Credit Management in Sap Sd

5/28/2018 Credit Management in Sap Sd

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Credit Management in Sales andDistribution

Applies to:

Credit Management in Sales and Distribution. For more information, visit theEnterprise Resource Planning

Homepage.

Summary

This document illustrates what is SAP SD credit management and how to configure it in a systematicmanner. It also explains how a new incoming sales order is checked against the customers credit limit. Itshows how credit management supports the information flow between different departments within acompany 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 ApplexusTechnologies Pvt Ltd.
http://www.sdn.sap.com/irj/bpx/erphttp://www.sdn.sap.com/irj/bpx/erphttp://www.sdn.sap.com/irj/bpx/erphttp://www.sdn.sap.com/irj/bpx/erphttp://www.sdn.sap.com/irj/bpx/erphttp://www.sdn.sap.com/irj/bpx/erp


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Credit Management in Sales and Distribution


Table of Contents

Credit Management ............................................................................................................................................ 3Purpose of Credit Management .......................................................................................................................... 3Features .............................................................................................................................................................. 3Types of Credit Management ............................................................................................................................. 4

Simple Credit Check: ...................................................................................................................................... 4Automatic Credit Check: ................................................................................................................................. 4Static Credit Limit Determination: ................................................................................................................... 4Dynamic Credit Check Determination: ............................................................................................................ 5

Settings ............................................................................................................................................................... 5Checks: ............................................................................................................................................................. 12Related Content ................................................................................................................................................ 16Disclaimer and Liability Notice .......................................................................................................................... 17


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Credit Management

Most enterprises extend credit to their customers. This literally means, selling their goods and collectingmoney at a later point of time. The amount of credit extended is determined by the customers creditworthiness (customers credit limit). The number of days for which credit is extended is based on thepayment terms associated with that transaction.

i.e.,If the customers credit limit is 20,000 and if he creates an order worth 16,000 with payment terms of Net45 2% i.e., if money is paid within 45 days of purchase, the customer will get 2% discount),he needs to pay(16,0002% = 15600).

Purpose of Credit ManagementCredit Management enables you to minimize the credit risk yourself by specifying a specific credit limit foryour customers. Thus you can take the financial pulse of a customer or a group of customers, identifywarning signs earlier, and enhance credit related decision making.

Features

Credit Management includes the following features:

Depending on your credit management needs, you can specify your own automatic credit checks

based on a variety of criteria. You can also specify at which critical points in the sales and

distribution cycle(for example : sales order entry, delivery, goods issue) the system carries out the

checks.

During order processing the credit representative automatically receives information about acustomers critical credit situation.

Critical credit situations can also be automatically communicated to credit management personnel

through internal electronic mail.

Your credit representatives are in a position to review the credit situation of a customer quickly and

accurately and, according to your credit policy, decide whether or not to extend credit.

Credit Limit of Customer Ais 20,000

Sales order A worth

16,000

Sale Order B worth12,000

Order delivered andmoney Paid within45 days of purchase.

Exceeds credit limitand blocked fordelivery

20,00-15,600= 4400


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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 Customers credit limit to the total of all the items in the order and thevalue 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 the invoices have notbeen received yet. The system can be configured to either block the delivery, send a warning or an errormessage when the credit exposure has exceeded the credit limit of the customer.

Automatic Credit Check:

Instead of just considering open items only, we need to consider 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 be still processed because of the good payment history with the company. 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.

Risk Category: Based on the risk category the company decide how much credit has to give to the

Customer. High Risk (001): Low Credit

Low Risk (002): More Credit

Medium risk (003): Average Credit


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Dynamic Credit Check Determination:

Dynamic credit check checks all these document value and check with the credit limit by considering the

horizon period.

1) Open Doc

2) Open Delivery

3) Open Billing

4) Open Items5) Horizon Period

If the Horizon period is 4 months, the system will not consider the above 4 documents for 4 months.

That is if the delivery period is after 4 months, the system will not consider the document. The systemconsiders the document only if the delivery period of the open document is within 4 months.

Settings

Credit Control Area:

Credit management takes place in the credit control area. It is an Organizational unit that represents the areawhere customers credit limit is specified and monitored.

A credit control area can include one or more company codes. It is not possible to divide a company codeinto several credit control areas.

1. Assign Company Code to Credit Control Area.

Path: IMG -> Enterprise Structure -> Assignment -> Financial Accounting -> Assign Company Code

to Credit Control Area


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Settings for Automatic credit check:

2. 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.

Management.Using credit group we can define at what level the credit limit is checked for thecustomer.

If we are using simple credit check, we need not assign credit group to the Document type.

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


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3. Define Risk Categories

Path: IMG -> Financial Accounting -> Accounts receivable and accounts payable -> Creditmanagement -> define risk categories

In order to classify customers according to the risk they represent and to trigger the relevant checks,you can assign a risk category to a customer. The risk category determines which checks the systemshould carry out when processing orders in Sales and Distribution.


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Here you can notice that the credit control area INFC is assigned to the risk category 001-Low

Risk.

4. Assign Sales documents and delivery documents for credit management.

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.

If the credit check is set, the system will respond according to the following ways :

Warning messageThe document can be saved.

Error message - The document cannot be saved

Setting a delivery blockThe document can be saved but a delivery block will be set automatically.


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Credit limit check for order types.

Credit limit check for delivery types.

5. 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.


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Here you can check the credit active checkbox to activate the credit check for the corres[pondingitem category.


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6. Define Automatic credit control

Here you can notice that the credit group 01 is assigned to the credit control area INFC.


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Checks:

Static Credit Limit Check:

The customers credit exposure may not exceed the established credit limit.The credit exposure is the totalcombined value of all the items:

Open Orders- The open order value is the value of the order items which have not yet been delivered.

Open Deliveries-The open delivery value is the value of the delivery items which have not yet been invoiced.

Open billing documents-The open invoice value is the value of the billing document items which have not yetbeen forwarded to accounting.

Open Items(accounts receivable)-The open items represent documents that have been forwarded toaccounting 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 open order valueincludes all undelivered or only partially delivered orders. The value is calculated on the shipping date andstored in an information structure according to a time period that you specify (days,weeks, or months). Whenyou define the credit check, you can then specify a particular horizon date in the future (for example: 10 daysor 2 months, depending on the periods you specify). For the purposes of evaluating credit, you want thesystem to ignore all open orders that are due for delivery after the horizon date.

Maximum Document Value:

The sales order or delivery value may not exceed a specific value which is defined in the credit check. Thevalue is stored in the currency of the credit control area. This check is useful if the credit limit is not yet beendefined for a new customer. It is initiated by a risk category which is defined specifically for new customers.

Critical Fields:

The credit check is triggered by changes made in the document to values in any of the credit-sensitive fields.

If a check in this field is carried out, 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 system

automatically carries out a credit check.

Open items :

Specifies whether the system carries out a credit check based on open items. 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 oldest

open item may not be more than a specified number of days overdue.

High Dunning level :

The customers dunning level may only reach a specified maximum value.


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User-defined Checks :

If you want to carry out checks other than the standard checks, you can define your own checks in the

appropriate user exits.

Settings for simple credit check:

For simple credit check, there is no need to assign the credit group to the document type. you can simplyassign where the check should happen while processing the order.

This means that, for the document type XR, the credit limit is checked at the time of delivery (B).


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Let us see an example by creating sales orders:

Creating a sales order having value 20,000.

Sales Order1:

Since the credit limit of the customer is 50,000, no credit check will happen.


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Now create another sales order having value of 10,000.

Sales Order2:

Now total value of the open sales orders is 20,000 + 10,000 = 30,000.Now let us check whether the systemis giving warning message, if the sales order which we are going to create exceeds the credit limit of thecustomer.

Sales Order3:

If the system gives a warning message the sales order will be saved. If it gives an error message, it will notbe saved. If you want an error message to be displayed, you can change the settings for credit managementas discussed in above steps.


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Related Content

SAP Help Portal

SAP Documentation - Settings for Credit Management and Risk Management: Overview

For more information, visit theEnterprise Resource Planning Homepage.
http://help.sap.com/http://help.sap.com/http://help.sap.com/saphelp_47x200/helpdata/en/57/ff82b84c7111d2958000a0c9426c73/content.htmhttp://help.sap.com/saphelp_47x200/helpdata/en/57/ff82b84c7111d2958000a0c9426c73/content.htmhttp://www.sdn.sap.com/irj/bpx/erphttp://www.sdn.sap.com/irj/bpx/erphttp://www.sdn.sap.com/irj/bpx/erphttp://www.sdn.sap.com/irj/bpx/erphttp://help.sap.com/saphelp_47x200/helpdata/en/57/ff82b84c7111d2958000a0c9426c73/content.htmhttp://help.sap.com/


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Disclaimer and Liability Notice

This document may discuss sample coding or other information that does not include SAP official interfaces and therefore is notsupported by SAP. Changes made based on this information are not supported and can be overwritten during an upgrade.

SAP will not be held liable for any damages caused by using or misusing the information, code or methods suggested in this document,and anyone using these methods does so at his/her own risk.

SAP offers no guarantees and assumes no responsibility or liability of any type with respect to the content of this technical article orcode sample, including any liability resulting from incompatibility between the content within this document and the materials andservices offered by SAP. You agree that you will not hold, or seek to hold, SAP responsible or liable with respect to the content of thisdocument.

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Credit Management in Sap Sd