The solution for effective
credit and collections
management
FSCM – Credit and Collections
INDEX
Executive Summary
Why implement FSCM C&C in your organisation?
What needs to be done before FSCM C&C can
be implemented in your organisation?
What can FSCM ECC 6.0 C&C do in
comparison with R/3?
What is needed from a system landscape perspective?
Some business implementation considerations
per FSCM C&C module/ Best Practice
Limitations of FSCM C&C
FIGURES
Figure 1: FCSM Credit and Collections focus
Figure 2: System Scenario’s
THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT
Executive Summary
1 Many finance departments in the present market struggle
2 with their role in the organisation. Market conditions
change rapidly therefore they want to play a more
4 strategic role and spend less time with high labour
intensive processes. Core financial processes are
4 automated whereas other important financial processes
5 are still very labour intensive and costly. The financial
manager of today wants to optimize his department’s
7 performance and do more for less cost. Nowadays
8 improving cash flow is one of the most important key
focus points
SAP has developed FSCM to assist with this focus by
optimizing the financial and information flows within
2 a company and between business partners. It delivers an
5 integrated approach to present business environment
challenges.
Using SAP FSCM, companies can optimize their cash
management, reduce the cost of invoicing, simplify
accounts payable and accounts receivable, and lower the
costs that occur through reconciliation or mistakes. SAP
FSCM contains solutions for displaying accounts and
invoices, paying over the Internet (SAP Biller Direct),
efficient processing of disputes and withheld payments
(SAP Dispute Management), managing credit default risks
(SAP Credit Management), and an effective approach to
collecting your receivables (Collections Management)
Before implementing SAP FSCM a closer look has to be
taken at the current business in order to assure an
effective set up of the modules to be implemented.
This White paper will explain the process and business
questions to implement FSCM to enhance your
organization to the fullest.
1
Why implement FSCM C&C
in your organisation?
Deteriorating markets causing an increase in overdue
receivables, more hours spent on logging and tracking
disputes, too much cash tied up, increasing DSO. All
indicators that it’s time to evaluate your receivable
management and strategy. For many companies a financial
supply chain involves a highly paper based, off line
process where split information flows restrain payment
flows and thus tie up large amounts of cash in your
organization. So what is the effect of all this? In short;
increased risks, deteriorating cash flows and rising
operating cost.
Do you want to control, evaluate and manage credit
and collections risks effectively? SAP FSCM optimizes the
financial and information flows within a company and
between business partners and banks. It delivers an
Financial Supply Chain Management
CREDIT MANAGEMENT BILLER MANAGEMENT
Finance
Cash Market Risk Credit Risk
Working
Projection Management Management
Capital
CASH & LIQUIDITY
MANAGEMENT
THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT
integrated approach to present business challenges.
SAP FCSM helps streamline your order to cash and invoice
to pay process, reducing operating cost, increase faster
collections, and enhance cash flow forecasting. At the
same time it comes with a repository of ‘standard build-in’
integration objects for a variety of (external) data sources
and processing systems frequently used in the market.
These range from payment systems to credit rating
agencies. Via process and system integration you can
enhance your performance, data processing and deliver
information faster with less (human) effort.
Another great area of interest at redesigning your
financial supply chain is getting your teams responsibilities
organized such that workload is ‘spread’ effectively.
This will assist in determining the correct focus for the
right people so that priorities are clear.
The FSCM C&C modules in short will bring you:
COLLECTIONS
DISPUTE MANAGEMENT MANAGEMENT
Dispute
Invoicing Collection Payments
Cases
TREASURY & RISK
MANAGEMENT INHOUSE CASH
Figure 1: FCSM Credit and Collections focus
2
FSCM-Credit Management will take you one step
further to being ‘in control’ by:
• Improved decisions support
• Control your customer’s credit exposure with
up-to-date credit-profiles
• Integration of dispute and dunning information
FSCM-Biller Direct supports your B2C business by:
• Invoicing your business
• Electronic payment for customers via a portal
• Integrated approach between customer service
and finance
FSCM-Dispute Management reduces a
companies DSO by:
• Early detection of payment issues and disputes
• Increase cash forecast accuracy
• Effective & timely dispute resolution process
FSCM-Collections Management effectively
manages receivables:
• Use of work list to distribute and prioritize cash
collection
• Proactive collection strategy
• Dynamic and real time collection management
With SAP’s FSCM workflow the staff involved (across
companies) collaborate on issues - through SAP - in a
structured way, shorter communication lines leaving less
room for errors. On top of that your staff will have their
own dash-board, where all information specific to their
role is kept up-to-date and prioritized. The effect is
that you can do more with less staff and/or increase the
productivity of your staff.
What needs to be done before
FSCM C&C can be implemented in
your organisation?
The objective for credit & collections management is to
guarantee that customer payments are collected and
processed quickly to supply a constant flow of cash into
the business. Before an FSCM implementation can be
started at your company, your business processes need
to be analyzed first and important company and policy
strategic decisions need to be taken.
The basis for efficient SAP FSCM system is a well
functioning SAP ECC system. A quick scan therefore
needs to be performed to review the current key business
THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT
processes related to FCSM vs. the current SAP
configuration and identify areas of improvements
(‘Gap analysis’). The quick scan will concentrate on the
following areas:
• Current Account Receivables and associated processes
• Integration with Logistical Processes
• Organization specific strategy & policies
• Country specific legal requirements
• Demographical factors such as:
- Current Market
- Diversity in Customers
- Country specific characteristics
- Etc.
The outcome will reveal strength and weaknesses in your
credit & collections management and strategy as well
as improvement options to enhance your organisation.
Findings will be classified as follows:
• High priorities and have a big business impact.
• Medium priorities and have a medium business impact.
• Low priorities and have a low business impact.
The findings will be reported, followed by
recommendations on which FSCM components to set
up and what the implementation timeline will be. This
then will be the basis for the FSCM implementation.
What can FSCM ECC 6.0 C&C do in
comparison with R/3?
Credit Limits
First of all when switching on SAP FSCM Credit
Management the Credit Management function in R/3 will
be disabled and there is no need to maintain any more.
Credit limits can be transferred or re-entered.
The functionality of credit limits is already part of SAP for
a long time. R/3 allows credit limits set up per customer
for blocking of sales orders, deliveries etc. Assigning limits
to customer groups instead of individual customers. Work
with risk classes to control credit checks.
FSCM in comparison to R/3 provides the opportunity to
calculate a scoring rule per customer based on predefined
parameters. This includes e.g. payment history and sales
history whereby the system facilitates external information
(from e.g. a credit rating agency) to be uploaded in order
to be part of the scoring rule determination. If a credit
3
limit hierarchy applies then changes due to this upload will
be automatically calculated to all levels of the hierarchy.
Dispute cases
From R/3 4.7 the dispute option was already available in
multiple areas of Accounts Receivables Accounting.
E.g. post residual item with incoming payment, line item
display, account clearing etc. From there, when applicable,
dispute cases could be created. With FSCM 6.0, this is
fully integrated with the Accounts Receivables processes
for processing of payments, lockboxes or checks and
automatic creation of dispute cases.
master data between SAP Financial Accounting and
FSCM. Configuration setting needs to be made for this.
In conjunction with other systems specific synchronisation
solutions need to be developed.
Next to the above for connection of SAP Credit
management to the mentioned systems NetWeaver
technology SAP PI (Process Integration) is needed.
Biller Direct is developed in a “Java Environment” hence
Java resources are needed when setting up this module.

Secondly a direct connection exists between dispute

management and collections management as part of the
collection strategy. Dispute cases created are automatically
updated when payment, offsetting credit memo or manual ONE SYSTEM SCENARIO
clearing is processed. The update is then visible in the
dispute cases. In CRM dispute cases are also viewable but
since it’s Account Receivable driven changes can only be
made from there.

Thirdly workflow integration is possible between involved

departments in resolving a dispute case.

Biller Direct
This application is new and provides the possibility for
customers to manage their open items and create dispute
cases from the web portal. This portal also allows your
staff and customers to work together more closely
in order to resolve disputes using the same channel of MULTIPLE SYSTEM SCENARIO

communication.

What is needed from a system

landscape perspective?
In order to operate FSCM 6.0 efficiently, ideally is that
your company runs its business on mySAP2005. A
connection to My SAP ERP 2004 (ECC 5.0), SAP R/3
Enterprise, SAP R/3 4.6C or other external systems is
possible. This however requires strong involvement of
ABAP support. RFC connections will have to be set up
which involves extensive testing.

FSCM as functionality heavily relies on “business

* SAP Collections Management and SAP Dispute Management
partners”. The basis for a business partner resides in the have to be set up on the same system if both are used

customer master, within Financial Accounting-Accounts

Receivable. Therefore ECC 6.0 includes CVI (Customer
Vendor Integration) which controls synchronization of Figure 2: System Scenario’s

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 4

How does process integration with SAP
ECC or other FCSM modules work?
FSCM in general
FSCM works with the concept of “business partners”
These can be directly maintained within FSCM. However
most companies prefer the customer master as the leading
master record for the business partner. Any additional
roles then are created within FSCM. Master Data needs to
be transferred upon creation or synchronized in case of
changes.
Credit Management
Credit Management determines when a customer order
or customer account needs to be blocked based on your
settings and calculations. Hence Credit Management
integrates directly with modules like Account Receivables,
Sales & Distribution and CRM. The communication
platform for this is NetWeaver PI. Connection to non
SAP systems is possible (e.g. credit agency systems). For
reporting a connection to BI and the “credit manager
portal” are available.
Credit Management communicates directly with
Collections Management when defining a risk class of a
specific business partner. When a risk class changes, your
collections strategy will take this into account. The relation
between credit limits utilization and credit exposure can
also be part of your collection strategy.
Biller Direct
SAP Biller Direct is integrated with SAP Dispute
Management. From Biller Direct customers can create
dispute cases themselves for e.g. invoice errors or partial
payments. Customers can also view the status of a dispute
case, enter reason codes, up or download attachments
and communicate on time with the respective department
that handles the dispute case.
Dispute Management
SAP Dispute Management is fully integrated with Account
Receivable and allows creating or updating a dispute case
from an open item.
Incoming payments, credit memo clearing and other
clearing transactions connected to a dispute cases
automatically update the dispute case.
THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT
There is also a possibility that residual items be converted
to dispute cases manually or automatically when
processing your bank statements. Amount limits,
customers and discrepancy reasons can be controlled.
Collections Management
Collections Management is closely integrated with
Accounts Receivable. The automatic creation of work lists
and the collection strategy determined for collections
specialists prioritizes the customers to be contacted and
open items to be addressed.
Some business implementation
considerations per FSCM C&C
module/ Best Practice
Credit Management in AR vs. Credit
Management in FSCM
For companies that have a distributed landscape the
option of choosing for Credit Management in FSCM is a
favourable one since only in FSCM you can gather and
process information of a business partners credit exposure
from various SAP and non SAP sources. This is then
consolidated by FSCM and reflected in a risk score for
central processing and monitoring.
Thorough Credit Decisions have to be taken first
In order to properly evaluate the creditworthiness of cus-
tomers by the use of internal rating policies and external
credit data to support quick and consistent credit decisi-
ons, the organization needs to determine the rules
between not shipping and taking a risk. In short what
drives a credit score in FSCM?
Do you want credit limit usage, sales history, payment his-
tory, external credit information part of a scoring rule?
Allowing generous payment conditions for “low risk” cus-
tomers or advance payments for “high risk” customers.
What drives a score for a specific customer or group of
customers?
The usage of internal and external hierarchies to imple-
ment different credit policies has also changed from the
SAP R/3 functionality. The top node hierarchy can now
determine how credit limits need to be divided over the
lower levels. Individual overspent without exceeding the
top node credit limits can also be configured.
5
 The use of Electronic Banking System (EBS)
It’s clear for everybody that there are great benefits for
companies by knowing their cash position at their bank as
timely as possible. Using the electronic bank statement
functionality (EBS), companies can reconcile business
transactions in real time with transactions that have been
posted at their bank. However, often few companies really
fully utilize the full functionality and benefits of their EBS.
In order to benefit from EBS all transactions both incoming
and outgoing have to be analyzed for a specific period of
time. Even with the most sophisticated cash-management
strategy, transactions in EBS can fail or post incorrectly
for many reasons, requiring manual post processing
transactions after initial upload of EBS. A well configured
set up is therefore crucial. Working with e.g. search strings
can increase the hit rate.
addition to these statistics, reporting can be done on the
frequency of missing information from your customer.
Limitations of FSCM C&C
With every new system a few side remarks have to be
made. The FSCM C&C modules contain basic set up by
SAP where functionality can be enhanced by implementing
standard delivered business add-ins (Badi). The main
reason is that the strategies that need to be determined
are company specific, hence requirements can differ a lot.
It’s extremely important that you define your credit and
collections policy and strategy well in order to get the
most out of FSCM.

The advantage is that multiple bank statements can be

uploaded at the same time decreasing processing time
and increase timeliness of up to date receivable positions.
This will increase the effectiveness of FSCM.

Effective resolution of Invoice disputes

Invoice problems and overdue payments can happen
regardless of how effectively your have implemented your Meet the
credit management. These all contribute to an increase experts
of DSO affecting your cash flow significantly. In order to
process these disputes quickly and efficiently finance
employees need to gather a lot of information from
different department and have frequent contact with
the customer. All these communication lines are time
consuming and even more important information gathered
is often not logged in a structured and consist manner
so that all parties involved can easily access important
information.

To increase efficiency with handling and processing PROXYON BV

dispute cases a few best practises are to be considered Groot Zonneoord Estate
for implementation: Zonneoordlaan 17
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Dispute cases can be created automatically. When using P.O. Box 305
the EBS function for processing payments the system can NL-6710 BH EDE
automatically create dispute cases based on a pre defined The Netherlands
set of rules.
T +31 (0)318 65 77 90
Control your external correspondence function. This F +31 (0)318 65 77 91
function allows you to attach missing invoices, delivery info@proxyon.com
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THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 6