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Credit Management in Sales andDistributionApplies to:Credit Management in Sales and Distribution. For more information, visit the Enterprise Resource PlanningHomepage.SummaryThis 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 ShanmugasundaramCompany: Applexus Technologies Pvt LtdCreated on: 6 May 2011Author BioPriyadharshini Shanmugasundaram is currently working as SAP Technical Consultant in ApplexusTechnologies Pvt Ltd.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com1
Credit Management in Sales and DistributionTable of ContentsCredit Management . 3Purpose of Credit Management . 3Features . 3Types of Credit Management . 4Simple Credit Check: . 4Automatic Credit Check: . 4Static Credit Limit Determination: . 4Dynamic Credit Check Determination: . 5Settings . 5Checks: . 12Related Content . 16Disclaimer and Liability Notice . 17SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com2
Credit Management in Sales and DistributionCredit ManagementMost 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 customer’s creditworthiness (customer’s credit limit). The number of days for which credit is extended is based on thepayment terms associated with that transaction.i.e.,If the customer’s 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(16,000 – 2% 15600).Credit Limit of Customer Ais 20,00020,00-15,600 4400Sales order A worth16,000Order delivered andmoney Paid within45 days of purchase.Sale Order B worth12,000Exceeds credit limitand blocked fordeliveryPurpose 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.FeaturesCredit Management includes the following features: Depending on your credit management needs, you can specify your own automatic credit checksbased on a variety of criteria. You can also specify at which critical points in the sales anddistribution cycle(for example : sales order entry, delivery, goods issue) the system carries out thechecks.During order processing the credit representative automatically receives information about acustomer’s critical credit situation.Critical credit situations can also be automatically communicated to credit management personnelthrough internal electronic mail.Your credit representatives are in a position to review the credit situation of a customer quickly andaccurately and, according to your credit policy, decide whether or not to extend credit.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com3
Credit Management in Sales and DistributionTypes of Credit ManagementTypes of Credit Checks: Simple Credit CheckAutomatic Credit Check Static Credit Check Dynamic Credit CheckSimple Credit Check:Simple credit check compares the Customer’s 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 thecustomer, the order can be still processed because of the good payment history with the company. This isbroadly classified into two: Static Credit CheckDynamic Credit CheckStatic Credit Limit Determination:Checking Group Risk Category Credit Control AreaChecking Groups:Types of Checking Groups01) Sales02) Deliveries03) Goods IssueAt 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 theCustomer. High Risk (001): Low CreditLow Risk (002): More CreditMedium risk (003): Average CreditSAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com4
Credit Management in Sales and DistributionDynamic Credit Check Determination:Dynamic credit check checks all these document value and check with the credit limit by considering thehorizon period.1) Open Doc2) Open Delivery3) Open Billing4) Open Items5) Horizon PeriodIf 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.SettingsCredit Control Area:Credit management takes place in the credit control area. It is an Organizational unit that represents the areawhere customer’s 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 Codeto Credit Control AreaSAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com5
Credit Management in Sales and DistributionSettings for Automatic credit check:2. Define Credit GroupsPath: IMG - Sales and distribution - Basic functions - credit management/Risk management - Define credit groupsCredit 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 order02 credit group for deliveries03 credit group for goods issueSAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com6
Credit Management in Sales and Distribution3.Define Risk CategoriesPath: IMG - Financial Accounting - Accounts receivable and accounts payable - Creditmanagement - define risk categoriesIn 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.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com7
Credit Management in Sales and DistributionHere you can notice that the credit control area ‘INFC’ is assigned to the risk category ‘001-LowRisk’.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 becarried out and at what point of time the credit check has to take place whether order or delivery orpost goods issue.If the credit check is set, the system will respond according to the following ways :Warning message – The document can be saved.Error message - The document cannot be savedSetting a delivery block – The document can be saved but a delivery block will be set automatically.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com8
Credit Management in Sales and DistributionCredit limit check for order types.Credit limit check for delivery types.5.Set Sales and Distribution document items for credit managementWe 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.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com9
Credit Management in Sales and DistributionHere you can check the credit active checkbox to activate the credit check for the corres[pondingitem category.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com10
Credit Management in Sales and Distribution6. Define Automatic credit controlHere you can notice that the credit group 01 is assigned to the credit control area ‘INFC’.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com11
Credit Management in Sales and DistributionChecks:Static Credit Limit Check:The customer’s 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 customerDynamic 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 termsAdditional value daysFixed value dateNext/Review date :If you process a sales order after a customer's next review date has already gone by, the systemautomatically 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 worksin 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 overdueOldest Open Item :Indicates whether the system carries out a credit check based on the age of the oldest open item.The oldestopen item may not be more than a specified number of days overdue.High Dunning level :The customer’s dunning level may only reach a specified maximum value.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com12
Credit Management in Sales and DistributionUser-defined Checks :If you want to carry out checks other than the standard checks, you can define your own checks in theappropriate 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).SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com13
Credit Management in Sales and DistributionLet 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.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com14
Credit Management in Sales and DistributionNow 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.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com15
Credit Management in Sales and DistributionRelated ContentSAP Help PortalSAP Documentation - Settings for Credit Management and Risk Management: OverviewFor more information, visit the Enterprise Resource Planning Homepage.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com16
Credit Management in Sales and DistributionDisclaimer and Liability NoticeThis 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.SAP COMMUNITY NETWORK 2011 SAP AGSDN - sdn.sap.com BPX - bpx.sap.com BOC - boc.sap.com UAC - uac.sap.com17
This document illustrates what is SAP SD credit management and how to configure it in a systematic . Credit management/Risk management settings - Determine active receivables per item category. Credit Management in Sales and Distribution SAP
