accounting. High Dunning level : The customer’s dunning level may only reach a specified maximum value.weeks. you want the system to ignore all open orders that are due for delivery after the horizon date.com | BOC . Critical Fields: The credit check is triggered by changes made in the document to values in any of the credit-sensitive fields.bpx. depending on the periods you specify).The credit exposure is the total combined value of all the items: Open Orders.sap.sap.boc. When you define the credit check. This check is useful if the credit limit is not yet been defined for a new customer. Open Items(accounts receivable)-The open items represent documents that have been forwarded to accounting but not yet settled by the customer Dynamic credit limit check with credit horizon: Dynamic credit check checks all the document value by considering the horizon period. the following fields are relevant : Payment terms Additional value days Fixed value date Next/Review date : If you process a sales order after a customer's next review date has already gone by. The value is calculated on the shipping date and stored in an information structure according to a time period that you specify (days. or months).The open order value is the value of the order items which have not yet been delivered. If a check in this field is carried out.com 12 . It is initiated by a risk category which is defined specifically for new customers. This type of credit check works in conjunction with two values that you specify in the adjacent fields :  Maximum percentage of overdue items in open items  Number of days which the open items are overdue Oldest Open Item : Indicates whether the system carries out a credit check based on the age of the oldest open item. the system automatically carries out a credit check.sap. For the purposes of evaluating credit. SAP COMMUNITY NETWORK © 2011 SAP AG SDN .Credit Management in Sales and Distribution Checks: Static Credit Limit Check: The customer’s credit exposure may not exceed the established credit limit.The oldest open item may not be more than a specified number of days overdue.The open order value includes all undelivered or only partially delivered orders. Open items : Specifies whether the system carries out a credit check based on open items.sap.com | UAC .uac.com | BPX . you can then specify a particular horizon date in the future (for example: 10 days or 2 months. Open Deliveries-The open delivery value is the value of the delivery items which have not yet been invoiced. The value is stored in the currency of the credit control area. Maximum Document Value: The sales order or delivery value may not exceed a specific value which is defined in the credit check.sdn.

sap.boc.com | BOC . This means that.sap. there is no need to assign the credit group to the document type.sap.com | UAC .com 13 .com | BPX .sdn.Credit Management in Sales and Distribution User-defined Checks : If you want to carry out checks other than the standard checks. the credit limit is checked at the time of delivery (B).sap. Settings for simple credit check: For simple credit check. SAP COMMUNITY NETWORK © 2011 SAP AG SDN . you can define your own checks in the appropriate user exits.uac. for the document type ‘XR’.bpx. you can simply assign where the check should happen while processing the order.

Sales Order1: Since the credit limit of the customer is 50.sap.000.sdn.uac.com 14 .000.sap.com | UAC .com | BPX . SAP COMMUNITY NETWORK © 2011 SAP AG SDN .sap.sap. no credit check will happen.Credit Management in Sales and Distribution Let us see an example by creating sales orders: Creating a sales order having value 20.boc.com | BOC .bpx.

sap.000. it will not be saved.boc. SAP COMMUNITY NETWORK © 2011 SAP AG SDN .sap. you can change the settings for credit management as discussed in above steps.Credit Management in Sales and Distribution Now create another sales order having value of 10. if the sales order which we are going to create exceeds the credit limit of the customer.000.uac. If it gives an error message.000 + 10.com 15 .sap.sap.Now let us check whether the system is giving warning message.bpx.com | UAC .com | BPX .000 = 30. Sales Order2: Now total value of the open sales orders is 20. Sales Order3: If the system gives a warning message the sales order will be saved.com | BOC . If you want an error message to be displayed.sdn.

sdn.uac.com | UAC .boc.com | BOC .sap.com 16 .bpx.sap.Settings for Credit Management and Risk Management: Overview For more information.com | BPX .sap.sap. visit the Enterprise Resource Planning Homepage.Credit Management in Sales and Distribution Related Content SAP Help Portal SAP Documentation . SAP COMMUNITY NETWORK © 2011 SAP AG SDN .

bpx.boc. Changes made based on this information are not supported and can be overwritten during an upgrade. or seek to hold. SAP COMMUNITY NETWORK © 2011 SAP AG SDN .sap.com | BPX .uac. and anyone using these methods does so at his/her own risk.sdn.com 17 .sap.sap.com | UAC . SAP will not be held liable for any damages caused by using or misusing the information.sap.Credit Management in Sales and Distribution Disclaimer and Liability Notice This document may discuss sample coding or other information that does not include SAP official interfaces and therefore is not supported by SAP. You agree that you will not hold. SAP offers no guarantees and assumes no responsibility or liability of any type with respect to the content of this technical article or code sample. code or methods suggested in this document. including any liability resulting from incompatibility between the content within this document and the materials and services offered by SAP. SAP responsible or liable with respect to the content of this document.com | BOC .

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