Credit management

Roles & Responsibilities of credit

management department
 They fix credit limit to the customer.

 Monitoring the day to day transactions and any of the customer credit limits
exceeds then they block the next transaction.

 Classifying the customers into high risk, medium risk and low risk based on
the customers past payment history.

 Releasing the orders which are block for credit.

 Configuration

Step 1 : Define credit control area

 It is an organizational unit which specify group of people responsible

for credit management i.e. credit department.

 SPRO > Enterprises structure > Definition > Financial accounting

 Update group - Update group controls, which sales document should

be updated in credit management
 Update group

000012:It updates all open order values, open delivery values, open
invoice values and open item values.

000015:It updates all open delivery values, open invoice values, and
open item values. (We use update group 15 for those process in which
we don’t have sales order i.e. delivery without order reference).

000018: It updates all open order values, open invoice values and open
item values. (We use this update group for those process in which we
don’t have delivery i.e. service process and Third party process).
 Open order value – Order is created but not delivery.

 Open delivery value – Delivered the order but not billed.

 Open invoice value – Order billed but accounting document not generated.

 Open Item value – Invoice is raised but not yet paid.

 Receivable – Receivable means open items (In simple credit system consider only

receivable as credit limit).

Step 2 : Assign credit control area to company code.
 Relationship between company code and credit control area is [one to many] i.e. one
credit control area can have many company codes.

 But one company code should be assigned to single credit control area.
Types of credit process
 Centralize credit process (3 company codes and 1 credit control area for all three
company code).

 Decentralize credit process (3 company codes and each company code has individual
credit control area).
 Configuration for simple credit check

SPRO > S&D > Basic function > Credit management > Simple credit limit check

Credit Group: The credit Group is applicable only for Automatic Credit check. Credit group
controls which transaction to block. i.e. order, delivery, PGI.

Step 4 : In pricing procedure at Net value step maintain subtotal as A v/08

Step 5 : Activate credit active in item category. vov7

 FD32 – Credit dash board of customer

Configuration for automatic credit check

Step 1 : Define risk category

SPRO > Financial accounting new > Account receivable & payable > credit
management > Credit control > Account > Define risk categories

Step 2 : Define credit group

SPRO > S&D > Basic function > Credit management / risk management >
Credit management > Define credit groups
Step 3 : Define automatic credit control OVA8
Item check : If we activate this then system will perform credit check while entering the line
item in sales document
No credit check : Here you can specify a routine number that contains conditions for when
a credit limit check should take place
Deviation in % : Specifies a deviation factor for documents that have already been
approved for credit.
You set the deviation factor at 10%. An order for 10 boxes of a material (price = 100 USD
per box) has a total value of 1,000 USD and is approved for credit. The customer then calls
and wants to add additional boxes to the order. If this causes the deviation factor to exceed
10%, the system carries out another credit check.
No of days : After releasing the order which is blocked for credit, if there is no further
process within the number of days mentioned here. then system will again block the order
for credit.
VKM3 - Release credit block.

VKM4 - Sales document & delivery document

VKM5 - Delivery block

Credit limit seasonal factor : This will be used to increase or decrease the credit limits to
the entire customers during a particular period.

Static : If we activate this then system update all open order values, open delivery values,
open invoice value, & open item values into credit check. (FD32).

Reaction : This field controls how system should respond, if order is blocked for credit i.e.
whether to give warning message or error message or no message.
Status/Block : If we activate this then while creating sales order if customer credit limit
exceed then system will block the order for credit.

Open orders : If we activate this then system will perform credit check while creating order
only and if customer credit limit is exceed then system will block the order.

Open deliveries : If we activate then only system will perform credit check while creating
delivery document.

Dynamic : If we activate dynamic then it updates all open order values, open delivery
values, open invoice values, and open item values but any open order if the delivery
creation date is exceeding horizon date that order will not be updated into credit
management (FD32).
 To change horizon period – T Code is OMO1 Info structure S066
 To rerun customer credit limit – F.28
Additional checks
 Credit check when the maximum document value is exceeded
 Credit check when changing critical fields (Payment terms, fixed value date
and additional value days] if user changes any of the critical fields then system
will block the order for credit even though the customer is having enough credit
balance.
 Credit check at the time of the next internal check : If we activate this then
while creating sales order system will check order date with next review date if
the sales order date exceed next review date then system will block the order for
credit.
 Next review date will be available in FD32 status view.
Open items : This check helps you block customer sales orders if the customer open A/R
balance has reached a certain threshold.

This check works on the combined result of two fields: the number of days outstanding and
the percentage of total A/R. If both the conditions hold true, only then the credit check is
successful.
 As you can see, customer ABC has a total A/R balance for $50,000. The overdue
balance of more than 45 days is $35,000, which is 70 percent of the total A/R. As per the
credit check rules, if the outstanding balance of more than 45 days is above 40 percent
of the total A/R, the credit check will block the document, and thus the sales document
gets a credit block.

 Oldest open item : It is nothing but overdue item. if we check oldest open item then while
creating sales order system checks for this customer is any one of the previous invoice
is overdue or not, if yes then system will block the next transaction.

 For example, suppose customer X is a medium risk customer and in customizing for
medium-risk credit-check rule, you entered that the oldest open items allowed for a
medium-risk customer is 90 days with status checkbox checked. Now the customer X
has any A/R item outstanding more than 90 days, SAP will start blocking the orders for
customer X.