Skip to end of metadata
Go to start of metadata

Notes:
898665 - Credit limit and Commitment limit
1227330 - Un-deposited collections affect available Commitment

Online Help:
Defining Credit Limits, General Settings: BP Tab

Documents:
How to configure initial settings in SAP Business One 2007 A - EU
How to configure initial settings in SAP Business One 2007 A - US

Credit and commitment limits determine the credit line that can be extended to the customer. They are used as thresholds to control customer's Account Balance. Essentially, it is a way of ensuring that customers pay for their goods before more goods are sold to them.

The Credit Limit determines the actual balance of the Accounts Receivable from the customer.  The credit limit is defined for the customer in the Business Partner Master Data - Payment Terms tab. To calculate a customer's remaining credit limit, the following formula is used:

Remaining Credit = Credit Limit - Account Balance

The Commitment Limit is similar to the Credit Limit. The only difference is that the Commitment Limit takes un-deposited cheques and postdated cheque deposits into consideration. The customer's commitment limit is defined in the Business Partner Master Data - Payment Terms tab. As the commitment limit takes un-deposited cheques and postdated cheque deposits into consideration, it is a recommended to set the commitment limit higher than the credit limit. To calculate a customer's remaining commitment limit, the following formula is used:

Remaining Commitment = Commitment Limit - (Account Balance + Un-deposited Cheques + Postdated Cheque Deposits)


Scenario

In the following example, customer C7280, Bakes & Cakes, has a Credit Limit of GBP 1,000.00 and a Commitment Limit of GBP 1,500.00.

  1. Bakes & Cakes' Account Balance is GBP 450.00. This consists of one AR Invoice; invoice no, 237 which has yet to be paid. This customer has no un-deposited cheques or deposited postdated cheques. 



    At this stage, Bakes & Cakes' remaining credit and commitment limits are calculated as follows:

    Remaining Credit: GBP 1,000.00 - GBP 450.00 = GBP 550.00
    Remaining Commitment: GBP 1,500.00 - (GBP 450.00+0+0) = GBP 1,050.00

    Transaction

    Transaction Total (GBP)

    Remaining Credit Limit (GBP)

    Remaining Commitment Limit (GBP)

    Invoice No. 89

    450.00

    550.00

    1,050.00

  2. Invoice no. 89 is paid by cheque and the customer's Account Balance is GBP 0.00.



    However, the cheque is not yet deposited. As in the screenshot below, the cheque is still available for deposit; the Add button is still active when the Deposit window is opened.



    At this stage, Bakes & Cakes' remaining credit and commitment limits are calculated as follows:

    Remaining Credit: GBP 1,000.00 - GBP 0.00 = GBP 1,000.00
    Remaining Commitment: GBP 1,500.00 - (GBP 0+ GBP 450.00 + 0) = GBP 1,050.00

    Transaction

    Transaction Total (GBP)

    Remaining Credit Limit (GBP)

    Remaining Commitment Limit (GBP)

    Invoice No. 89

    450.00

    550.00

    1,050.00

    Payment No. 62

    (450.00)

    1,000.00

    1,050.00

  3. A second sales invoice, Invoice no. 90, with a Balance Due of GBP 1,100.00 is added. This invoice exceeds Bakes & Cakes' remaining credit and commitment limits.



    Bakes & Cakes' remaining credit and commitment limits are now calculated as follows:

    Remaining Credit: GBP 1,000.00 - GBP 1,100.00 = - GBP 100.00
    Remaining Commitment: GBP 1,500.00 - (GBP 1,100.00 + GBP 450.00 + 0) = - GBP 50.00

    Transaction

    Transaction Total (GBP)

    Remaining Credit Limit (GBP)

    Remaining Commitment Limit (GBP)

    Invoice No. 89

    450.00

    550.00

    1,050.00

    Payment No. 62

    (450.00)

    1,000.00

    1,050.00

    Invoice No. 90

    1,100.00

    (150.00)

    (50.00)

System Behaviour

When selecting the Add button on this invoice, the following message is displayed:

This System Message is activated for specific documents, as selected in General Settings (Administration -> System Initialisation -> General Settings -> BP tab). In the following example, the System Message will activate, preventing users from adding documents which will cause the Account Balance to exceed the defined credit or commitment limit, in an AR Invoice, Delivery and Sales Order.

To proceed adding the document, user authorization is required when selecting the Yes option to this System Message. To grant users authorization to this confirm this system message, give them Full Authorization to Confirm Credit Line Deviation (credit limit deviation) and  Confirm Debt Line Deviation (commitment limit deviation)  in General Authorizations - Sales  (Administrations -> System Initialization -> General Authorizations).

In General Settings - BP tab, the checkbox Consider Deliveries Balance influences the calculation of the remaining credit and commitment limit. When selected, the balances of all open deliveries are also taken into account when calculating the remaining credit or commitment limits. In this scenario, the formula now becomes:

Remaining Credit = Credit Limit - Account Balance - Open Delivery Balance

Remaining Commitment = Commitment Limit - (Account Balance + Un-deposited Cheques + Postdated Cheque Deposits + Open Deliveries Balance)

Continuing on with the above example, the company's accountant wants to tighten up credit control and decides to include all open deliveries in the calculation of their customer's remaining credit and commitment limits.

The next Delivery added for Bakes & Cakes, delivery No. 84 has a Total of GBP 175.73.


When this delivery is added the Total of GBP 175.73 is included in the credit limit calculation. This results in the credit limit calculation being:

Remaining Credit = GBP 1,000.00 - GBP 1,100.00 - GBP 175.73 = - GBP 275.73
Remaining Commitment = GBP 1, 500.00 - (GBP 1,100.00 + GBP 450.00 + 0 + GBP 175.73) = - GBP 225.73

Notes

  • The system query, Customers Credit Limit Deviation, can be executed in order to determine which customers have gone beyond their credit limits. This query can be found in one of 3 places:
    1. Go to Tools -> Queries -> Query Manager (or click on the Query Manager Icon, ) and navigate to  System - Customers Credit Limit Deviation.
    2. Go to Business Partners -> Business Partner Reports -> Customers Credit Limit Deviation.
    3. Go to Reports - Business Partner - Customers Credit Limit Deviation. Note that this query does not take the delivery balance into consideration even if the checkbox Consider Deliveries Balance has been selected in General Settings.
  • If cheques are not deposited, they will always impact the calculation of the remaining commitment limit. If the deposit functionality is not required by the customer, its effect can be eliminated by using the same GL Account in the Deposit as was used in the Incoming payment. This will ensure that the journal entry of the Deposit Debit and Credit the same GL Account with the exact same amount. Refer to Note 1227330.


1 Comment

  1. Former Member

    When the purchaser returns the goods to the seller the Purchaser sends a Debit Note to the seller (ie. the purchaser debits the seller in his books ie. Purchasers Books) and the Seller sends a Credit Note to the purchaser (ie. the seller credits the Purchaser in his Books ie. Sellers Books).


    Following are the JVs to be passed:-

    Sales Return inward A/c     Dr.      

    To Debtor A/c

    (Being goods returned by the customer)



    Creditor A/c          Dr.  

      To Goods Return A/c 

    (Being goods sent back to the seller)

     

    Rgds:

    Gurpej Singh Virk