24613908 sap credit management

8/9/2019 24613908 SAP Credit Management

1/13

SAP Credit Management 1

http://www.magnatraining.com SAP

Credit Management

1

SAP Credit Management

Basics of SAP Credit Management

Siva - Magna Training

ABSTRACT

This document explains the fundamentals of Credit Management and

how SAP implements Credit Management.
http://www.magnatraining.com/http://www.magnatraining.com/


2/13

Table of Contents

Table of Contents ..................................................................................... 2

What is Credit Management ? ................................................................. 3

Types of Credit Management ................................................................... 4

Simple Credit Check ......................................................................................... 4

Dynamic Credit Check ...................................................................................... 5

Organizational Structures & Master Data .................................................. 6

Customization .......................................................................................... 7

Example ................................................................................................ 10


3/13


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 customers 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.

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, hewill 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).

The same customer could also place another order for $ 60,000 and still be within hiscredit limit.

The value of Order A ( $ 20,000 ) and Order B ( $ 60,000 ) put together is called the

credit exposure of the customer. If the customer places another order for $ 30,000

more, he now exceeds the credit limit set for him.

http://magnatraining.com/what-is-sap-workflowhttp://magnatraining.com/what-is-sap-workflow


4/13

So, at the point of ordering (Order C) the customers total receivables ( Value of

Order A + Order B ) along with his current order ( Order C ) is checked against this

credit limit. Since the customer exceeds the credit limit set for him, the order would

be blocked.

Credit Exposure = Value of all Open Items + Value of the current Order

$ 110,000 = ( $ 20,000 + 60,000 ) + ( $ 30,000 )

This is a very simple example of credit management. In reality, credit management

can get pretty complicated and not all the scenarios will be covered in this

document.

Types of Credit Management

Types of credit checks:

1. Simple credit check

2. Dynamic Credit check

a. Static Credit Check

b. Dynamic Credit Check

Simple Credit Check

This is very similar to the example we have discussed earlier. Simple credit check

compares the Customers credit limit to the total of all the items in the order and the

value of all open items.

Credit Exposure in Simple Credit Check = Value of all Open Items + Value of the

Current Sales Order.

Open items are orders that have been invoiced to the customer but the payment for


5/13


the invoices have not been received yet. The system can be configured to either

block the delivery, send a warning or an error message when the credit exposure has

exceeded the credit limit of the customer.

Dynamic Credit Check

Simple Credit Check alone is not sufficient for most businesses. Instead of just

considering open items only, there is a need to consider existing open orders and

open deliveries as well. Also, for old and seasoned customers, even if the credit

exposure exceeds the credit limit set for the customer, the order can still be

processed because of the good payment history with the company.

However, for new customers credit needs to be strictly monitored. For the purpose of

Credit Management, SAP allows us to recategorize customers into different Risk

Categories. Some examples of risk categories could be Medium Risk, High Risk, Low

Risk etc.

Dynamic Credit Management can be broadly divided into 2 components.

Static Credit Check Open Deliveries + Open Invoices + Open Items

Dynamic Credit

Check

Open Sales Order Value with a Time period ( Called Time

Horizon )

Horizon:

The use of time horizon can be best explained with an example. Most orders for the

holiday season are pre-ordered because of the holiday rush. Orders might start to

pile in as early as June, July. The delivery however is to be done in November or

December.

For example, in August , Order A for $ 50,000 is a Pre-Ordered to be

delivered in November.



6/13

Similarly for the month of December, another order, Order B is placed for $

40,000 to be delivered in December.

In case of static credit check, the credit exposure is already $ 90,000. If a

regular order is placed in August for another $ 30,000 the credit exposure

would exceed the credit limit of $ 100,000. However, in case of dynamic

credit check, a horizon of say 2 months would be used to exclude all orders

for which the delivery has to be beyond the stipulated horizon.

So, order C would not be blocked in case of dynamic credit check.

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.We determine how high a customers credit limit is to be when creating this data.

Credit Control Area

An organizational unit that represents the area where customer credit is specified

and monitored.Credit Management takes place in the Credit Control Area.A Credit

Control Area can include one or more company codes.It is not possible to divide a

company code into several Credit Control Areas.

Path: IMG -> Enterprise Structure -> Assignment -> Financial Accounting ->

Assign Company Code to Credit Control Area.


7/13


Customization

Customization Settings for Credit Management in SD

1. Define Credit Groups

Credit Group groups together different business transactions which should

be dealt with, in the same manner with regard to credit check.We enter

Credit Groups when we configure the Sales document types for Credit

Management.

The following credit groups are contained in the standard SAP R/3 system:

01 = credit group for sales order

02 = credit group for deliveries

3 credit group for goods issue

2. Set Sales Documents and Delivery Documents for credit

management



8/13

We can specify in Customizing when,at the point of Order, Delivery or Goods

Issue a check on the customers credit limit is to take place.We can specify

the Sales document and Delivery document types for which a credit check

should be carried out.We can also specify if Credit check can occur at the

time of Goods Issue.

We can specify the system response if credit check is set.The system can

respond in the following ways:

- Warning Message

The document can be saved.

- Error Message

The document cannot be saved.

- Setting a Delivery Block

The document can be saved, but a delivery block is

automatically set.

3. Set Sales and Distribution document items for credit management

We can 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.


9/13


4. 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.The check is carried out within one credit control

area. Simple credit check compares the Customers 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.

We can determine an automatic credit check for any combination of

the following:

- Credit Control Area

- Risk Category of the Customer

- Credit group

Path: IMG -> Sales and Distribution -> Basic Functions

-> Credit Management/Risk management -> Credit

Manageemnt -> Define Automatic Credit Control.



10/13

Example

Now lets see an example, by creating 3 Sales orders.

Check the Credit Limit for the Customer.

Transaction Code: FD32


11/13


1

Here the Credit limit is set at 1,000,000 and the credit exposure is currently 0.

Now lets start creating the orders.

Transaction Code: VA01

Order Value 1: 200.000,00


1


12/13

Create a second Order.

Order value 2: 600.000,00

The credit exposure now is 800,000 ( 200,000 + 600,000 )


13/13


3

Create a third order.

Order value 3: 300.000,00

We get the following error message when we create the Order, because the total of

the net document value and the open items value has exceeded the credit limit of

the customer.


3