SAP credit management system of is the backbone of any business. It is used to manage all kinds of financial transactions based on customer data. It gathers information from various sources, such as invoices, purchase orders, sales orders, etc. The system manages all kinds of financial information, The credit management system is supposed to control all aspects of credit operations by providing financial data and information. The SAP credit management system can keep track of all the regulations concerning the lending process and generate reports on the financial context, including borrower characteristics, performance and payment history for each borrower. To ensure always compliance.
Sap credit management is a credit management system that provides the company access to a wide range of data and information. Companies use it to manage their accounts more efficiently. This information is gathered through the use of credit scoring systems, and based on that information; the company will decide how they will handle the customer accounts.
Table of Contents
What is sap credit management?
Credit management is a systematic approach to monitoring, analysing, and determining the terms of credit requests for customers and vendors. It is beneficial to assess the creditworthiness of your customers /vendors since sales efforts can be increased by having a solid customer. There is competition for your customer’s money, and a company that is less accommodating than you may have taken legal action or even winding up processes to ensure future sales are reliable and profitable; bad debts help keep profits unaffected.
The most crucial requirement for efficient revenue and receivables control is to efficiently and effectively manage credit lines.
Benefits of SAP credit management
- The objective in credit monitoring is to track customers’ credit scores it can be taken as the decision to continue or review the decisions related to credit like increasing the credit limit or preventing the delivery to the customer.
- To reduce the risk in the event of bad loans, excessive reserves and bankruptcies. Companies need to have better visibility into the financial health of their customers and credit score history as well as shifting payment patterns
- In the same way, the capability to expand into new markets and attract new customers is contingent on the capability to quickly and easily make informed credit decisions and establish appropriate credit lines.
- Based on specific preferences for managing credit, we can set up own automated credit checks that are based on a variety of factors. We can also define the critical points of the sales and distribution process (for instance, entry of orders and delivery, as well as the issue of goods) the system will conduct the checks.
- When an order is processed the credit rep automatically gets information regarding a customer’s credit score.
- Credit issues that are critical to the business can be communicated automatically to the credit management team via the internal system of electronic messages.
- Credit officers have the ability to assess the credit standing of a customer swiftly and accurately, and, according to the credit policies of the company determine whether or not it is appropriate to offer credit.
- It is also possible to work with credit Management in distributed systems if, for instance using central Financial Accounting and decentralized SD on a variety of sales computers.
- The most crucial requirement for efficient revenue and receivables control is to be able efficiently and effectively manage credit lines
- To reduce the risk in the event of bad loans, excessive reserves and bankruptcies, businesses should have better insight into the financial strength of customers and credit score history and the changing patterns of payment
- In the same way, the capability to enter new markets and clients is dependent on the ability to swiftly and effortlessly make well-informed credit decisions and establish appropriate credit lines
Use of sap credit management
Monitoring significant amounts of outstanding receivables, or bad debts could substantially impact the company’s performance. Credit Management helps minimize credit risk by delineating what constitutes a Credit Limit for customers.
- The necessity for Credit Management is evident in, Financially unstable countries or sectors. trade with countries that are unstable or who adopt a restrictive exchange rate policy
- After confirming the appropriate credit limits, the ability to accurately track the application’s status, whether in a queue or rejected.
- Real-time alerts ensure that accounts are within the pre-defined tolerances of credit limits or indicate reports that need a review of their creditworthiness.
- To detect changes in the pattern of accounts such as increasing delays in payment as well as higher or increasing disputes or unexpected requests for credit enhancements and other circumstances that affect customers’ creditworthiness.
SAP Credit Management Integration
Credit Management allows us to issue a credit limit for each customer if we use the Accounts Receivable (FI-AR) component to manage your accounting and an external system for sales processing. When posting an invoice (created in FI-AR), the system checks to see if the amount exceeds the credit limit. Information functions such as the sales summary and early warning list assist us in monitoring the credit situation of the customer.
Now, If we use both the Accounts Receivable (FI-AR) and Sales and Distribution (SD) components to manage to accounts, we can also use Credit Management to issue credit limits to our customers. Customizing allows us to specify the scope of the check and when a credit limit should be applied (for example, order entry, delivery, or goods issue). With credit checks, general information functions are also available. Please refer to below SAP credit management process flow
Prerequisites for SAP credit management implementation
- Before we can use SAP Credit management, we must first implement the SAP application’s Accounts Receivable (FI-AR) and Sales and Distribution (SD) components.
- The master data for the customers whose credit score you want to track must be set up in both the Sales and Distribution and Financial Accounting modules.
- We must define one or more credit control areas and assign them to one or more company codes in SD Customizing for Enterprise Structures.
- In Customizing for Sales and Distribution, we specified when the credit check should occur (for example, when an order is received or when delivery is completed).
Credit Management – Configuration
Before delving into SAP Credit Management configuration in SD, let us first understanda few terms related to SAP Credit Management.Basic Customization for Sales and Distribution is available under
SPRO->> Basic Functions ->>Credit Management/Risk Management ->> Credit Management ->> Establish Automatic Credit Control.
SAP Credit management transactions
|OB38||Transaction use to Assign Company code to Credit Control Area|
|OVFL||Assign credit control area to sales area|
|XD02||Change Customer (Centrally)|
|OBZK||Permitted Credit Control Area for Company Codes|
|OVAK||Sales Order Type Assignment|
|OVAD||Delivery Type Assignment|
The risk of credit within SAP Credit Management is increased due to items that are not yet invoiced in Billing and open receivables from the Contract Account Receivable and payable. Credit exposure is the total of all open items, items that are billable and invoiced items of the business partner who aren’t yet invoiced. Credit exposure will be calculated using the document value listed below.
Open order value
Open order value is the total value of all sales order items that have not yet been billed.
Open delivery value
The total amount for all documents that have not yet been billed as part of the delivery.
Open billing value
The total amount of all billing transactions that have not yet been forwarded to the Accounting
the number of goods that have been billed and sent into accounting. (Account receivables)
To classify customers based on the risk they carry and to trigger relevant checks, we may assign a risk class to a system configuration.When creating sales orders for sales and distribution, the risk category determines what system checks will be carried out. We can define the Risk Category by using below menu path under SPRO Img configuration
Category of Risk a customer can be classified as either High risk, Medium risk, or Low risk. This is kept in the Customer Credit Details.
The credit group is a grouping of various business transactions that should be handled in the same way while the system carries out credit checking. The credit groups are entered when we set up the types of sales documents used to manage credit and set up the automated credit check. Standard settings are listed below. These credit groups are included in the standard SAP R/3 System.
SPRO IMG ->> Sales & Distribution > Basic Functions > Credit Management and Risk Management > Credit Management > Define Credit Groups.
- Credit group to purchase goods
- Delivery credit group
- Credit groups that are issued
Credit Control Area
A credit control area is an organizational unit that determines and monitors the credit limits of customers. One or more company codes may be present in credit control areas. This means that we can assign one credit control area to any number of company codes. A unit of the organization that represents the region in which credit to customers is granted and controlled. We can define the following settings for the Credit Control Area.
The organizational unit could be single or multiple company codes, in the event that credit control is conducted across multiple company codes. Every customer’s credit control information is contained in one credit control zone.
Simple credit check
The value of all unopened items as well as the value of the sale order for each item on the sales document. Simple Credit Check A basic credit limit check is done when sales documents are issued or modified.The checks are carried out within a specific credit control zone If a document is altered it is checked again when changes in size or value are implemented. A sales document falls under one credit control zone based on the assignment of the company that sells it to a corporate code.
The SAP System examines the credit limit that was given to the customer in this credit control zone in the process of checking the SAP System calculates the receivables and open items resulting from special G/L transactions as well as the value of the sale order for each item on the sales order.
The total is then compared with the credit limit. in the event that the limit is exceeded the system will respond according to the method specified in the settings menu.
Type of Simple Credit Check
Simple Credit Check A Credit Check occurs in 3 places:
- Sales order
- Goods Issue
Types of response
- A: warning messages
- B: The document cannot be saved due to an error.
- C: The document can be saved but is automatically blocked for delivery, according to the warning message.
Automated credit checks
An automated credit check may focus on certain elements of a credit check and be conducted at various times during order processing. This could be,
- This control of credit management is maintained through the automatic credit control function.
- Automated credit controls splits the types of sales documents and the delivery doc types and goods issued into distinct credit groups. It also considers the risk category of the buyer as given to the CMD of the payer, and assigns an outcome procedure to the mixture of these two items, i.e. the credit group and risk category of the customer, along with the area of credit control.
- The definition of the risk class is performed within the Fin Accounting module.
- The risk category of a customer is a grouping that determines the credit checks when automatic credit control occurs. This means that one can assign high-risk customers to the risk category e.g. A01, moderate risk B01, and low chance to C01.
Type of Automatic Credit Check
Automatic credit check divides customers into 3 types of Risk categories
Types of Risk Categories
- High-risk customers
- Low-risk customers
- Medium risk customers
Comparison between Static and Dynamic Credit Checks
Static Credit Check:
The total amount of sales order + open delivery + open billing documents, plus open items
Dynamic Credit Check
Value of all open deliveries, open billing documents and open items and open sales orders within an outlined horizon
|Static Credit Check||Dynamic Credit Check|
|Net Doc Value||Net Doc Value|
|Open Order||Open Order|
|Open Delivery||Open Delivery|
|Open Billing||Open Billing|
|Open Item||Open Item|
|The total combined value of the above-mentioned documents is compared to the credit limit.||In addition, the credit horizon. The following documents’ values are compared to the credit limit + credit horizon.|
Credit Management Update groups
Update groups are used, in order to group different key figures from (e.g) SD module to the structures in Logistics Information System.The three different update groups and functions are
Update group -000012
- Increases the open order value from delivery-related scheduling lines for sales orders
- Delivery: Reduces the open order value from delivery relevant schedule lines and increases the open delivery value.
- Billing: Lowers the open delivery value while raising the open billing document value.
Update group -0000015
- Increases the open delivery value as well as the open billing document value.
- Financial accounting document: Increases the value of open items while decreasing the value of open billing documents
Update group -000018
- Sales order: Increases the open delivery value.
- Billing Document: Reduces the open delivery value and increases the open billing document value.
Credit Master Data
Credit Master Data give you an overview of the credit status settings in relation to the customer including credit limit, credit exposure, the percentage of credit limit, payment data and risk category
The credit limit we set in this particular credit control section of the Credit Master Record. This is automatically set when a new customer is registered by a company code. Central data shows the total credit limit the customer can receive in all credit control areas and the maximum limit.
These tables for SAP credit management are frequently used.
SAP Credit Management System has given rise to new opportunities for companies in many sectors. This is due to its ability to handle large amounts of data while also providing a user-friendly interface that allows users to easily understand what they are doing.
How Determination of credit control area
The following steps are taken to determine the credit control area:
1. User exit
2. Distribution channel
3. Customer master
4. Company code for the sales organization
SAP Credit Management Transactions
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
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