SAP – Sales and Distribution – Credit Management – Lesson 17
What is Credit Management
- Credit Management enables you to minimize the credit risk yourself by specifying a specific credit limit for your customers. The purpose of credit management is to monitor credit status of customer so as to take decision on continuing or reviewing credit related decisions like increasing credit limit or blocking delivery to the customer.
- You can take the financial pulse of a customer or group of customers, identify early warning signs, and enhance your credit-related decision-making.
- Credit control area is basic organizational unit that represents the area where customer credit is awarded and monitored.
Credit Monitoring Transactions
- Credit Overview for company code – F.31
- Customers with missing credit data – F.32
- Blocked SD documents – VKM1
- Release of blocked Sales order – VKM3
- Release of blocked deliveries – VKM5
Define Credit Control Area
This is done with financial accounting integration as in most of the companies, credit management is FI function.
Company code is created in enterprise structure of financial accounting.
Define Credit Control Area:
Menu path: Enterprise structure –> Definition –> Financial accounting –> Credit Control Area
This is FI configuration and not part of SD configuration
Double click on credit control area, which you want to select
Key fields are as below.
Update group – It determines how credit value should get updated at the time of order, delivery and billing.
If a document cannot be processed with the update group you specify, the system determines the next possible update it can carry out. For example, you select Update group 000012, which, at delivery, reduces the open order value and increases the open delivery value. Assume that one item in the order is not relevant for delivery. In this case, the system automatically determines Update group 000018 for this item. Update group 000018 increases the open delivery value for the order item. The system uses the confirmed quantity of delivery-relevant schedule lines to update the order value.
Risk category – Risk category entered in the related control area of the customer's credit master record, which is automatically created when a customer is created in a company code.
The credit master record is automatically maintained when at least one of the following fields is maintained for the corresponding control area.
- Risk category – defined in FI accounting - Credit Management--->Credit control account--->Define Risk categories.
- Via the customer master record, you can allocate every customer to a credit risk category. This is used if automatic credit control is used.
- Menu path: Customer master - Environment – credit management
Credit representative group
Credit limit - This credit limit is not a total credit limit for the control area.
In this way you ensure that a credit restriction will be effective for new customers, too, as soon as the customer has been created.
If no credit master record has been maintained, there is no credit limit.
2. Assign company code to credit control area
Menu path: Enterprise structure –> Assignment –> FI accounting –> Assign company code to Credit Control Area Click
Company code 1000 is assigned to credit control area 1000 as seen above.
3. Assign Sales Area to Credit Control Area
Menu path: Enterprise structure –> Assignment –> Sales and Distribution –> Assign Sales Area to Credit Control Area
Deriving the Credit Control Area:
The credit control area is determined in the following sequence as per standard configuration:
1. Sales Area (The sales areas can be assigned to a credit control area in Customizing)
2. Customer master (payer’s sales area segment)
3. Company code for the sales organization
Example – In sales order created for customer 4999 using sales area – 1000/10/00, credit control area 1000 is determined as per credit control area assigned to company code 1000 as no credit control area is assigned to sales area and in the customer master.
4. Type of credit check
There are major two types of credit checks can be performed. They are
- No credit check
- Simple credit check or Dynamic check for a particular order type.
Menu path: SD –> Basic Functions –> Credit Management –> Assign Sales documents and delivery documents
Pop-up as below
Select “Credit limit check for order types” and click
On the next screen, click and select order type as “OR”
Simple Credit Check (Option A or B or C)
During the check, the SAP System totals the receivables (A claim for payment on the recipient of goods or services supplied.), the open items from special G/L transactions and the net value of the sales order for every item of a sales document.
The open items from special G/L transactions take into account obligations bound by contract which are not recorded for accounting purposes but which involve expenses through diverse business transactions. Example - the value of materials in the warehouse that have been reserved for an order or project
The total is compared with the credit limit. If the limit is exceeded, the system responds in the way defined by you in the configuration menu.
If credit limit exceeds, system responds giving
- A. Warning message in sales order.
- B. Warning message and a delivery block (which will allow order to be taken but blocked for delivery).
- C. Error message that will not allow you to save the order.
Automatic Credit Check Check credit has value “D”
Credit limit check can take place @ Sales order entry, Delivery or Goods issue
For this, Automatic credit control defines “Document Credit Group” for each Sales Order, Delivery and Goods issue.
5. Define Credit Group
Credit Group for Sales Order is assigned to Sales Order Types.
Credit group for Delivery and Goods issue each is assigned to Delivery Types.
Credit Group together with Credit Control Area and Risk Category defines how exactly Credit check will be carried out.
Menu path: SD –> Basic Functions –> Credit Management –> Define Credit group
Let us take customer 4999 to understand Automatic credit control Risk category is 001 as below.
6. Define Automatic credit control
Menu path: SD –> Basic Functions –> Credit Management –> Define Automatic credit control
Select credit control area – 1000, risk category – 001 and credit group – 01
The details can be maintained as below.
Currency and update group are copied from Credit control area, 0001
No Credit Check – Here you can assign a routine, which will check conditions, under which credit check should not be done.
Example (Routine 01) If there are no order items in sales order, no credit check should be done OR no credit check when due to some change order net value is changed but it is not greater than the old net value.
Item check - Indicates that the system carries out credit checks not only when you save the document but already when you enter single items or header data.
Deviation in %: Deviation of document value by x %. You can specify a deviation factor for documents that have already been approved for credit.
You set the deviation factor at 10%. An order for 20 pieces of a material (price = 20 USD per piece) has a total value of 400 USD and is approved for credit. The customer then wants to order more pieces. If this causes the deviation factor to exceed 10%, the system carries out credit check.
Number of days without check - Specifies the number of days after which a changed document must be re-checked for credit.
The system does not carry out another credit check if the following conditions are met:
- The value of the changed order is not greater than the value already approved for credit (inclusive of the deviation factor),
- The current date is not greater than the original release date plus the number of days specified here.
Seasonal factor in %:
Specifies a percentage tolerance limit up to which a customer's credit limit may be temporarily increased or reduced.
If you enter 10% in this field and select the minus check box, a customer's usual credit limit of 5,000 USD is extended by a further 500 USD.
As this is seasonal discount, enter validity dates for the discount
The credit exposure in this check is the total combined value of the following:
Open sales documents - Order items that have not yet been delivered.
Open delivery documents - Delivery items that have not yet been invoiced.
Open billing documents - Billing Document items that have not yet been forwarded to accounting.
Open items (accounts receivable) - Documents that have been forwarded to accounting but are not yet settled by the customer.
IMPORTANT - You can specify in the adjacent fields whether the system takes into account only open orders or only open deliveries or both open orders and open deliveries.
Open Billing docs and Open items will always be considered for calculation.
This check has all checks of static check but only has an attached time period (Credit Horizon). The customer's credit exposure is split into a static part - open items, open billing, and delivery values - and a dynamic part, the open order value. The open order value includes all not yet or only partially delivered orders. The value is calculated based on the
shipping date and the credit horizon you specify in the adjacent field.
For the purposes of evaluating credit, you want the system to ignore all open orders that are due for delivery after the horizon date. The sum of the static and dynamic parts of the check may not exceed the credit limit.
NOTE – Static and Dynamic checks are the main types of check Following are the additional checks which can be used on their own or in combination with Static or Dynamic check.
Credit check against maximum document value
This type of credit check makes sense, for example, if you process orders for new customers whose credit limits have not yet been defined. The check can be initiated by a risk category, which is defined specifically for new customers.
Credit check against critical fields (fixed value dates)
The indicator controls the critical field check. If the field is selected, the system checks whether critical fields have been changed.
If a check is carried out, the following fields are relevant:
- Payment terms
- Additional value days
- Fixed value date
Credit check against next customer review date
Indicates whether the system carries out a credit check based on the date of the next credit review.
You can define a time buffer for this type of credit check. In the adjacent field, you can specify the number of days that are added to the next credit review date.
Credit check against overdue open items
Specifies whether the system carries out a credit check based on open items.
This type of credit check works in conjunction with two values that you specify in the adjacent fields:
Maximum % of overdue items in open items Number of days, which the open items are overdue
The proportion of overdue open items (that exceed the specified number of days) in the total of open items should not exceed the percentage specified.
Credit check against oldest open item
Indicates whether the system carries out a credit check based on the age of the oldest open item.
The oldest open item must not be older than the number of days specified.
Credit check against highest dunning level allowed
Indicates whether the system carries out a credit check based on the highest dunning level.
With this type of credit check, you specify the highest dunning level you want to allow in the adjacent field. The dunning level is tracked and stored in the credit data in the customer master record. If this level is exceeded during order or delivery processing, the system carries out a credit check.
For all checks, you can set message should be warning or error and whether to set credit block in sales document
7. Credit management of the customer master
CUSTOMER MASTER SETTINGS (FD33) – (Customer master – Sales Area data - Environment – Credit management)
Creating Credit data for a customer – It is done in SAP menu.
Menu path - Accounting --> Financial accounting --> Accounts receivable --> Credit management --> Master data --> Change (Transaction code- FD32)
Customer's credit limit
The amount entered here represents an upper limit for Total receivables and
Foreseeable receivables from the customer.
The total receivables results from the open items (invoices minus credit memos and payments) plus selected special G/L transactions (for example, down payments).
The foreseeable receivables result from the values of orders already accepted (open orders). Open orders + Open deliveries + open billing
Credit Exposure Field is sum of
- Receivables / open items – Invoices, which are not yet paid - Credit Memos
- Special Liabilities – Total of special G/L Transactions (shown separately in G/L and sub-ledger – like Down payments or Bills of Exchange or Guarantees)
- Sales Value – Total of all order values, which are not yet transferred to FI.
Credit exposure gets updated as and when documents are saved. When a new sales order is created, order value is added to credit exposure for that customer in credit control area at that point of time. If the total is greater than the Credit limit specified, then
Date of credit horizon
If this indicator is set, only the outstanding sales values, which fall within the defined credit horizon, are taken into account when calculating the credit limit used.
In above screenshot, the date shown is 11/07/2006, which is 180 days from 11/01/2006(current date). 180 days is the credit horizon set in the configuration.
If a horizon has not been specified in Customizing, the system defaults the current date, and all outstanding sales values are taken into account for the credit limit used.
Credit representative group for credit management
A customer can be allocated to a credit representative group for credit control. This credit representative group is copied into the order and can be used as a selection criterion for evaluations and release functions.
With this indicator, a customer is blocked for all credit management business transactions (order acceptance, delivery, and goods issue). You can still, however, post invoices for goods, which were already delivered.
Credit representative can access list of blocked documents and release them using following menu path.
SAP menu –> Logistics –> Sales & Distribution –> Credit management –> sales and distribution documents
Transaction code – VKM1
VKM2 – Released SD Documents
VKM3 and VKM5 – To release SD Documents VA14L – SD documents blocked for delivery Other important transactions are as below.
Credit overview Credit master sheet
Partner Determination - Create Partner functions credit representative (KB) and credit manager (KM) allocated to
partner type PE so as to send messages regarding credit block and status.
KRML in output procedure V10000 is the output type used for credit message processing
8. Types of credit management
Define 1 credit control area for different company codes.
Define credit data for customer for each company code or each group of company codes.
Centralized credit management - Define one credit control area for all company codes.
Credit Control Area 1
Company Code 1 Company Code 2
Sales Org. 1 Sales Org. 2
CUSTOMER 1 CUSTOMER 1
Credit Limit 50000 EUR
Decentralized credit management - Define credit control areas for each company code.
Credit Control Area 1 Credit Control Area 2
Company Code 1 Company Code 2
Sales Org. 1 Sales Org. 2
CUSTOMER 1 CUSTOMER 1
Credit Limit 50000 EUR Credit Limit 100000 EUR
Let us have 1 customer 110012 defined under 2 different company codes – 1000 and 3000.
Now if we have Centralized organization for credit management, then there will be only 1 credit control area under which credit limit is set for customer. But in our example, we have decentralized organization wherein credit limit for 110012 is set with credit control area 1000 under company code and with 3000 under company code 3000.
Credit limit is set here as 45000 EUR.
110012 is defined in 2 sales areas
Sales AreaCredit control area 1000/12/00 1000
Above screenshot shows central data for customer. In Section Current credit limit assigned
Total amount – Total of credit given for the customer in both credit control areas 1000 (45000 EUR) and 3000 (49000 EUR).
Largest individual limit – It shows the maximum credit that is currently given to the customer among all credit control areas. For 110012, 49000 EUR is the maximum credit limit given and that is in CCA, 3000.
In Section Maximum permitted credit limits
Total amount - Total credit limit allowed for this customer across all credit control areas.
Individual limit - Maximum credit that is allowed for a customer in a single credit control area. It means if I try to give customer credit of >50000 EUR in credit control area then system will give error.
Therefore, largest individual limit in credit control area 3000 is maintained as 49000 EUR.
Let us have Simple credit check run. The setting done for this done in Sales document type definition or same setting in (SD
– Basic Functions – Credit Management – Assign Sales documents and delivery documents)
Sales value – 24150 EUR is the value of the sales order created. This is sum of Net value + Tax. There is condition formula “4” for this.
Condition subtotal for this Total is “A” i.e. price is copied over to KOMP-CMPRE (credit price) and so seen in sales value / credit exposure.
Now, when we add 1 more item in SO, wherein order is for 4 pieces, then the value of the order is more than 45000 EUR – this is the credit limit for this customer under credit control area 1000, so it gives the following message.
System sets a credit block at header level of the order though it allows saving the item.
Credit block defined in IMG – SD – Basic Functions – Availability check and transfer of requirement – Transfer of requirement – Block Quantity confirmation in delivery blocks.
Select “Deliveries: Blocking Reasons/Criteria” and Click
This block blocks delivery creation and also blocks confirmation of order quantities at schedule line level. If, before you save a sales order, you look at the schedule line overview, you can see what the system would confirm, if the block were not set.
However, as soon as you save the sales order, the confirmed quantities are automatically reset to zero. This is because of the setting in the same IMG transaction in the same pop-up
Blocked document List can be accessed from VKM1 or setting can be done to send mail to credit representative or Credit manager.
Order output procedure; V10000 has KRML as output type.
This requirement “9” is met if the sales order has been blocked for credit and the order is due for shipping activities within 2 days.
This requirement can be assigned to a sales document output condition type, such as the R/3 delivered output type KRML to control when a mail should be sent to the credit representative (KB) and Credit Manager (KM).
This requirement can only be used with sales documents.
Release the sales order (Transaction code - VKM3)
Once it is released, credit data gets updated and shows the credit exposure for 110012 in CCA, 1000.