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SAP ERP Financials

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Configure and Customize SAP Automatic

Credit Management

Version 2

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 of Credit Check

Configuration Setting
Define Risk Category
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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.
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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
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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

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Figure 10: Credit Limit check for Delivery Type

Simple Credit Check Vs Automatic Credit Check
a. High-volume, low-value requires automation and efficient handling through grouping, with as little personal
handling as possible (refuse orders as much as possible)
b. 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

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Figure 12: Automatic Credit Check Maintenance

STATIC CREDIT LIMIT DETERMINATION:
1. Open Sales Orders + Sales Order Value
2. Open Delivery
3. Open Billing
4. 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
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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.

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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

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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
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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

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Products: 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
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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
Like (0)
G Lakshmipathi Jun 20, 2014 1:30 PM

A comprehensive blog on Credit Management. Good work done.

G. Lakshmipathi
Like (0)
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

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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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