SD1008: SD Credit Management

v 1.0

India SAP CoE, Slide 1

Credit Management…?
The word Credit is derived from the latin word „Credo‟, its meaning being
“I believe”

Credit is the power to obtain finance, materials on trust by promising to pay

for them at some definite time in the future

When you allow customers time to pay, it

should be a conscious decision - 'we believe
this customer can and will pay us on time' -
based on knowledge, not an accident of
selling

So it makes sense to find the credit worthiness because sales efforts can be
intensified with sound customers
There are competitors for your customers' funds and a supplier less tolerant
than you, may have started legal action or even winding-up proceedings

To keep future sales more reliable, bad debts keep profit intact

India SAP CoE, Slide 2

Credit Management
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 3
Credit Management
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 4
Purpose

A key requirement for effective revenue and receivables management is the

ability to intelligently and efficiently manage customer credit lines

In order to minimize exposure to bad debt, over-reserving, and bankruptcies,

companies must have greater visibility into customer financial strength,
credit score history and changing payment patterns

Likewise, the ability to penetrate new markets and customers hinges on the
ability to quickly and easily make well informed credit decisions and set
appropriate lines of credit

India SAP CoE, Slide 5

Use
A large number of outstanding receivables or bad
debts can have an inconsiderable impact on
company performance

Credit Management helps in minimizing the credit risk by defining a credit

limit for customers

The need for Credit Management is obvious in,

- financially unstable sectors or countries
- trade with countries that are politically unstable or
- that adopt a restrictive exchange rate policy

India SAP CoE, Slide 6

Challenges

To ensure better credit decision and risk management

Capabilities to ensure accurate tracking of application status, whether it is

pending, approved or denied after checking set appropriate credit limits

Real time alerts to ensure that accounts remain within pre-set tolerances of
credit limits or to flag accounts requiring credit review

To identify changing account patterns like increasing payment delays,

increasing or higher disputed items, unusual requests for credit increases
and conditions that change the credit worthiness of clients

India SAP CoE, Slide 7

Credit Management
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 8
Process Flow

India SAP CoE, Slide 9

Credit Exposure
• Open order value
The value of all sales order items which have not yet delivered

• Open delivery value

The value of all delivery items which are not yet billed

• Open billing value

The value of all billing items which are not yet transferred to
Accounting

• Open Items
The value of billed items which are transferred to accounting
(receivables)

India SAP CoE, Slide 10

Credit Checks

Simple credit Check: The value of all open items and the net value of
the sales order for every item of a sales document

Automatic credit check: The automatic credit check can target certain
aspects during a check and run at different times during order
processing.

This can be,

Static Credit Check : Total value of open sales orders + open
deliveries + open billing documents + open items
Dynamic Credit Check: Total value of open deliveries + open billing
documents + open items + open sales orders for a specified horizon

India SAP CoE, Slide 11

Credit Management
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 12
Credit Management - Configuration
•Increases the open order value form delivery
relevant schedule lines.
•Reduces the open order value from
delivery relevant schedule line and
increases the open delivery value.

Risk category entered in the related control

area of the customer's credit master record
which is automatically created when a customer
is created in a company code.

Credit limit entered in the related control area

of the customer's credit master record which
is automatically created when a customer is
created in a company code.

India SAP CoE, Slide 13

Credit Management - Configuration
Assign company
code to credit control
area

Assign Sales area

to credit control
area

Credit Control Area: Organisational unit responsible for fixing and controlling customer credit limits

India SAP CoE, Slide 14

Credit Management - Configuration
A credit control area
can include one or
more Company Codes.

Sale area :Combination of

sales organization, distribution
channel, and division.

India SAP CoE, Slide 15

Credit Management - Configuration

•A simple ccl and warning message

•B simple ccl and Error message
•C simple ccl and Delivery Block.

Specifies the document credit group for

a particular sales document.
01 = credit group for sales
order
02 = credit group for delivery
03 = credit group for goods
issue

India SAP CoE, Slide 16

Credit Management - Configuration

Activate the credit

check

India SAP CoE, Slide 17

Credit Management - Configuration

Can specify error or warning or no Message

Can specify status Yes or No

India SAP CoE, Slide 18

Credit Management - Configuration
• The three different update groups and functions are
• Update group 000012
– Sales order: Increases the open order value from delivery
relevant schedule lines
– Delivery :Reduces the open order value from delivery relevant
schedule lines and increases the open delivery value.
– Billing: Reduces the open delivery value and increases the
open billing document value.
• Update group 0000015
– Delivery :Increases the open delivery value and increases the
open billing document value.
• Update group 000018
– Sales order: Increases the open delivery value.
– Billing Document: Reduces the open delivery value and
increases the open billing document value.

India SAP CoE, Slide 19

Credit Master Data
Overview: Gives
the overview of the
credit status
Customer details as in settings in relation
customer master
to customer
Customer’s actual details
including credit
Displays payments made
limit, credit
exposure, the
percentage of
credit limit,
Central data shows total credit
payment data and
limit the customer can receive
all credit control areas and the risk category
maximum limit.

T Code: FD32
India SAP CoE, Slide 20
Credit Master Data

Credit control area to be

assigned in customer master.

India SAP CoE, Slide 21

Credit Management
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 22
Important Transactions
Transaction code Description
OB38 Assign Company code to Credit
Control Area
OVFL Assign credit control area to
sales area
XD02 Change Customer (Centrally)

OBZK Permited Credit Control Area for

Company Codes
OVAK Sales Order Type Assignment

OVAD Delivery Type Assignment

India SAP CoE, Slide 23

Important Transactions
Transaction Code Description
OB01 Define Risk Categories
OVA8 Maintain Credit Checks
FD32 Credit Master Data

OVA7 Credit Relevancy of Item Categories

VOV7 Maintain Item Categories

V/08 Maintain Pricing Procedure

OB45 Define Credit Control Area

VKM4 Release all SD Documents

VKM5 Release delivery documents

India SAP CoE, Slide 24

Credit Management
1 PrepareMe

2 TellMe

3 ShowMe

4 LetMe

5 HelpMe
India SAP CoE, Slide 25
Additional Info

Some of the functionalities explained are version dependent.

For example, up to version 4.x it was possible to derive Credit
Control Area from the company code only, which is now
possible from Sales Area

The credit checks can also be done for,

- Oldest open item
- Critical fields
- Next review date
- Document value
- High dunning level etc…

India SAP CoE, Slide 26