Configure and Customize SAP

Automatic Credit Management

created by Sandeep Agarwal on Sep 7, 2013 11:39 AM, last modified by Sandeep Agarwal on Jun 20, 2014 8:22 PM
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Introduction
Credit management is the management of credit facility granted to customers as credit exposure allowed. Credit facility is just like
telling our customers that they need not pay immediately, they can pay at a future point of time after receiving the goods or
services. But, this payment at a future point of time involves risk. So, according to the risk foreseen, the amount and time of credit
(Credit Exposure) granted changes. For some customers, the risk perceived may be high such that we may demand payment in
advance.
This credit management comes partially under preview of Sales and Distribution (SD) and partially of Account Receivables (AR).
Key challenge: Reducing credit risk without hampering the supply chain.

Dealing with Bad Debt: Before getting involved, ask yourself:

How do I react to a bad debt?
Do I block orders from important customers, or do I grab a phone?
What is the volume of blocked orders my F&A department can handle?
Can I afford to block customers (small customer base)?
What do I save?
What is the cost in terms of damage?

Credit Management in SAP

Assuming that we already have SD and AR implemented, credit management can be broadly used to:
Assign credit limit to customers
Facilities like the credit master sheet or early warning list help you monitor the customers credit situation
Automatic credit limit checks as well as to specify the points at which they have to be carried out
Automatically alert the credit representative of a customers critical credit situation as soon as order processing starts and he may
be able to check a customers credit situation quickly and reliably, and, in line with the appropriate credit policy, to decide whether
the customer should be granted credit.

Credit Check
Every customer is having a certain credit limit, which is measured and maintained by Finance people. Credit check is done for each and every
order/SD documents generated.

Credit check is performed at the following stages of Sales order cycle, Credit check settings present in each SD document is
responsible for interacting with FI module.

Figure 1:Stages

Configuration Setting

of Credit Check

Define Risk Category

SPRO > Financial Accounting > Account Receivable and Accounts Payable > Credit Management > Credit Control Account > Define Risk
Categories

Figure 2:Define Risk Category

Define Credit Control Area
SPRO > Enterprise Structure > Definition > Financial Accounting > Define Credit Control Area

Figure 3:Define Credit Control Area

Figure 4:Define Credit Control Area - Details

The type of update chosen controls when the values of open sales orders, deliveries and billing documents are updated
depending upon the type of document being generated. One of the following update groups can be chosen as available in
standard SAP

Blank If the field is left blank, the SD documents are ignored and only open receivables and open special G/L items are used for
calculating credit exposure.
000012 When a new order is created, the open order value is added to the credit exposure. When the order is delivered, the open
order value is subtracted and the open delivery value added to the exposure. On billing the delivery, open delivery value is subtracted and the
open billing value is added to the exposure. When billing posts to accounting, the open billing value is subtracted and the open A/R value added
to the exposure. The exposure is finally reduced when the cash is applied against open A/R.
000015 Calculates exposure without considering open sales order value. When the order is delivered, the open delivery value is
added to exposure. On billing the delivery, open delivery value is subtracted and the open billing value is added to the exposure. When billing

posts to accounting, the open billing value is subtracted and the open A/R value added to the exposure. The exposure is finally reduced when
the cash is applied against open A/R.
00018 This is relevant for non-delivery-relevant orders only. When a new order is created, the open delivery value is added to the
credit exposure. When the order is billed, the open delivery value is subtracted and the open billing added to the exposure. When billing posts to
accounting, the open billing value is subtracted and the open A/R value added to the exposure. The exposure is finally reduced when the cash is
applied against open A/R.
Note: SAP recommends the use of update group 000012

Organizational Unit in Credit Management

The organizational unit used in credit management is Credit Control Area. It represents the area where customer credit limits are
specified and monitored.
Depending on the relationship between credit control area and company code, the credit management can be categorized as:
Decentralized credit management
Every company code has its own credit control area. Hence, we can define credit limits for a customer separately for
each company code. This method delivers benefits such as the local payment cultures can be respected, each
company code has the independence to make its own decisions.
Centralized credit management
Multiple company codes are clubbed under the same credit control area. So, if the customer transacts with company
codes which are under the same credit control area, the limit is set for all the company codes combined together.
If the currencies of these company codes are different from that of the credit control area, the receivables are converted to the
credit control area currency to check with the credit limit set. Centralized credit management has benefits such as easier analysis
of credit policy and modifications required, the focus is shifted to other important areas such as bad debt reductions and improved
customer relations as there is only a central credit team that needs to be consulted irrespective of the geography etc.

Figure 5:
Organisational Unit in Credit Management
Assigning Company Codes to a Credit Control Area
SPRO > Enterprise Structure > Assignment > Financial Accounting > Assign Company Code to Credit Control Area

Figure 6: Company Codes to Credit Control Area

Assigning Sales Area to a Credit Control Area
SPRO > Enterprise Structure > Assignment > Sales and Distribution > Assign Sales Area to Credit Control Area

Figure 7: Sales Area to Credit Control Area

Define Credit Groups
SPRO > Sales & Distribution > Basic Functions > Credit Management and Risk Management > Credit
Management > Define Credit Groups.
The credit group specifies which subsequent transaction can be blocked for processing, if the credit limits are
exceeded.You can use the default credit groups or create new once.

Figure 8: Define Credit Groups

Assigning Sales Documents and Delivery Documents to Credit Group
SPRO > Sales and Distribution > Basic Functions > Credit Management/Risk Management > Credit Management > Assign Sales
Documents and Delivery Documents > Credit Limit Check for Order Types > Credit Limit Check for Delivery Types

Figure 9: Credit Limit Check for Order Type

Figure 10: Credit Limit check for Delivery Type

Simple Credit Check Vs Automatic Credit Check
a.
b.

High-volume, low-value requires automation and efficient handling through grouping, with as little personal handling as possible
(refuse orders as much as possible)
Low-volume, high-value requires individualization with emphasis on reporting and blocked orders or deliveries that can be
checked and unblocked.

Figure
11: Simple Credit Check Vs Automatic Credit Check
Simple Credit Check

The simple credit check compares the payer customer master records credit limit to the net document value plus the value of all open items.
In case the value of the document and open items is more than the credit limit:
System may respond with a warning message in the sales order [OR]
Warning message and a delivery block [OR]
Error message, which will cause the document not to be saved.

Automatic Credit Check Variations & Recommended Use

Automatic Credit Check - Gives extra parameters to define credit checks like Credit Control Area, Risk Category and

Figure 12: Automatic Credit Check Maintenance

STATIC CREDIT LIMIT DETERMINATION:
1.
2.
3.
4.

Open Sales Orders + Sales Order Value

Open Delivery
Open Billing
Open Receivables
Recommended Use: This is seen to be safer to use as compared to Dynamic Credit Check as it covers all documents due to varying
business needs. For high volume and very low risk customers (e.g. Risk Category 001), it is good practice to put

deliveries on block and leave the orders untouched. This prevents a level of check.
DYNAMIC CREDIT CHECK:
1) 2) 3) 4) Above Mentioned
5) Horizon Period : Eg. 3 Months.
Here the System will not consider the Open items 1, 2, 3 & 4 values for beyond 3 months.
Recommended Use: If the business is always likely to have fast moving items leaving no chances of Open Orders, Open Deliveries etc for
long time period, this is good to use. There can be other business considerations to include only Open items within certain period

Maximum Document Value

The sales order or delivery value may not exceed a specific value which is defined in the credit check. The value is stored in the
currency of the credit control area. This check is useful if the credit limit has not yet been defined for a new customer. It is initiated
by a risk category which is defined specifically for new customers.
Recommended Use: Use it for Credit Group 01 (Orders) and high risk category customers which you always want to review
beyond a particular value. It may also be used for prepaid or one-time customer with Max doc value.
Critical Fields:
This Credit check is initiated by document changes done in credit sensitive fields. One such example is terms of payment. When
this field changes, a check is done on the data in sales order against the data in the customer master.
Date of Next Review
System uses the date of the next credit review as a trigger for an automatic credit check. If you process a sales order after a customer's next
review date has already gone by, the system automatically carries out a credit check.
Overdue Open Items
The relation between open items which are more than a certain number of days overdue and the customer balance may not exceed a certain
percentage. These values are defined in the customizing for automatic credit control.
Recommended Use: Use it for Credit Group 01 (Orders) in conjunction with Static Credit Check for slightly higher risk category customers,
where you dont want to have more than a certain % of open items. The values may be reduced with increase in risk category values.
Oldest Open Item
The oldest open item may not be more than a specified number of days overdue.

Recommended Use: Use it for any Credit Group 01 or 02 (Orders or deliveries) in conjunction with Static Credit
Check for slightly Low-Medium risk category customers.
Maximum Number of Dunning Levels Allowed
The customer's dunning level may only reach a specified maximum value exceeding which the item may be blocked if so configured.
User-Defined Checks- For e.g. Cheque received from a customer bounced, then subsequent orders may get blocked.

Credit Management at work

For each customer, credit limits are specified in the particular credit master record. If the customer exists in
multiple credit control areas, individual limit can be specified for each credit control area. In addition, a central
credit limit can also be specified for all the credit control areas under which the customer exists. Then, the total of
the credit limits for each credit control area should not exceed the central credit limit.
FD32 (FI T code) is used to set credit limit and credit risk category for the customer.

Figure 13: Credit Limit for Customer

Overview Screen
It gives an overview of credit settings of the customer.
Customers credit limit, credit exposure, percentage of credit limit used and horizon (as applicable in dynamic credit
check) are presented as status
Payment history along with the average number of days taken for payment is shown
Payment data contains details such as authorized cash discount and unauthorized cash discount that was available for
cleared items, the outstanding receivables in sales days
Dunning data consists of dunning area for the customer, when he was last dunned and the dunning level reached during
the last dunning run
Control contains the credit risk category of the customer, date of the last check on customer credit limit, if the customer is
blocked for credit management business transactions, the credit representative group responsible for the customer, the payment
history classification, the financial standing of the customer and date when the credit check of the customer was carried out last.

Figure 14: Overview Screen

Central Data Screen

It gives an overview of central credit limit settings of the customer.
The maximum permitted credit limit as a total of limits across all credit control areas to which the customer is assigned
The maximum permitted individual credit limit that a customer can have under any one credit control area
The currency in which the two maximum limits are specified. This is because we can enter the central data in any
currency of choice, independently of the currencies of the control areas
The currently exhausted credit limit as a total (percentage) across all credit control areas to which the customer is
assigned (should be less than or equal to max limit)
The currently assigned largest credit limit across all credit control areas to which the customer is assigned (should be less
than or equal to max limit)
Date on which the most recent general information about the customer was obtained

Figure 15: Central Data Screen

Status Screen
Shows the customer's actual individual details according to particular credit control area
The credit limit for the credit control area, credit account if the limit is to be specified for a group of customers, the
percentage of credit exposure, horizon date to be taken into consideration, the receivables, special G\L transactions and the order
value not yet transferred to FI used for the credit exposure calculation as well as the amount of secured receivables is shown
under credit limit data
The credit risk category, credit representative group, customer credit group and customer group used mainly for sorting or
reporting, the reference data for customer credit review, if the customer is blocked for credit management business transactions,
the last and next internal review date for the customer credit limit as applicable to the particular credit control area are shown
under Internal data
The date of last external review, the credit information number as applicable to external agency, the classification of
payment history of the customer as well as the financial standing is shown under external data

Figure 16: Status Screen

Credit Check at work in Sales Order creation
When sales order is created (SD), system verifies the credit limit used by the customer by communicating with values set in FD32
(FI)

Figure 17: Credit Check

Release Sales Documents from Credit Block
Block will be released if the Agent discussed with Customer and / or payment is received from Customer. VKM1, VKM3 and

VKM5 are key T codes used to release Sales and Delivery documents from Credit Block. For the document
selected, the following options are available:
Grant the credit and release the document
Reject the credit and cancel the document
Forward the blocked document to another processor
Recheck the blocked document
Reassign the blocked document and specify a new sequence of documents. This enables to give priority to
and release several documents with a low document value until their credit limit is completely used up, instead
doing so for a single document with a high document value that has already exceeded its credit limit.

Figure 18: Release Credit Block

Reports

RFDKLI10 - Customers with missing credit data

RFDKLI20 - Reorganization of credit limit for customers in credit control areas
RFDKLI30 - Central and credit control area related data for customer (short overview)
RFDKLI40 - Overview credit limit (extensive)
RFDKLI41 - Credit master sheet
RFDKLI42 - Early warning list
RFDKLI43 - Master data list especially for printing customer cards along with data from external systems
RFDKLI50 - Mass change for master data in credit management
RFDKLIAB - Display changes for credit management data
RVKRED06- Checking blocked credit documents
RVKRED08 - Checking sales documents which reach the dynamic credit check horizon (periodic report)
RVKRED09 - Checking the credit documents from credit view (released documents are checked only if the validity period
for the release is up)
RVKRED77 - Reorganization of open credit, delivery and billing document values especially when update errors occur
RVKRED88 - Simulation reorganization credit data SD
9546 ViewsProducts: sap_erp_financials Topics: enterprise_resource_planning

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17 Comments

subhash pandit Sep 11, 2013 12:55 PM

Dear Sandeep,
Thanks for your knowledge sharing. It is too useful for me.
Regards

Subhash P.
Like (0)

Gulshan Batra Sep 11, 2013 4:54 PM

Very thorough and well researched Sandeep.

Good job here!
Regards
Gulshan
Like (0)

Advait Kulkarni Sep 11, 2013 5:06 PM

This is really helpful Sandeep.Thanks for sharing

Advait
Like (0)

Karteek k Jun 11, 2014 8:56 AM

Nice document.. thanks for detail explanation !!

Like (0)

Lakshmi Sama Jun 12, 2014 8:22 AM

Hello Sandeep,
Nice explanation and it is really helpful.
Thanks for sharing your knowledge and keep sharing.
Regards,
Lakshmi S
Like (0)

Jurairat Damrongtham Jun 20, 2014 12:36 PM

Dear Sandeep,
I would like to ask more about dynamic credit check. If I set at 3 options as follow:
- Dynamic
- Document value
- Open items
1. How the system work? SAP will check from Dynamic -> Document value -> Open items or Open items -> Document
value -> Dynamic?
2. After SAP have checked and display credit blocked message. If system found credit blocked from 'Document value'
and 'Open items' , How SAP display credit blocked message? Message come from 'Document value' or 'Open items'?

Thank you in advance,

Jurairat D.
Like (0)

Vinod Vemuru Jun 20, 2014 1:14 PM

Thanks Sandeep. This is a ready reference document for credit management

Thanks,
VV
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G Lakshmipathi Jun 20, 2014 1:30 PM

A comprehensive blog on Credit Management. Good work done.

G. Lakshmipathi
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o
Phanikumar V Jun 21, 2014 6:00 AM (in response to G Lakshmipathi)

Sir---in document" Configure and Customize SAP Automatic Credit Management".---please correct the flaw as mentioned in
my comment--thereby the people who follows this ,will get correct information..
I dont know why moderator approved this again even after my alert...

Phanikumar
Like (0)

Jose Antonio Martinez Jun 20, 2014 6:48 PM

Sandeep:
Thanks for share this info.
Very useful

Regards Antonio Martinez

Like (0)

Phanikumar V Jun 20, 2014 5:39 PM

Good work--i appreciate being an FI guy your presentation including SD is very nice...
Sorry to tell you that there a mistake in your document while sharing about dynamic credit check about Horizon
period.
as per you-"""""5) Horizon Period : Eg. 3 Months.

Here the System will not consider the Open items 1, 2, 3 & 4 values for beyond 3 months""""

No--- here-actually system will divides this 1,2,3,4 as two parts---2,3,4 will be fixed called as static part and the the
first option 1 will be called as dynamic part(open sales orders)
(2,3,4 will be taken in credit calculations if lying beyond 3 months)
the only difference is whether open sales order(with confirmed delivery schedule lines)--has to be considered in credit
calculations or not(if lies in these 3 months--then this open sales order value will be added in credit calculations-otherwise no)

See F1 at dynamic credit check in OVA8--you will get more clarity.

Please change this flaw in your presentation--once after confirming...

Phanikumar
Like (1)

Sada Bandla Jun 20, 2014 6:30 PM

Hi Sandeep,
Good document thank you for sharing knowledge.
Regards ,
Sada Bandla
Like (0)

G Lakshmipathi Jun 21, 2014 7:45 AM

Sandeep Agarwal
Please check Phanikumar V comments, retest the scenario and change your blog if necessary.

G. Lakshmipathi
Like (0)

Mariks . Jul 7, 2014 4:13 PM

Many thanks for sharing valuable document....

Like (0)

Ashok J S Jul 11, 2014 10:32 PM

Very helpful document..thanks for posting

Like (0)

Kundan Kumar Jul 13, 2014 12:38 PM

nice document...
Like (0)

R MG Nov 5, 2014 6:08 PM

Hello,
Thanks for the document, very usefull, during an Audit review with a client i came accross with the next question:
Reviewing this process with a client I verified that when the Customer excided the credit limit assigned in SAP, the
system automatically blocked the purchase requisition. In order to release it the Credit, the Clerk needed the
Management authorization and this was done manually and outside SAP. Once she had the authorization sheet signed
the clerk manually released the PR.
I wonder if it is possible to configure a SAP work flow in order to release credit block as when the control is manually
performed it could be easily override.
Thanks in advance
Regards
Like (0)

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