Credit and Receivables Risk Management

Credit Management
Credit Management is a cross-functional activity between SD and FI

SD
Sales People want to sell

C R E D I T

FI
FI People want to reduce risk
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Credit is an independent function in the SAP R/3 system

Credit/Risk Process
Credit Management
Cust: Health Express Risk: Medium Credit Limit: $10,000 Ttl. Commit: $6,000 Blocked document list or E-mail (opt.) Review situation Release order Pick, pack & ship order Bill Customer

SD, FI
Order: 5923 Order Amount: $5,000 Credit Limit Exceeded Block order E-mail to credit rep. (opt.)

Credit control (blocks) can be applied at order entry, delivery creation or goods issue
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Total Commitments

Open Credit Limit order value Open Delivery items not yet billed delivery value Open Not transferred to FI (optional) billing value Special Short payments, down payments commitments Receivables
Unpaid bills

Static vs. Dynamic Checks

Open order Open order Open order Open delivery value Receivables

Credit Limit
Open order Open order Open delivery value Receivables

Open order

Dynamic Check

Static Check

Credit Horizon
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Other Checks: Open Items

Health Horizons Max. open items: 20% Number of days: 30 Credit Limit: $100,000 Ttl. Commit.: $30,000 Health Horizons Receivables Days in arrears Amount 10 17 <30 28 >30 33 46 $4,000 $6,000 $5,000 $10,000 $5,000

$15,000 = 50% > 20% $30,000

Why Total Commitment and not credit limit?
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Other Checks: Oldest Open Date

Health Horizons Oldest Open Item: 45 Credit Limit: $100,000 Ttl. Commit.: $30,000 45 Health Horizons Receivables Days in arrears Amount 10 17 28 33 46 $3,000 $6,000 $5,000 $10,000 $5,000

Other Checks: Next Review Date

Health Horizons
Next check date: 6/01/04 Number of days: 10 Credit Limit: $100,000 Ttl. Commit.: $30,000

Health Horizons Order

Date: Amount: 6/6/04 $3,000

Health Horizons Order Date: Amount: 6/14/04 $4,000

Credit Control Area

The credit control area is the organizational unit that specifies and controls the credit limit for a customer Credit control areas can be used to create centralized or decentralized credit control in a company with more than one company code A company code can be assigned to only one credit control area, but each sales area within a company code can be assigned to a different credit control area
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Decentralized Credit Management

Credit Control Area 1 Company Code 1 Sales Org.1 Credit Control Area 2 Company Code 2 Sales Org.2

Health Express Limit: $50,000

Health Express Limit: $100,000

Each company code sets and monitors a credit limit independently

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Centralized Credit Management

Credit Control Area 1 Company Code 1 Sales Org.1 Company Code 2 Sales Org.2

Health Express Limit: $150,000

Health Express

Transactions with each company code apply to the single credit limit set for the single credit control area
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Exchange Rates
Credit Control Area 1 Currency: USD Company Code 1 Currency: USD Sales Org.1 Company Code 2 Currency: EU Sales Org.2

Health Express

Health Express

Limit: $150,000

Receivables for Company Code 2 are converted from Euros to US Dollars when credit is checked
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Automatic Credit Control

Determine points at which credit check is carried out (order creation, delivery creation or goods issue) Determine type of check Based on: Credit control area Risk category Document (credit group)
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Automatic Credit Control

Sales organization Company Code Credit Control Area
As of release 4.0, Credit control area can also be Determined via: user exits payer sales area

Customer

Transaction Type

Risk Category

Credit group

When Credit is Checked Why Credit is Checked What the system does (warning, error)
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Receivables Types
Credit and Procurement Cards

Letters of Credit

Export Credit Insurance

Guaranteed Payment
Transactions using these payment methods/guarantees do not affect Total Commitment

Credit Management
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