How to Configure Credit Management in

SAP Sales & Distribution

20/02/2012










Semiconductor/ Hi-Tech / SAP CRM

Sumit Kumar Jha
sumit.kumarjha@tcs.com

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Introduction

Most of the sales in an industrial or manufacturing environment are based on credit selling.
Customers receive goods or services and then make the payments. As such it is very important
to track and control how much a customer owes as credit and whether it wise to give him further
credit. Different customers have different kinds of payment histories. Also customers may
purchase simultaneous products or may buy regularly or may have a long relationship with the
company. Defaults can happen easily if things go unchecked. As such the decisions of credit
management are taken by business people keeping in mind all the complex factors listed above.
Benefits:
SAP Credit management helps Business Enterprise to control the financial risk by
monitoring and limiting the credit exposure of their customers. Based on the requirement of
business, credit checks can be configured at different stages of business process.
Limitation:
Standard SAP computes the credit exposure at the delivery based on the credit price
determined in the sales order, therefore if there is any change in price during delivery the credit
status would not be reflect correctly in this case. However with enhancements this can be
resolved.

Features:

SAP supports the functionality of Credit Management in a very effective way. Credit management
effectively allows business team to minimize the credit risk.
Credit management includes the following functions:
Carrying out credit checks according to different criteria and at different points in time
Automatic notification of the responsible employees in critical credit situations by means
of an interface to the mail system and therefore rapid processing of urgent credit
problems
Support in critical credit situations concerning credit allocation by means of an interface
to the Sales Information System and FI

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Allocation of different authorizations to credit representatives according to certain criteria
(for example, authorizations according to the level of the credit limit used or according to
document value classes)
Monitoring credit allocation (for example, by creating overview lists)
Two types of credit management are available in SAP:
Simple Credit check: In this only one system reaction ('A' warning, 'B' error, 'C' delivery
block) can be configured, when the credit limit is exceeded. Remaining credit
management functions cannot be used in this case.
Automatic Credit control: The automatic credit check can target certain aspects during a
check and run at different times during order processing. In this activity, credit checks can
be defined to correspond to business requirements in the area of Credit Management.
Configuration:
Maintaining credit control area (Tcode: OB45)
Menu path: IMG Enterprise Structure Maintain Structure Definition Financial Accounting
Maintain Credit Control Area
Credit control area is an organizational unit that represents the area where customer credit is
awarded and monitored. This organizational unit can either be a single or several company
codes, if credit control is performed across several company codes. One credit control area
contains credit control information for each customer.

Credit control area represents the way in which a company controls its credit management. This
gives flexibility in case there are totally different ways of credit management in different
departments. We can define multiple credit control areas to get that flexibility.

Decentralized Credit Management -If business credit policy requires decentralized credit
management, you can define credit data for the customer for each company code

Central Credit Management - If business requires centralized credit management then combine
company codes in one credit control area. Credit management then regards the customer as
valid for all company codes.

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In the above screen we have defined the credit control area 1000. After defining credit
control area, we have to assign the credit control area to company code.
Assign the credit control area to company code Tcode OB38. Next, we have to
assign the sales areas, where we want to have credit management implemented, to
credit control area.
Assign the sales area to Credit Control area
Menu Path: IMG Enterprise Structure Assignment Sales and Distribution-->Assign
Sales Area to Credit Control Area

Define Risk Categories for credit control area in FI (Tcode OB01)


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Menu Path: IMG Financial Accounting Accounts Receivable and Accounts Payable
Credit Management Credit Control Account Define Risk Categories


Three risk categories for our credit control area 1000 are defined based on customer risk
profiles/ratings etc.

Define credit groups. (Tcode OVA6)
Menu Path: IMG Sales and Distribution Basic Functions Credit Management / Risk
Management Credit Management Define Credit Groups



In this screen we have defined three credit groups. This allows us to have credit check at
sales order level, or delivery level or at goods issue level.


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Assignment of credit management to Sales documents (Tcode OVAK) :



Here we define to each document type whether credit check is required, if required whether it
is simple or automatic, which credit group the document belongs to. Similar assignment is
done for delivery documents in Tcode OVAD

Defining Automatic credit control settings (Tcode OVA8)
Menu Path: IMGSales and DistributionBasic FunctionsCredit Management / Risk
ManagementCredit ManagementDefine Automatic Credit control



This screen controls all the automatic credit management settings. Here we define automatic
credit management for combinations of:

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Credit control area + Risk Category + Credit group

This screen basically tells the system how to behave in different documents for different types
of customers. Ex: The credit settings for a high risk customer in sales order may be different
to a low risk customer in sales order.



In this detailed view screen of automatic credit control we can define many settings. We can
assign different types of checks to be performed, assign different reactions, the horizon
period to be considered, Max doc value etc.

Maintain Customer Credit Data ( Tcode FD32) :


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In this screen we define credit limit for each customer, which risk category he belongs to. We
can also see credit limit used by customer, payment data etc.

Process Flow:

1. User enters a sales order.
Assuming that this sales order leads to the credit limit being exceeded for this customer, the
system now responds in one of two ways (depending on the settings you made in
Customizing for Sales and Distribution.)
o It outputs an error message, but prevents user from saving the order.
o It outputs a warning message, but does not prevent user from saving the order. It
blocks the order.

In the second case, the procedure continues as follows:

2. If the order is blocked, the credit representative processes the blocked order either from a
list of blocked sales and distribution documents, or from his/her Mailbox.
The credit representative now decides how to proceed with this order. From the list of
blocked documents he or she can use the Information Functions (such as credit master
sheet and early warning list) in Credit Management to help make the decision.
3. Once the credit representative releases the order, a delivery can be created and a billing
document generated.

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Once user has saved this document, the system automatically creates a financial
accounting document.
4. The customer pays the invoice that business user created in the previous step. Finance
team then post the incoming payment in Accounts Receivable.












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