Credit and Risk Management in FI/SD

Credit Management

Purpose

Outstanding receivables or bad debts can have a substantial effect on the success of your company, but with the aid of Credit Management you can minimize your credit risk by defining specific credit limits for your customers. Thus you can take the financial pulse of a customer or group of customers, identify early warning signs, and enhance your credit-related decision-making. This is particularly useful if your customers are in financially unstable industries or companies, or if you conduct business with countries that are politically unstable or that employ a restrictive exchange rate policy.

Integration

If you are using the Accounts Receivable (FI-AR) component to manage your accounting and an external system for sales processing, Credit Management enables you to issue a credit limit for each customer. Every time you post an invoice (created in FI-AR), the system then checks whether the invoice amount exceeds the credit limit. Information functions such as the sales summary or early warning list help you to monitor the customer’s credit situation.

If you are using both the Accounts Receivable (FI-AR) component to manage your accounting and the Sales and Distribution (SD) component for sales processing, you can also use Credit Management to issue credit limits for your customers. You can make settings in Customizing to decide the scope of the check and at what stage in the process (for example, order entry, delivery or goods issue) a credit limit should take place. General information functions are also available for use with credit checks.

Features

If you are using both the SD and FI-AR components, Credit Management includes the following features:

• Depending on your credit management needs, you can specify your own automatic credit checks based on a variety of criteria. You can also specify at which critical points in the sales and distribution cycle (for example, order entry, delivery, goods issue) the system carries out these checks.
• During order processing, the credit representative automatically receives information about a customer’s critical credit situation.
• Critical credit situations can also be automatically communicated to credit management personnel through internal electronic mail.
• Your credit representatives are in a position to review the credit situation of a customer quickly and accurately and, according to your credit policy, decide whether or not to extend credit.
• You can also work with Credit Management in distributed systems; for example if you were using centralized Financial Accounting and decentralized SD on several sales computers.

You can find information about where to make Customizing settings for Credit and Risk Management in Settings for Credit and Risk Management

Risk Management for Receivables

See Risk Management for Receivables in SD for information about managing risks for receivables.

Monitoring Credit During Sales and Distribution Processing

Purpose

This process enables you to monitor credit when processing customer orders.

Prerequisites

• You have implemented the Accounts Receivable (FI-AR) and Sales and Distribution (SD) application components.
• The master data for those customers whose credit you wish to monitor is created in both Sales and Distribution and Financial Accounting.
• The master data for those customers whose credit you wish to monitor is created. In creating this master data, you determine how high the customer’s credit limit is to be.
• In Customizing for Enterprise Structures you defined one or more credit control areas and assigned these to one or more company codes.
• In Customizing for Sales and Distribution you defined at which point (when an order is received or when delivery is carried out for example) the credit check should take place. You do this under Basic Functions ® Credit Management/Risk Management ® Credit Management ® Define Automatic Credit Control.

Process flow

1. You enter a sales order.

Assuming that this sales order leads to the credit limit being exceeded for this customer, the system now responds in one of two ways (depending on the settings you made in Customizing for Sales and Distribution.) For more information, see Automatic Credit Control

- It outputs an error message, preventing you from being able to save the order.

- It outputs a warning message, but does not prevent you from being able to save the order.

- It blocks the order.

If the order is blocked, the credit representative processes the blocked order either from a list of blocked sales and distribution documents, or from his/her Mailbox. You define whether or not a mail is sent to a credit representative in Customizing under the menu path Logistics - General ® Promotion ® Message Determination.

The credit representative now decides how to proceed with this order. To assist, from the list of blocked documents he or she can use the Information Functions (credit master sheet, early warning list and so on) in Credit Management.

3. Once the credit representative releases the order, a delivery can be created and a billing document generated.

Once you have saved this document, the system automatically creates a financial accounting document.

4. The customer pays the invoice that you created in the previous step. You then post the incoming payment in Accounts Receivable.

Processing an Accounting Transaction Using Credit Management

Credit Control Area Credit and Risk Management in FI/SD

Definition

An organizational unit that represents the area where customer credit is awarded and monitored.

This organizational unit can either be a single or several company codes, if credit control is performed across several company codes. One credit control area contains credit control information for each customer.

Use

Credit and risk management takes place in the credit control area. According to your corporate requirements, you can implement credit management that is centralized, decentralized, or somewhere in between.

• For example, if your credit management is centralized, you can define one credit control area for all of your company codes.
• If, on the other hand, your credit policy requires decentralized credit management, you can define credit control areas for each company code or each group of company codes.

Credit limits and credit exposure are managed at both credit control area and customer level.

You set up credit control areas and other data related to credit management in Customizing for Financial Accounting. For more information, see the Implementation Guide under Enterprise Structure ® Definition or ® Assignment ® Financial Accounting and then Maintain credit control area. You assign customers to specific credit control areas and specify the appropriate credit limits in the customer master record.

See also: Specifying Credit Limits by Credit Control Area

Credit and Risk Management Settings: Overview

Structure

The following graphics illustrate the relationship between credit control area, company code, sales organization, customer and currency for central or decentralized credit management respectively.

Decentralized Credit Management

If your credit policy requires decentralized credit management, you can define credit data for your customer for each company code. In the graphic below, the customer has a business relationship with two company codes:

You define a currency for each credit control area. The relationship between credit control area, company code, sales organization and currency is illustrated in the following graphic:

Central Credit Management

If your credit management is centralized, you can combine your company codes in one credit control area. Credit management then regards the customer as valid for all company codes. In the following graphic, the customer has a business relationship to two company codes that are combined in one credit control area:

The next graphic illustrates the relationship between the credit control area, company code, sales organization and currency in a central organization. If the credit control area includes company codes with different local currencies to that of the credit control area, the system converts the receivables into the currency of the credit control area.

This also applies to the open order, delivery and billing values.

Deriving the Credit Control Area Credit and Risk Management in FI/SD

You have four ways of deriving a credit control area:

• Company code
• Sales area (sales organization, distribution channel, division)
  The sales areas can be assigned to a credit control area in Customizing (Enterprise Structure ® Assignment ® Sales and Distribution ® Assign sales area to credit control area).
• Customer master (payer’s sales area segment)
• User exit EXIT_SAPFV45K_001
  You can use this user exit to derive the credit control area from all the fields in the sales order header.

In the last three options, the credit control area must also be assigned to the company code. You do this by going to Customizing and choosing Enterprise structure ® Assignment ® Financial Accounting.

Caution
If you are working with distributed systems, note the following (and also see Credit Management in Distributed Systems):

In distributed systems (centralized Financial Accounting, decentralized sales processing), each decentralized sales computer must be assigned to its own credit control area. In other words, you cannot make multiple assignments for one credit control area.

The alternative credit control areas in the decentralized computer must also be different, which makes the following scenario impossible:

The central Financial Accounting department in your company would like to influence the credit policy for some customers in an international subsidiary that uses a decentralized sales computer. To do this, the centralized and decentralized sales computers would have to belong to the same credit control area. However, this is not permitted for distributed systems because open orders are not distributed between sales computers.

If you post documents directly in FI that are not related to sales and distribution processes, you must enter the credit control area manually as the system doesn’t.

The credit control area is determined in the following sequence:

1. User exit
2. Distribution channel
3. Customer master
4. Company code for the sales organization

You can only change the credit control area if there are no subsequent documents. If you want to change the assignment or make a new one, you have to restructure the credit limit. For more details, see Resetting Credit Limits

Specifying Credit Limits by Credit Control Area

Credit limits are normally specified by credit management staff in the individual customer master records. You can specify individual credit limits for each credit control area. You can expand your credit control for a customer by specifying a central credit limit for all credit control areas to which that customer is assigned. The total of the limits at the level of the credit control area must not exceed the total limit for all credit control areas. The credit limits at the control area level are checked during sales order processing.

In the following graphic, a central credit limit has been divided between the two credit control areas D1 and D2. The total limit at group level of 10,000 USD corresponds to the total of the individual limits at credit control area level. The individual limits do not exceed the upper limit of 7,000 USD specified by the group.

Creating Credit Data Credit and Risk Management in FI/SD

Prerequisites

You created a customer master record for the customer in question.

Procedure

1. From the
Credit Management screen, choose Financial accounting data ® Master records ® Maintain.

Enter the name of your customer, the credit control area and the views (Address, Status, Overview for example) with which you want to work.

The total credit limit and the credit limit per control area are both maintained under Central data.

You enter the credit limit itself under Status.

2. Choose the Central data screen and enter the following data:

- Total amount

- Individual limit

- Currency

Enter the currency for the total limit and maximum individual limit.

The credit limit is managed in a separate credit limit currency, which you determine for each control area. This currency is separate from the local (company code) currency. To update the credit limit data, the system converts the amounts. This has no effect on the updating of the transaction figures or on any postings.

You can enter the central data in any currency you choose, independently of the currencies of the control areas.

- The fields in the section entitled Current credit limit assigned show to what extent (as a percentage) the customer has exhausted the amount of credit granted to him and in which credit control area the maximum individual credit limit has been exhausted to the greatest extent.

- The Last general info field displays when the last information on the customer was obtained.

3. Now access the Customer Credit Management Change: Status screen and enter the individual credit limit for the customer.

If you wish, you can also enter the following data on this screen:

A/R Summary Data	A/R summary data is used in Decentralized Credit Management. This data enables several decentralized SD systems to operate active Credit Management in conjunction with a central FI system. It contains all the (summarized) information on a credit management account (in a credit control area) that is necessary for the credit check in SD. Even in a non-distributed system, it may be advisable to run the SD credit check against this A/R summary since reading this data is much less time-consuming than repeatedly reading open items (thus improving system performance.) The data determined in this way from the A/R summary can be integrated in the credit overview in line layout variants. You can then identify those credit management accounts for which the credit check will report an error when the next incoming orders are made.
Risk Category	In order to classify customers according to the risk they represent and to trigger the relevant checks, you can assign a risk category to a customer. This risk category determines which checks the system should carry out when processing orders in Sales and Distribution.
Credit Representative Groups	You can assign credit management employees to a credit representative group. The credit representative group is transferred into the order and can be used as a selection criterion for evaluations and release functions.
Customer Credit Group	You can define groups of customers in accordance with your company’s needs. Customers can for example be grouped by industry, country or other criteria that help you carry out Credit Management more specifically. The credit representative can use these groups to select blocked documents for processing and to generate reports for statistical analysis.
Customer Group	You can group customers into customer groups according to criteria that you yourself define. For example, you can group customers by industry or country. This customer group enables you to process this customer group more specifically or to carry out evaluations for this customer group.
Texts	At credit control area level, you can enter memos for each customer. You define this memo as a certain text type (for example, internal information). Which text types are relevant depends on the way your system is configured. For each text type, you can create a new text in another language. Central texts for a customer are entered in the customer master record in the general data area. If texts for this customer exist, the Text exists field is marked. See also: Entering Texts
Storing Documents on the Customer	If you implement SAP’s ArchiveLink, you can store documents for each customer. You can then scan annual reports into the system, assign them to a customer and display them using the master record display function. The system creates documents for a customer in the general data area of the customer master record. To display a document for a customer at the credit control area level, or to assign a new document, on the Customer Credit Management Change: Status screen, choose Extras ® Documents. The system displays a dialog box in which the linked documents are shown. You can also assign a new document to the customer here. See also: Assigning Documents

4. Save your data.

Result

You have created the credit data for a customer.

Credit Limits for Groups of Customers Credit and Risk Management in FI/SD

Use

You can assign a credit limit to both a group of customers and an individual customer. If your company has different branches, you would define the credit limit for just one customer of this group (the head office) and this customer account then becomes the credit account.

Procedure

1. To assign a credit account to a branch account, from the
Credit Management screen, choose Financial accounting data ® Master records ® Maintain.

Enter the name of your customer, the corresponding credit control area and select the Status indicator.

The system displays the Change Customer Credit Management: Status screen.

2. Choose the function Edit
® Change credit account. In the dialog box that appears, you can enter the credit account (the account number of the customer you are using) to set the credit limit for the entire group.

After you choose ENTER, the system contains the credit limit of the branch as 0.00. The Credit account field displays the account number of the customer for which the reference credit limit is defined.

You can only specify a credit account within a credit control area.

The accumulating total of receivables is recorded both for the reference customer and the "dependent" customer. However, the system checks only against the reference customer as to whether the credit limit has been exceeded.

When displaying the credit account, you can view which customers are referenced to this account. To do this, from the credit account master data screen, choose Edit ® Cust. for credit acct.

Result

You have assigned a credit account to a branch account.

Defining Credit Limits for New Customers Credit and Risk Management in FI/SD

Use

If you create a master record for a new customer, but do not define any credit data, no credit control is performed for this customer. If you want a new customer to be automatically subject to credit control, then you need to create a credit control area for new customers.

Procedure

1. In Customizing, choose Enterprise Structure
® Definition ® Financial Accounting ® Maintain credit control area.
2. Now choose Edit
® New entries.

Enter a Credit control area (for example NEW) and enter data in at least one of the Risk category, Credit limit, and Rep.group fields.

3. Save your data.

Result

You have now created a credit control area for new customers for which a credit check is effective as soon as the customer has been created.

Processing Credit Data Credit and Risk Management in FI/SD

All of the following functions are accessed from the Credit Management screen.

Function	Menu path	Further information
Changing Credit Data	Financial accounting data ® Master records ® Maintain
Displaying Credit Data	Financial accounting data ® Master records ® Display	Displaying Credit Data
Making Mass Changes	Financial accounting data ® Master records ® Bulk change	The system may prevent you from making postings to customers if the date of the next credit limit check has already passed. To prevent this happening, you can reset the date to a later date for a certain specified number of customers.
Displaying Changes to Credit Data	Financial accounting data ® Master records ® Display changes.	To display changes to credit data on a cross-account basis, use report RFDKLIAB.
Deleting Credit Data	Financial accounting data ® Master records ® Maintain. Enter the name of your customer, the corresponding credit control area and select either Status or Central data. Choose Credit management ® Delete ® Central data or Control area data.
Resetting Credit Limits		Resetting Credit Limits

Displaying Credit Data Credit and Risk Management in FI/SD

Use

Monitoring a customer’s credit situation.

Procedure

1. From the
Credit Management screen, choose Financial accounting data ® Master records ® Display.

By choosing Extras and Environment, you can display a customer’s payment data, dunning data, and view their payment history.

2. Choose the views Overview and Status and choose Enter.

On the Customer Credit Management Display: Overview screen, the system displays the individual credit limit, the existing total liabilities, and the credit limit used (percentage).

The Day Sales Outstanding (DSO) figure is also displayed. The DSO figure is an index of the relationship between outstanding receivables and sales achieved over a given period. In the standard system, this figure is calculated by taking into account current receivables, and a period of 3 months plus the days of the current month. When displaying the credit management data for a given customer, the basis on which the DSO figure is calculated can be viewed by choosing Extras ® DSO calculation.

In Customizing for Financial Accounting, you can define other parameters by which DSO is calculated. You do so in the activity Define Preliminary Settings for Credit Management.

If you have recorded the customer’s payment history (see the indicator Rec.pmnt hist. indicator under Payment transactions view in the customer master record) or made other internal specifications, this data is also displayed here.

3. Choose Enter. The system displays the Customer Credit Management Change: Status screen

on which the following data is displayed:

- Receivables from sales (unless they are marked as disputed items)

- Special liabilities relating to special G/L transactions which you marked as credit limit-relevant (down payments for example)

- Sales value

By choosing Extras ® Sales value you can break the sales value down into open orders, open deliveries and open billing documents.

- Credit exposure

When you post a customer invoice or create a billing document, the system automatically adds the amount to the existing receivables or to the receivables from special G/L transactions. When you post the incoming payment, the amount is subtracted from current receivables.

Resetting Credit Limits Credit and Risk Management in FI/SD

Use

You need to reset credit limits if you have:

• Assigned a company code to a new control area
• Changed the assignment of company codes to control areas
• Changed the currency of a control area
• Altered the classification of a difference reason code from disputed to non-disputed (or vice versa).

Procedure

1. Execute transaction SE38.
2. In the Program field enter RFDKLI20 and choose Execute.
3. Enter the relevant data.
4. Choose Program ® Execute in background.

Result

The customer’s credit limit is now reset.

Sales and Distribution Functions in Credit Management

All of the following information functions are accessed from the Credit Management screen.

Function	Menu path
Processing blocked sales and distribution documents from a list	® Exceptions ® Blocked sales docs
Processing blocked sales and distribution documents from the SAPoffice inbox	® Exceptions ® Mail/inbox
Processing blocked sales orders	Environment ® Sales and distribution ® Blocked sales orders
Processing incomplete sales and distribution documents	Environment ® Sales and distribution ® Incomplete sales documents
Processing deliveries	Environment ® Sales and distribution ® Deliveries
Processing billing documents	Environment ® Sales and distribution ® Billing documents

Sources of Information in Credit Management

Use

Credit Management contains a range of functions to assist you in processing blocked sales and distribution documents, and to help investigate critical cases.

Features

The following graphic illustrates these sources.

The following section describes the different ways in which you can access information in Credit Management. The table under "Activities" describes how to access these various functions.

• Customer master record

The customer master record contains the data (address, telephone and fax number, dunning procedure, sales data and so on) that you require to be able to conduct business with the customer. To learn how to display a customer master record, see Displaying Customer Master Records

• Account analysis

The account analysis function enables you to call up information on a customer account. You can then view the customer’s payment history (for example, do they usually qualify for cash discount? How many days early do they pay their items on average?). This information assists you in assessing a customer’s liquidity and likely payment record in the future.

• Line items, line item longest overdue, most recent payment
• Credit master sheet

The credit master sheet displays such credit data as the current and maximum credit limit, and the total of deliveries, orders, and invoices outstanding.

• Credit overview

The credit overview shows certain additional data including dunning data, open items and texts on the customer.

• Early warning list

This list displays which customers are to viewed as critical as determined by the credit check in the Sales and Distribution (SD) application component. A customer is classified as critical, if, based on the data that you defined under Automatic Credit Control (in Customizing for Credit Management under Sales and Distribution ® Basic Functions ® Credit Management/Risk Management ® Credit Managment ) they would not satisfy the following checks (carried out using the information from the A/R summary) either now or in the near future:

a. Longest outstanding open item

b. Overdue open items

c. Highest dunning level permitted

d. Next date on which customer is checked

e. Age of the data in the A/R summary

f. Percentage of credit limit used up

• Financial Information System (FIS)

You can use the FIS to carry out customer evaluations online, structured according to your own requirements. Due date analyses, payment history evaluations, and DSO figure calculations are just some of the functions you can perform.

You can summarize or breakdown the data produced in these reports - from open item display to the customer credit management data - to whatever degree you require. You can also edit and present the data from the reports graphically.

• Sales Information System (SIS)

The SIS enables you to collect, summarize and evaluate data from sales and distribution processing.

Activities

You access the information functions from the Credit Management screen.

Function	Menu path	Further information
Account analysis	Financial accounting data ® Account ® Analysis	For more information, see Account Analysis
Line items	Financial accounting data ® Master records ® Display ® Environment ® Line items ® In company code or in control area	If the customer exists in several company codes, select the appropriate company code in the dialog box.
Oldest due item	Financial accounting data ® Master records ® Display ® Extras ® Oldest item	A dialog box appears with the most important data for this item (document number, amount, days in arrears).
Last payment	Financial accounting data ® Master records ® Display ® Extras ® Last payment	The system displays the date, amount, and currency of the last payment.
Credit master sheet	Check ® Credit master sheet	For more information on the credit master sheet, choose Help ® Application help You can also access this function from the R/3 screen by choosing Accounting ® Financial accounting ® Accounts receivable ® Periodic processing ® Info system ® Report selection ® Credit management.
Credit overview	Check ® Credit overview
Early warning list	Check ® Early warning list
Financial Information System (FIS)	Environment ® Financial Accounting ® Info system	For more information, see the Financial Information System
Sales Information System (VIS)	Environment ® Sales and distribution ® Info system	For more information, see the Sales Information System

Credit Management Reports Credit and Risk Management in FI/SD

The following table provides an overview of all the reports that are available for credit management:

Program	Function
RFDKLI10	Customers with Missing Credit Data Checks whether the data regarding credit limits is complete and issues relevant error lists. These enable you to maintain the relevant definitions either manually or with batch input.
RFDKLI20	Reset Credit Limit for Customers Resets the credit limit information in the control areas.
RFDKLI30	Credit Limit Overview Lists the central and control area data for each customer.
RFDKLI40	Credit Overview Provides a comprehensive overview of the customer’s credit situation.
RFDKLI41	Credit Master Sheet Displays and prints the customer master data for an individual account that is needed for credit management.
RFDKLI42	Early Warning List Displays and prints customers in Credit Management who have been listed by the credit check as critical.
RFDKLI50	Credit Limit Data Mass Change Changes all the credit management master data together.
RFDKLIAB	Display Changes to Credit Management Displays the changes to credit management master data for all accounts.
RVKRED06	Check Blocked Credit Documents Checks all the documents blocked for credit reasons. The report is started in the background and should run after the incoming payments programs.
RVKRED77	Reorganize SD Credit Data Reorganizes open credit, delivery and billing values. It can be used in the event of an update error, for example.
RVKRED08	Checking sales documents which reach the credit horizon Rechecks all sales documents that fall within the credit limit horizon of the dynamic credit limit check. The report is run at regular intervals and should be run at the start of each period. The system uses the current date and the period split for the open order values to propose the ‘next credit check date’.
RVKRED09	Check Credit Documentsin Background Checks released documents whose validity period of the release has been exceeded (number of days).
RVKRED88	Simulating Reorganization of SD Credit Data

To run a report:

Choose System

--> Services --> Reporting.

Enter the name of the report.

Choose Program

-->Execute.

Enter your selection criteria.

Choose Program

--> Execute or Program --> Execute and print.

Postings Without Credit Limit Checks Credit and Risk Management in FI/SD

Use

You can exclude the following postings from the credit limit check:

• Special G/L transactions
• Postings with an alternative reconciliation account

Features

Special G/L transactions

You can specify whether each special G/L transaction should be included in the credit limit check. In the standard system down payments are included in this check, but not down payment requests.

When checking the credit limit, the system updates three comparison totals. These include:

• Open receivables
• Special G/L transactions (e.g. down payments and bills of exchange)
• Sales order values, value of goods to be delivered, and billing document value from SD

When the system checks as to whether the credit limit has been exceeded, down payments received are deducted from the receivables. If you do not want them to be deducted, you will need to change the system default values.

You do this in Customizing for Accounts Receivable and Accounts Payable by choosing Business Transactions ® Down Payment Received ® Define Reconciliation Accounts for Customer Down Payments

1. Carry out this activity.
2. Choose one of the entries under Sp.G/L.

The system displays the Chart of Accounts Entry dialog box.

3. Enter a chart of accounts.
4. Choose Goto ® Properties.
5. Ensure that the field Rel.to credit limit is not selected.

Alternative reconciliation account

By making use of an additional (alternative) reconciliation account, you can exclude certain postings from being subject to the credit management update. Proceed by first defining this account in Customizing for Accounts Receivable and Accounts Payable, and then setting the indicator Recon. acct ready for input in the G/L account master record.

This function is used in Japan, where various "safe" receivables often need to be excluded from the Credit Management update. "Safe" receivables include prepayments and accrued income, and payment by letters of credit.

For more information on this topic, in Customizing for Accounts Receivable and Accounts Payable, choose Credit Management ® Business Transaction: Credit Monitoring ® Define Reconciliation Accts Without Credit Management Update and access the documentation on this activity.

Authorizations for Critical Credit Control Fields Credit and Risk Management in FI/SD

Fields in the customer master record that contain sensitive data (for example: credit limit, risk category) can be grouped for authorization purposes. You can then authorize certain credit representatives to change these fields. Without this authorization, the representatives can only display these fields. You control the grouping of credit-sensitive fields in Customizing for Financial Accounting. For information on how to maintain authorizations, see the online Implementation Guide.

Automatic Credit Controls in SD

You can specify automatic credit checks to meet your own credit management needs. The checks can be carried out at various times during the sales order cycle, from order receipt to delivery.

Within delivery processing, you can further specify that a credit check is carried out when a delivery is created or when goods are issued. You specify data for automated credit control in Customizing for Sales and Distribution. For detailed information about how to enter this data, see the SD Implementation Guide.

Defining an Automated Credit Check Credit and Risk Management in FI/SD

According to your credit policy, you define risk categories and assign them to individual customers, along with specific credit limits. In addition, you define credit groups for document types, known as document credit groups. Document credit groups combine order types and delivery types for credit control purposes. You can define a credit check for any valid combination of the following data:

• Credit control area

• Risk category

• Document credit group

This check is defined for a particular credit control area and for sales orders where the customer has risk category RK2 (medium risk).

System Response

You can define for each checking rule whether the system reacts with an error or a warning. In the case of a warning, the system automatically enters a credit status in the document and saves the document. The status text describes the result of the credit check. It tells you, for example, if the document was blocked because the customer's credit limit was exceeded. Depending on the requirements you define, the document is blocked for further processing for reasons of credit.

Different Types of Credit Checks Credit and Risk Management in FI/SD

You can define any of the following credit checks for various combinations of credit control area, risk category, and document credit group:

• Static Credit Limit Check

The customer's credit exposure may not exceed the established credit limit. The credit exposure is the total combined value of the following documents:

- Open orders

- Open deliveries

- Open billing documents

- Open items (accounts receivable)

The open order value is the value of the order items which have not yet been delivered. The open delivery value is the value of the delivery items which have not yet been invoiced. The open invoice value is the value of the billing document items which have not yet been forwarded to accounting. The open items represent documents that have been forwarded to accounting but not yet settled by the customer.

• Dynamic Credit Limit Check with Credit Horizon

The customer's credit exposure is split into a static part; open items, open billing, and delivery values (see above), and a dynamic part, the open order value. The open order value includes all undelivered or only partially delivered orders. The value is calculated on the shipping date and stored in an information structure according to a time period that you specify (days, weeks, or months). When you define the credit check, you can then specify a particular horizon date in the future (for example: 10 days or 2 months, depending on the periods you specify). 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.

• Maximum Document Value

The sales order or delivery value may not exceed a specific value which is defined in the credit check. The value is stored in the currency of the credit control area. This check is useful if the credit limit has not yet been defined for a new customer. It is initiated by a risk category which is defined specifically for new customers.

• Changes Made to Critical Fields

The credit check is triggered by changes made in the document to values in any of the credit-sensitive fields. According to your Customizing settings, the system runs a check credit between changes or differences in the sales order data against the default values in the customer master record. Examples of such fields are terms of payment and fixed value dates.

• Date of Next Review

Uses the date of the next credit review as a trigger for an automatic credit check. If you process a sales order after a customer's next review date has already gone by, the system automatically carries out a credit check.

• Overdue Open Items

The relation between open items which are more than a certain number of days overdue and the customer balance may not exceed a certain percentage.

• Oldest Open Item

The oldest open item may not be more than a specified number of days overdue.

• Maximum Number of Dunning Levels Allowed

The customer's dunning level may only reach a specified maximum value.

• User-Defined Checks

If you want to carry out checks other than the standard checks, you can define your own checks in the appropriate user exits in Customizing for Sales.

Subsequent Functions in Credit Checks Credit and Risk Management in FI/SD

Use

The result of each check is stored in the document and is used to calculate the overall status. The subsequent functions are the same for all the checks, namely credit limits, payment cards, export credit insurance, and documentary payments.

Features

Using the credit status, you can block the following functions during order processing:

• Creating material reservations
• Creating purchase requisitions
• Creating production orders/planned orders
• Creating delivery due indices
• Printing order confirmations
• Creating deliveries

In Shipping you can use the credit status to block the following functions:

• Picking
• Packing
• Posting goods issue
• Printing delivery notes

For particularly important or urgent credit problems, you can use output control to specify that electronic mail messages are automatically sent to the appropriate credit representative.