Credit management is a vital part of any sales organization. My previous article, “Make SAP Automatic Credit Management Work for You,” explained how you can block sales orders and deliveries if a customer is exceeding a credit limit or showing undesired payment behavior. In this article, I’ll look at credit limit calculation and show how you can organize your credit management using your SAP R/3 or mySAP ERP Central Component (ECC) system.

This functionality has been around since R/3 Release 3.0. The process includes definition, setting up the process for new customers, and assignment. The prerequisite is the customizing of automatic credit checks in the sales module, which I covered in my earlier article. The previous article also covered troubleshooting and workarounds for exceptional situations.

Definition

Mapping your credit control organization to SAP R/3 and ECC means you decide at which level you monitor credit (credit control area) and group customers and credit clerks. The credit control area is your fundamental design decision in the SAP Financials module. See Figure 1 for a comparison of credit control on company and national levels.

Figure 1

Set up your credit control area

In this step you decide whether credit is managed by company code or by a grouping of company codes. This depends on your organizational structure. Typically, credit is managed on a national level, in which case grouping all company codes in national credit areas seems logical. However, if you want to manage your credit globally, you need one global credit control area.

Define credit control areas in customizing via menu path Enterprise structure>Definition>Define credit control area. See Figure 2 for the initial customizing screen.

Figure 2

Customizing the credit control area

Next, select basic settings to determine how you define credit exposure. The credit exposure definition is the key to your calculations in credit management. Make the selection via the Update field in Figure 2. You have three choices, shown in Figure 3:

Figure 3

Select one of these options to define credit exposure

• 000012 starts with selecting the scheduled quantities in the sales order. As long as a sales order line is not scheduled, the value is not included. Then the logic follows the sales flow. When you create a delivery, the open sales order value decreases and the open delivery value increases. When you bill a delivery to the customer, the open billing document value replaces the delivery value. On creation of the financial document, the system replaces the open billing document value automatically with the value of the accounts receivable open item. This approach is based on the idea that a credit risk is created the moment you schedule a sales order item. This is valid if the time between scheduling and actual delivery is short. If scheduled lines sit in the system for a long time, this is not a good choice. In those cases it is better to place the risk at the start of the delivery process.
• 000015 has the same logic as 000012, but in this case the calculation starts at the creation of the delivery process. This definition of exposure is more to the point in cases in which sales orders are present in the system for a long time before any action is required.
• 000018 has the same logic as 000012, but credit exposure starts at the creation of the sales order and the schedule line is not considered. The schedule line contains the details of the scheduled delivery to the customer. It can differ from the initial quantity in the related sales order line. In this case the order defines the risk. This method is suitable for an environment of fast moving goods where sales orders are executed right away.

New Customer Setup

Making settings for new customers is another important aspect of the credit control area. In general it takes some time for a credit department to define a tailor-made credit limit, so delays can result. Also, in business areas with large amounts of relatively anonymous customers, no specific limits are generally implemented. In both scenarios, you need a default credit limit for new customers, since it is not possible (in the case of limit setup) or practical (in the case of large numbers of customers) to define single limits quickly enough. The settings for new customers allow you to define a default limit. You also can assign a default risk group. The risk group is one of the elements that define how the system reacts (see part 1). For example, you can treat a new internal customer or a key account differently than an unknown small newcomer. Finally, you can assign a new customer to a default credit representative group. This is an efficient way of linking all new customers to dedicated members of the credit department.

Assignment

Once you have finalized your settings, assign the credit control area to one or more company codes. The choice should depend on the level of credit management you want. If credit management is independent for each company code, you define and assign a separate area to each company code. However, if credit management is on a higher level it is possible to assign one area to a group of company codes. Assign the credit control area via menu path Enterprise structure>Assignment>Assign company code to credit control area. Be careful not to assign company codes that were created for system reasons. For example, a financially irrelevant company code might be linked to a sales organization and the sales order could affect the credit exposure calculation. This could happen if you correct the company code for logistic reasons only. You can check if a company code is linked to a credit control area in the same screen.

Additional Tips

Now you can make detailed credit management settings in the credit management area via IMG menu path Financial Accounting>Accounts receivable>Credit management. I’ll mention a few areas you might want to look into. Each of them is a subsequent level on this menu path on the IMG.

• Assign Permitted Credit Control Areas to Company Code. You can assign other credit control areas to a company code apart from the default one. After doing this, enter the alternative area in the financial document, as shown in Figure 4.

Figure 4

In the Additional Details for Line Item level, you can add a different company code

• Define Credit Representative Groups and Define Reconciliation Accts Without Credit Management Update. Finally, you must consider two important customizing subjects: risk category and credit representative group. The risk category is part of the key that defines all automatic credit checks (Figure 5). How this works was explained in detail in my February article.
  
  
  
  

  Figure 5

  Risk categories defined per credit control area (CCAr). The help text indicates the key role of the risk category in automatic credit control.

You can use the credit representative group to manage groups of customers and to link them to a specific member of the accounts receivable department. In some cases the credit representative is mentioned on an invoice, depending on the system setup. It is advisable to use generic titles for these groups (e.g., credit representative key accounts) rather than personal names, so you don’t need to make a change every time a different person is assigned to the task.

The remaining settings in the IMG are of no immediate concern and are fairly well documented. Those under Business transaction are mainly concerned with line layouts and the buckets used in reporting.