Configure and Customize SAP Automatic Credit Managementcreated
bySandeep Agarwalon Sep 7, 2013 11:39 AM, last modified bySandeep
Agarwalon Jun 20, 2014 8:22 PMVersion 2inShareIntroductionCredit
management is the management of credit facility granted to
customers as credit exposure allowed. Credit facility is just like
telling our customers that they need not pay immediately, they can
pay at a future point of time after receiving the goods or
services. But, this payment at a future point of time involves
risk. So, according to the risk foreseen, the amount and time of
credit (Credit Exposure) granted changes. For some customers, the
risk perceived may be high such that we may demand payment in
advance.This credit management comes partially under preview of
Sales and Distribution (SD) and partially of Account Receivables
(AR).Key challenge:Reducing credit risk without hampering the
supply chain.Dealing with Bad Debt:Before getting involved, ask
yourself: How do I react to a bad debt? Do I block orders from
important customers, or do I grab a phone? What is the volume of
blocked orders my F&A department can handle? Can I afford to
block customers (small customer base)? What do I save? What is the
cost in terms of damage?Credit Management in SAPAssuming that we
already have SD and AR implemented, credit management can be
broadly used to: Assign credit limit to customers Facilities like
the credit master sheet or early warning list help you monitor the
customers credit situation Automatic credit limit checks as well as
to specify the points at which they have to be carried
outAutomatically alert the credit representative of a customers
critical credit situation as soon as order processing starts and he
may be able to check a customers credit situation quickly and
reliably, and, in line with the appropriate credit policy, to
decide whether the customer should be granted credit.Credit
CheckEvery customer is having a certain credit limit, which is
measured and maintained by Finance people. Credit check is done for
each and every order/SD documents generated.Credit check is
performed at the following stages of Sales order cycle, Credit
check settings present in each SD document is responsible for
interacting with FI module.Figure 1:Stages of Credit
CheckConfiguration SettingDefine Risk CategorySPRO > Financial
Accounting > Account Receivable and Accounts Payable > Credit
Management > Credit Control Account > Define Risk
Categories
Figure 2:Define Risk CategoryDefine Credit Control AreaSPRO >
Enterprise Structure > Definition > Financial Accounting >
Define Credit Control Area
Figure 3:Define Credit Control Area
Figure 4:Define Credit Control Area - DetailsThe type of update
chosen controls when the values of open sales orders, deliveries
and billing documents are updated depending upon the type of
document being generated. One of the following update groups can be
chosen as available in standard SAP Blank If the field is left
blank, the SD documents are ignored and only open receivables and
open special G/L items are used for calculating credit exposure.
000012 When a new order is created, the open order value is added
to the credit exposure. When the order is delivered, the open order
value is subtracted and the open delivery value added to the
exposure. On billing the delivery, open delivery value is
subtracted and the open billing value is added to the exposure.
When billing posts to accounting, the open billing value is
subtracted and the open A/R value added to the exposure. The
exposure is finally reduced when the cash is applied against open
A/R. 000015 Calculates exposure without considering open sales
order value. When the order is delivered, the open delivery value
is added to exposure. On billing the delivery, open delivery value
is subtracted and the open billing value is added to the exposure.
When billing posts to accounting, the open billing value is
subtracted and the open A/R value added to the exposure. The
exposure is finally reduced when the cash is applied against open
A/R. 00018 This is relevant for non-delivery-relevant orders only.
When a new order is created, the open delivery value is added to
the credit exposure. When the order is billed, the open delivery
value is subtracted and the open billing added to the exposure.
When billing posts to accounting, the open billing value is
subtracted and the open A/R value added to the exposure. The
exposure is finally reduced when the cash is applied against open
A/R.Note:SAP recommends the use of update group 000012
Organizational Unit in Credit ManagementThe organizational unit
used in credit management is Credit Control Area. It represents the
area where customer credit limits are specified and
monitored.Depending on the relationship between credit control area
and company code, the credit management can be categorized as:
Decentralized credit managementEvery company code has its own
credit control area. Hence, we can define credit limits for a
customer separately for each company code. This method delivers
benefits such as the local payment cultures can be respected, each
company code has the independence to make its own decisions.
Centralized credit managementMultiple company codes are clubbed
under the same credit control area. So, if the customer transacts
with company codes which are under the same credit control area,
the limit is set for all the company codes combined together.If the
currencies of these company codes are different from that of the
credit control area, the receivables are converted to the credit
control area currency to check with the credit limit set.
Centralized credit management has benefits such as easier analysis
of credit policy and modifications required, the focus is shifted
to other important areas such as bad debt reductions and improved
customer relations as there is only a central credit team that
needs to be consulted irrespective of the geography etc.Figure 5:
Organisational Unit in Credit Management
Assigning Company Codes to a Credit Control AreaSPRO >
Enterprise Structure > Assignment > Financial Accounting >
Assign Company Code to Credit Control Area
Figure 6:Company Codes to Credit Control AreaAssigning Sales
Area to a Credit Control AreaSPRO > Enterprise Structure >
Assignment > Sales and Distribution > Assign Sales Area to
Credit Control Area
Figure 7: Sales Area to Credit Control Area
Define Credit GroupsSPRO > Sales & Distribution >
Basic Functions > Credit Management and Risk Management >
Credit Management > Define Credit Groups.The credit group
specifies which subsequent transaction can be blocked for
processing, if the credit limits are exceeded.You can use the
default credit groups or create new once.
Figure 8: Define Credit Groups
Assigning Sales Documents and Delivery Documents to Credit
GroupSPRO > Sales and Distribution > Basic Functions >
Credit Management/Risk Management > Credit Management >
Assign Sales Documents and Delivery Documents > Credit Limit
Check for Order Types > Credit Limit Check for Delivery
Types
Figure 9: Credit Limit Check for Order Type
Figure 10: Credit Limit check for Delivery TypeSimple Credit
Check Vs Automatic Credit Checka. High-volume, low-valuerequires
automation and efficient handling through grouping, with as little
personal handling as possible (refuse orders as much as possible)b.
Low-volume, high-valuerequires individualization with emphasis on
reporting and blocked orders or deliveries that can be checked and
unblocked.Figure 11:Simple Credit Check Vs Automatic Credit
Check
Simple Credit CheckThe simple credit check compares the payer
customer master records credit limit to the net document value plus
the value of all open items.In case the value of the document and
open items is more than the credit limit: System may respond with a
warning message in the sales order [OR] Warning message and a
delivery block [OR] Error message, which will cause the document
not to be saved.Automatic Credit Check Variations & Recommended
UseAutomatic Credit Check - Gives extra parameters to define credit
checks like Credit Control Area, Risk Category and
Figure 12: Automatic Credit Check Maintenance
STATIC CREDIT LIMIT DETERMINATION:1. Open Sales Orders + Sales
Order Value2. Open Delivery3. Open Billing4. Open
ReceivablesRecommended Use:This is seen to be safer to use as
compared to Dynamic Credit Check as it covers all documents due to
varying business needs.For high volume and very low risk customers
(e.g. Risk Category 001), it is good practice to put deliveries on
block and leave the orders untouched. This prevents a level of
check.DYNAMIC CREDIT CHECK:1) 2) 3) 4) Above Mentioned5) Horizon
Period : Eg. 3 Months.Here the System will not consider the Open
items 1, 2, 3 & 4 values for beyond 3 months.Recommended Use:If
the business is always likely to have fast moving items leaving no
chances of Open Orders, Open Deliveries etc for long time period,
this is good to use. There can be other business considerations to
include only Open items within certain periodMaximum Document
ValueThe sales order or delivery value may not exceed a specific
value which is defined in the credit check. The value is stored in
the currency of the credit control area. This check is useful if
the credit limit has not yet been defined for a new customer. It is
initiated by a risk category which is defined specifically for new
customers.Recommended Use:Use it for Credit Group 01 (Orders) and
high risk category customers which you always want to review beyond
a particular value. It may also be used for prepaid or one-time
customer with Max doc value.Critical Fields:
This Credit check is initiated by document changes done in
credit sensitive fields. One such example is terms of payment. When
this field changes, a check is done on the data in sales order
against the data in the customer master.
Date of Next ReviewSystem uses the date of the next credit
review as a trigger for an automatic credit check. If you process a
sales order after a customer's next review date has already gone
by, the system automatically carries out a credit check.Overdue
Open ItemsThe relation between open items which are more than a
certain number of days overdue and the customer balance may not
exceed a certain percentage. These values are defined in the
customizing for automatic credit control.Recommended Use:Use it for
Credit Group 01 (Orders) in conjunction with Static Credit Check
for slightly higher risk category customers, where you dont want to
have more than a certain % of open items. The values may be reduced
with increase in risk category values.Oldest Open ItemThe oldest
open item may not be more than a specified number of days
overdue.Recommended Use:Use it for any Credit Group 01 or 02
(Orders or deliveries) in conjunction with Static Credit Check for
slightly Low-Medium risk category customers.Maximum Number of
Dunning Levels AllowedThe customer's dunning level may only reach a
specified maximum value exceeding which the item may be blocked if
so configured.User-Defined Checks-For e.g. Cheque received from a
customer bounced, then subsequent orders may get blocked.Credit
Management at workFor each customer, credit limits are specified in
the particular credit master record. If the customer exists in
multiple credit control areas, individual limit can be specified
for each credit control area. In addition, a central credit limit
can also be specified for all the credit control areas under which
the customer exists. Then, the total of the credit limits for each
credit control area should not exceed the central credit limit.FD32
(FI T code) is used to set credit limit and credit risk category
for the customer.
Figure 13: Credit Limit for Customer
Overview ScreenIt gives an overview of credit settings of the
customer. Customers credit limit, credit exposure, percentage of
credit limit used and horizon (as applicable in dynamic credit
check) are presented as status Payment history along with the
average number of days taken for payment is shown Payment data
contains details such as authorized cash discount and unauthorized
cash discount that was available for cleared items, the outstanding
receivables in sales days Dunning data consists of dunning area for
the customer, when he was last dunned and the dunning level reached
during the last dunning run Control contains the credit risk
category of the customer, date of the last check on customer credit
limit, if the customer is blocked for credit management business
transactions, the credit representative group responsible for the
customer, the payment history classification, the financial
standing of the customer and date when the credit check of the
customer was carried out last.
Figure 14: Overview ScreenCentral Data ScreenIt gives an
overview of central credit limit settings of the customer. The
maximum permitted credit limit as a total of limits across all
credit control areas to which the customer is assigned The maximum
permitted individual credit limit that a customer can have under
any one credit control area The currency in which the two maximum
limits are specified. This is because we can enter the central data
in any currency of choice, independently of the currencies of the
control areas The currently exhausted credit limit as a total
(percentage) across all credit control areas to which the customer
is assigned (should be less than or equal to max limit) The
currently assigned largest credit limit across all credit control
areas to which the customer is assigned (should be less than or
equal to max limit) Date on which the most recent general
information about the customer was obtained
Figure 15: Central Data ScreenStatus ScreenShows the customer's
actual individual details according to particular credit control
area The credit limit for the credit control area, credit account
if the limit is to be specified for a group of customers, the
percentage of credit exposure, horizon date to be taken into
consideration, the receivables, special G\L transactions and the
order value not yet transferred to FI used for the credit exposure
calculation as well as the amount of secured receivables is shown
under credit limit data The credit risk category, credit
representative group, customer credit group and customer group used
mainly for sorting or reporting, the reference data for customer
credit review, if the customer is blocked for credit management
business transactions, the last and next internal review date for
the customer credit limit as applicable to the particular credit
control area are shown under Internal data The date of last
external review, the credit information number as applicable to
external agency, the classification of payment history of the
customer as well as the financial standing is shown under external
data
Figure 16: Status ScreenCredit Check at work in Sales Order
creationWhen sales order is created (SD), system verifies the
credit limit used by the customer by communicating with values set
in FD32 (FI)
Figure 17: Credit Check
Release Sales Documents from Credit BlockBlock will be released
if the Agent discussed with Customer and / or payment is received
from Customer.VKM1, VKM3 and VKM5 are key T codes used to release
Sales and Delivery documents from Credit Block.For the document
selected, the following options are available: Grant the credit and
release the document Reject the credit and cancel the document
Forward the blocked document to another processor Recheck the
blocked document Reassign the blocked document and specify a new
sequence of documents. This enables to give priority to and release
several documents with a low document value until their credit
limit is completely used up, instead doing so for a single document
with a high document value that has already exceeded its credit
limit.
Figure 18: Release Credit Block
Reports RFDKLI10 - Customers with missing credit data RFDKLI20 -
Reorganization of credit limit for customers in credit control
areas RFDKLI30 - Central and credit control area related data for
customer (short overview) RFDKLI40 - Overview credit limit
(extensive) RFDKLI41 - Credit master sheet RFDKLI42 - Early warning
list RFDKLI43 - Master data list especially for printing customer
cards along with data from external systems RFDKLI50 - Mass change
for master data in credit management RFDKLIAB - Display changes for
credit management data RVKRED06- Checking blocked credit documents
RVKRED08 - Checking sales documents which reach the dynamic credit
check horizon (periodic report) RVKRED09 - Checking the credit
documents from credit view (released documents are checked only if
the validity period for the release is up) RVKRED77 -
Reorganization of open credit, delivery and billing document values
especially when update errors occur RVKRED88 - Simulation
reorganization credit data
SD9546ViewsProducts:sap_erp_financialsTopics:enterprise_resource_planningAverage
User Rating(17 ratings)inShareComments 17Comments subhash panditSep
11, 2013 12:55 PMDear Sandeep,Thanks for your knowledge sharing. It
is too useful for me.RegardsSubhash P.Like(0) Gulshan BatraSep 11,
2013 4:54 PMVery thorough and well researched Sandeep.Good job
here!RegardsGulshanLike(0) Advait KulkarniSep 11, 2013 5:06 PMThis
is really helpful Sandeep.Thanks for sharingAdvaitLike(0) Karteek
kJun 11, 2014 8:56 AMNice document.. thanks for detail explanation
!!Like(0) Lakshmi SamaJun 12, 2014 8:22 AMHello Sandeep,Nice
explanation and it is really helpful.Thanks for sharing your
knowledge and keep sharing.Regards,Lakshmi SLike(0) Jurairat
DamrongthamJun 20, 2014 12:36 PM
Dear Sandeep,I would like to ask more about dynamic credit
check. If I set at 3 options as follow:- Dynamic- Document value-
Open items1. How the system work? SAP will check from Dynamic ->
Document value -> Open items or Open items -> Document value
-> Dynamic?2. After SAP have checked and display credit blocked
message. If system found credit blocked from 'Document value' and
'Open items' , How SAP display credit blocked message? Message come
from 'Document value' or 'Open items'?Thank you in advance,Jurairat
D.Like(0) Vinod VemuruJun 20, 2014 1:14 PMThanks Sandeep. This is a
ready reference document for credit managementThanks,V VLike(0) G
LakshmipathiJun 20, 2014 1:30 PMA comprehensive blog on Credit
Management. Good work done.G. LakshmipathiLike(0) Phanikumar VJun
21, 2014 6:00 AM(in response to G Lakshmipathi)Sir---in document"
Configure and Customize SAP Automatic Credit Management".---please
correct the flaw as mentioned in my comment--thereby the people who
follows this ,will get correct information..I dont know why
moderator approved this again even after my alert...
Phanikumar
Like(0) Jose Antonio MartinezJun 20, 2014 6:48 PMSandeep:Thanks
for share this info.Very useful.Regards Antonio MartinezLike(0)
Phanikumar VJun 20, 2014 5:39 PMGood work--i appreciate being an FI
guy your presentation including SD is very nice...Sorry to tell you
that there a mistake in your document while sharing about dynamic
credit check about Horizon period.as per you--"""""5) Horizon
Period : Eg. 3 Months.Here the System will not consider the Open
items 1, 2, 3 & 4 values for beyond 3 months""""
No--- here-actually system will divides this 1,2,3,4 as two
parts---2,3,4 will be fixed called as static part and the the first
option 1 will be called as dynamic part(open sales orders)(2,3,4
will be taken in credit calculations if lying beyond 3 months)the
only difference is whether open sales order(with confirmed delivery
schedule lines)--has to be considered in credit calculations or
not(if lies in these 3 months--then this open sales order value
will be added in credit calculations--otherwise no)
See F1 at dynamic credit check in OVA8--you will get more
clarity.
Please change this flaw in your presentation--once after
confirming...
PhanikumarLike(1) Sada BandlaJun 20, 2014 6:30 PMHi Sandeep,Good
document thank you for sharing knowledge.Regards ,Sada
BandlaLike(0) G LakshmipathiJun 21, 2014 7:45 AMSandeep
AgarwalPlease checkPhanikumar V comments, retest the scenario and
change your blog if necessary.G. LakshmipathiLike(0) Mariks .Jul 7,
2014 4:13 PMMany thanks for sharing valuable document....Like(0)
Ashok J SJul 11, 2014 10:32 PMVery helpful document..thanks for
postingLike(0) Kundan KumarJul 13, 2014 12:38 PMnice
document...Like(0) R MGNov 5, 2014 6:08 PMHello,Thanks for the
document, very usefull, during an Audit review with a client i came
accross with the next question:Reviewing this process with a client
I verified that when the Customer excided the credit limit assigned
in SAP, the system automatically blocked the purchase requisition.
In order to release it the Credit, the Clerk needed the Management
authorization and this was done manually and outside SAP. Once she
had the authorization sheet signed the clerk manually released the
PR.I wonder if it is possible to configure a SAP work flow in order
to release credit block as when the control is manually performed
it could be easily override.Thanks in advanceRegardsLike(0)Top of
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