Configure and Customize SAP Automatic Credit Management

https://blogs.sap.com/2013/09/07/configure-and-customize-sap-
automatic-credit-management/

Introduction

Credit 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 SAP

Assuming 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 out

Automatically 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 Check

Every 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.

Fi
gure 1:Stages of Credit Check

Configuration Setting

Define Risk Category

SPRO > Financial Accounting > Account Receivable and Accounts Payable > Credit Management > Credit Control
Account > Define Risk Categories

Figure 2:Define Risk Category

Define Credit Control Area

SPRO > Enterprise Structure > Definition > Financial Accounting > Define Credit Control Area
 Figure 3:Define Credit Control Area

Figure 4:Define Credit Control Area Details

The 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 Management

The 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 management

Every 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 management

Multiple 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.

F
igure 5: Organisational Unit in Credit Management

Assigning Company Codes to a Credit Control Area

SPRO > Enterprise Structure > Assignment > Financial Accounting > Assign Company Code to Credit
Control Area
 Figure 6: Company Codes to Credit Control Area

Assigning Sales Area to a Credit Control Area

SPRO > Enterprise Structure > Assignment > Sales and Distribution > Assign Sales Area to Credit Control
Area

Figure 7: Sales Area to Credit Control Area

Define Credit Groups

SPRO > 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 Group

SPRO > 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 Type

Simple Credit Check Vs Automatic Credit Check

a. High-volume, low-value requires automation and efficient handling through

grouping, with as little personal handling as possible (refuse orders as much as
possible)

b. Low-volume, high-value requires 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 Check

The 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 Use

Automatic 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 Value

2. Open Delivery

3. Open Billing

4. Open Receivables

Recommended 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 Mentioned

5) 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 period

Maximum Document Value

The 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 Review

System uses the date of the next credit review as a trigger for an automatic credit
check. If you process a sales order after a customers next review date has already
gone by, the system automatically carries out a credit check.

Overdue Open Items

The 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 Item

The 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 Allowed

The customers 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 work

For 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 Screen

It 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 Screen

Central Data Screen

It 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 Screen

Status Screen

Shows the customers 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 Screen

Credit Check at work in Sales Order creation

When 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 Block

Block 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 SD