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The page explains the importance of credit management to a business and basic settings needed to be done to set up credit management in SAP.
Author(s): Sowmyadeepthi KVN
Company name : Infosys Ltd.
Field : SAP FICO
Credit Management : Importance
Regardless of the type of business involved in, one factor which is most important to keep it running is cash. Most businesses are closed down because they become insolvent due to improper management of cash flows. Outstanding receivables or bad debts can have a considerable impact on a company’s performance. One aspect which goes a long way in helping to have well managed cash flows is credit management or credit policy towards customers. Organizations today are recognizing the importance of this aspect and hence, most of them have a dedicated system for this too. Good credit management forms an essential part of the organization’s strategy. It is as important as the sales and profits on the P&L statement but should not deter excellent customer service.
Credit management is just like telling our customers that they need not pay immediately, they can pay at a future point of time after receiving the goods or services. But, this payment at a future point of time involves risk. So, according to the risk foreseen, the amount and time of credit granted changes. For some customers, the risk perceived may be high such that we may demand payment in advance.
This credit management forms a part of Sales and Distribution (SD) as well as Account Receivables (AR). The various roles of this policy are:** Maintaining good cash flow
Credit Management in SAP
Assuming that we already have SD and AR implemented, credit management can be broadly used to:
Assuming that this sales order leads to the credit limit being exceeded for this customer, the system now responds in one of two ways
In the second case:
Organizational unit in credit management
The organizational unit used in credit management is Credit Control Area. It represents the area where customer credit limits are specified and monitored.Depending on the relationship between credit control area and company code, the credit management can be categorized as:
Credit limits and credit exposure are managed at both credit control area and customer level. It is to be noted that a company code cannot be divided into multiple credit control areas.
The credit limit is that total combined value of the following
Note : Special G/L transactions and postings with an alternative reconciliation account can be excluded from credit limit check using settings in the system
Defining Credit Control Area
To define a credit control area, use the t-code OB45 or the menu path SPRO -> IMG -> Enterprise Structure -> Definition -> Financial Accounting -> Define Credit Control Area
Note : In the simplest case, each company code corresponds to one credit control area. In this case, it is recommended to use the same key for the credit control area as for the company code.
Assigning Company code to Credit control area
Each credit control area created in the system has atleast one company code. Use t-code OB38 or the menu path SPRO -> IMG -> Enterprise Structure -> Assignment -> Financial Accounting -> Assign Company Code to Credit Control Area
Specify the credit control area name in the CCAr field corresponding to the company codes to which it has to be assigned. The last check box named overwrite CC area if checked, will help overwrite the credit control area derived from the company code global data with the one specified here during document posting.
Derivation of Credit control area
Credit control area can be derived in any of the below given 4 ways. The sequence of derivation is as follows
Customers-Company codes-Credit control areas
Customer credit management
For each customer, credit limits are specified in the particular credit master record. If the customer exists in multiple credit control areas, individula limit can be speficied for each credit control area. In addition, a central credit limit can also be specified for all the credit control areas under which the customer exists. Then, the total of the credit limits for each credit control area should not exceed the central credit limit.
The customer credit management is done using t-code FD32 or the menu path SAP Easy Access Menu -> Accounting -> Financial Accounting -> Account Receivable -> Credit Management -> Master Data -> Change
As seen in the screen shot above, enter the customer number and the credit control area for which the data for the customer credit is to be maintained. There are 5 check boxes which can be selected/de-selected based on the screens which we want to view. There are 5 check boxes corresponding to 5 screens:
It gives an overview of credit settings of the customer.
It gives an overview of central credit limit settings of the customer.
Shows the customer's actual individual details according to particular credit control area
Resetting credit limits
The credit control area can be changed only if there are no subsequent documents or transactions done in it. Otherwise, the credit limit needs to be restructured. This resetting is used if:
This resetting can be done using t-code F.28 or the menu path SAP Easy Access Menu -> Accounting -> Financial Accounting -> Account Receivable -> Credit Management -> Tools -> Reset credit limit
Enter the customer and credit control areas as needed and execute.
SD functions in credit management
The following SD functions can be done through credit management screen. They are found under the path SAP Easy Access Menu -> Accounting -> Financial Accounting -> Account Receivable -> Credit Management -> Sales and Distribution Documents
The following SD functions are found under the path SAP Easy Access Menu -> Accounting -> Financial Accounting -> Account Receivable -> Credit Management -> Exceptions
In t-codes VKM1, VKM2 and VKM4, documents can be listed based on the following criteria:
For the document selected, the following options are available:
Please include at least three references to SDN documents or web pages.