Credit Management

Credit Management?
Credit is the power to obtain finance, materials on trust by promising to pay for them
at some definite time in the future

When you allow customers time to pay, it should be

a conscious decision - 'we believe this customer can
and will pay us on time' - based on knowledge, not
an accident of selling

So it makes sense to find the credit worthiness because sales efforts can be intensified with
sound customers

There are always competitors for your customers' funds and a supplier

Cr Magt is use to keep future sales more reliable & stay away from bad debts .
 Credit Management
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 Credit Management
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 Purpose

In order to minimize exposure to bad debt, over-reserving, and bankruptcies,

companies must have greater visibility into customer financial strength, credit
score history and changing payment patterns

Likewise, the ability to penetrate new markets and customers hinges on the ability
to quickly and easily make well informed credit decisions and set appropriate lines
of credit

It also build a good relationship with customer and will create win win situation
 Use
A large number of outstanding receivables or bad debts
can have an inconsiderable impact on company
performance

Credit Management helps in minimizing the credit risk by defining a credit

limit for customers

The need for Credit Management is obvious in,

- Financially unstable sectors or countries
- Trade with countries that are politically unstable
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Process Flow
 Credit Exposure
Open order value
The value of all sales order items which have not yet delivered

Open delivery value

The value of all delivery items which are not yet billed

Open billing value

The value of all billing items which are not yet transferred to
Accounting

Open Items
The value of billed items which are transferred to accounting
(receivables)
 Credit Checks

Simple credit Check: The value of all open items and the net value of the sales
order for every item of a sales document. It carried out when sales doc are
created or changed.

Automatic credit check: The automatic credit check can target certain
aspects during a check and run at different times during order processing.

This can be,

Static Credit Check : Total value of open sales orders + open deliveries + open
billing documents + open items
Dynamic Credit Check: Total value of open deliveries + open billing documents +
open items + open sales orders for a specified horizon
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 Credit Management - Configuration
T Code : OB45

Increases the open order value form delivery

relevant schedule lines.
Reduces the open order value from delivery
relevant schedule line and increases the open
delivery value.

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.

Credit limit 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.

If we want to tell to the system that, this credit

control area is permitted for
postings in every company code we have defined.
 Credit control area and its fields
Credit control area is an organizational unit that specifies and checks the credit
limit for customers. A credit control area can include one or more company codes.
It means we can assign one credit control area to number of company codes.

Update [000012] (Data for updating SD fields ): Open order value on time axis,
delivery and billing document value. This field value controls when the values are
open sales orders, deliveries, billing documents are updated in LIS (Std info
structure). It determines how the credit value should get updated at the time of
order, delivery & billing

Fiscal year variant [K4] : It indicates specific fiscal year variant for particular
credit control area. The fiscal year variant is essential when a credit control area
covers multiple company codes whose fiscal years are different. Then the values of
the open orders are updated by posting period.

Risk category and Representative group defined and maintained by FI/CO

consultants in IMG.
 Credit Management - Configuration
The three different update groups and functions are

Update group 000012

Sales order: Increases the open order value from delivery relevant schedule lines
Delivery : Reduces the open order value from delivery relevant schedule lines and
increases the open delivery value.
Billing: Reduces the open delivery value and increases the open billing document
value.
Financial Accounting Doc : Reduces open billing doc value and increase open item

Update group 0000015

Delivery : Increases the open delivery value and increases the open billing document
value.

Update group 000018

Sales order: Increases the open delivery value.
Billing Document: Reduces the open delivery value and increases the open billing
document value.
 Credit Management - Configuration

Assign company code to

credit control area OB38

Assign Sales area to

credit control area - OVFL

Credit Control Area: Organisational unit responsible for fixing and controlling customer credit limits
Credit Management - Configuration

A credit control area can

include one or more
Company Codes.

Sale area :Combination of sales

organization, distribution
channel, and division.
Credit Management - Configuration
Defining Credit risk category T Code: OB01

Specify risk category [001]:

001 = High risk
002 = Medium risk
003 = Low risk

This risk category entered in

the related control area of the
customers credit master
record, which is automatically
created when a customer is
created in a company code.
Credit Management - Configuration
Defining Credit Groups T Code: OVA6

Define credit group. You can groups together different business transactions
which should be dealt with in the same manner with regard to the credit check.
You to combine different sales document types for the credit limit check

SAP default credit groups

01 credit group for sales order
02 credit group for delivery
03 credit group for goods issue
 Credit Management - Configuration
T Code: OVAK

Credit limit check by Sales order

 Credit Management - Configuration
T Code: OVAD

Define credit limit check by delivery order

 Credit Master Data
T Code: XD02

Credit control area to be assigned in

customer master.
 Credit Management - Configuration
T Code: VOV8

A simple ccl and warning message

B simple ccl and Error message
C simple ccl and Delivery Block.
D Automatic credit control

Specifies the document credit group for

a particular sales document.
01 = credit group for sales order
02 = credit group for delivery
03 = credit group for goods issue
Credit Management - Configuration
T Code: VOV7

Activate the credit check

Credit Management - Configuration
T Code: OVA8
Credit Management - Configuration
T Code: OVA8

Need to give CCA, Risk category & Cr group

Can specify error or warning or no Message

Can specify status Yes or No

 Credit Master Data
T Code: FD32

Overview: Gives the

How much limit used overview of the
credit status settings
in relation to
Customer details as in
customer master customer including
Customers total credit limit
credit limit, credit
exposure, the
Displays Credit control area data
percentage of credit
Displays payments made limit, payment data
and risk category
Central data shows total credit
limit the customer can receive all
credit control areas and the
maximum limit.
 Credit Master Data
Customer Credit limit screen
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 Important Transactions
Transaction Code Description
OB38 Assign Company code to Credit Control Area

OVFL Assign credit control area to sales area

XD02 Change Customer (Centrally)

OBZK Permited credit control area for Company

Codes
OVAK Sales Order Type Assignment

OVAD Delivery Type Assignment

S_ALR_87012218 Credit master sheet

 Important Transactions
Transaction Code Description
OB01 Defline Risk Catgories
OVA8 Maintain Credit Checks
FD32 Credit Master Data

OVA7 Credit Relevancy of Item Categories

VOV7 Maintain Item Categories

V/08 Maintain Pricing Procedure

OB45 Define Credit Control Area

VKM4 Release all SD Documents

VKM5 Release delivery documents

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 Additional Info
Some of the functionalities explained are version dependent. For
example, up to version 4.x it was possible to derive Credit Control Area
from the company code only, which is now possible from Sales Area

The credit checks can also be done for,

- Oldest open item
- Critical fields
- Next review date
- Document value
- High dunning level etc

Questions
Put some light on UPDATE (000012) & FY VARIANT (K4) in CCA in detail
Thank you very much for your attention!
See you soon with new topic .
Regards,
Ambarish