1. Credit Management 4.6fi_19.1 Chapter 19 Credit Management Credit Management is the process of establishing customer credit limits, establishing credit checking policies and monitoring Customers against those criteria. It is configured in both the Financial Accounting (FI) and Sales & Distribution (SD) modules. Chapter Objectives –Provide an understanding of how credit limits are set and maintained for customers. –Provide an understanding of the hierarchical relationships between Credit Control Area, Company Code, and Customer. –Identify and understand the functionality of monitoring credit limits for Customers using Automated Credit Checking in FI and SD.

2. Credit Management 4.6fi_19.2 CustomerCustomer Sales Rep. Credit Check Customer Credit Limits Accept Order Accept Order / Block Delivery Refuse Order Used to Set and Control Credit Limits for Customers Sales Order Customer Credit Information Check Credit Management

3. 4.6fi_19.3 Credit Control Area Client PepsiCo. CCAA Company Code 123 Company Code 456 Customer A Customer BCustomer C Example: Client Credit Control Area CompanyCodeCustomer CCBB Company Code 999 Credit Control Area

4. Credit Management 4.6fi_19.4 Step 1: Define a Credit Control Area Step 2: Assign Company Codes to the Credit Control Area Defining a Credit Control Area

5. Credit Management 4.6fi_19.5 CCAA < = $ 500,000.00 CCCH < = $ 500,000.00 CCAA + CCCH < = $ 2,000,000.00 2 levels of credit limit: Globally across all Credit Control Areas Globally across all Credit Control Areas Per Credit Control Area Per Credit Control Area Example: Customer AGlobal Limit: $2,000,000.00Credit Control Area Limit: $500,000.00 PepsiCo. Customer A Client CCAA Credit Control Area CCCH Credit Control Area 123 Company Code 999 Company Code Assigning Credit Limits Per Customer

6. Credit Management 4.6fi_19.6 Maximum amount that can be assigned per Credit Control Area Maximum sum amount that can be assigned across all Credit Control Areas Highest limit already assigned for an individual Credit Control Area Total limit already assigned across all Credit Control Areas Maintaining Credit Limits Per Customer

7. Credit Management 4.6fi_19.7 Postings:Increase these amounts Clearings:Decrease these amounts Special G/L Transactions such as down payment Receivables from sales Open Sales Orders, Deliveries and Billing Docs. Total receivables, Special G/L Trans. and outstanding order value Monitoring Credit Limits for Customer

8. Credit Management 4.6fi_19.8 A: WARNING MESSAGE SALES ORDER TYPE B: ERROR MESSAGE C: WARNING MESSAGE WITH DELIVERY BLOCK D: AUTOMATIC (AUTOMATED CREDIT CHECKING) STATIC ONLY STATIC or DYNAMIC Check Credit Limit (Select One) Credit Checking

9. Credit Management 4.6fi_19.9 + OPEN SALES DOCUMENTS OPEN DELIVERY DOCUMENTS OPEN BILLING DOCUMENTS OPEN ITEMS (A/R) + + CREDIT EXPOSURE Static Credit Check

10. Credit Management 4.6fi_19.10 Dynamic Component Static Component OPEN DELIVERY DOCUMENTS OPEN BILLING DOCUMENTS OPEN ITEMS (A/R) OPEN SALES DOCUMENT WITHIN HORIZON + + + Credit Exposure Dynamic Credit Check

11. Credit Management 4.6fi_19.11 – STATIC CHECK – DYNAMIC CHECK – ON BASIS OF MAXIMUM DOCUMENT VALUE – WHEN CHANGES ARE MADE TO CRITICAL FIELDS – ON DATE OF NEXT INTERNAL REVIEW – ON BASIS OF OVERDUE OPEN ITEMS – AGAINST HIGHEST DUNNING LEVEL Credit Checks – WARNING WITH BLOCK – ERROR System Reaction – WARNING Automated Credit Checking Features

12. Credit Management 4.6fi_19.12 Credit Control Areas (CCA) EURO Europe CCCS North America Risk Categories RO1 High Risk RO2 Medium Risk RO3 Low Risk Credit Representative Groups 001 Europe 002 North America Customer : 6 Credit Control Area : EURO Risk Category : R02 Credit Representative Group : 001 Credit Limit : 10,000 USD Customer Credit Management Area Credit Representative Part Func.Pers.No. Mail KB012Jones Automated Credit Checking Configuration in FI

13. Credit Management 4.6fi_19.13 01Sales Order 02Delivery 03Goods Issue Document Credit Groups OR. Sales Document Types =Automated Check D Active TAN AGNYes Item Categories X Factors influencing credit: Credit+Risk+Document ControlCategoryCredit AreaGroup Automated Credit Checking Configuration in SD

14. Credit Management 4.6fi_19.14 Credit Account Order Credit Value Risk Status Customer A 351 1000.00 Medium Dynamic Chk Customer X 567 200.00 High Dynamic Chk Customer Y 595 50000.00 Low Static Chk Credit Control Area CCXX Credit Rep Group US Release the order(s) Blocked SD Orders Reviewing and Releasing Credit Holds

15. Credit Management 4.6fi_19.15 Risk Management Payment Cards Export Credit Insurance Letters of Credit Credit Management Manual Checks Static/Dynamic Checks + Sales Order 101 Sold-to #6 Net value $1000 XYZ 10 500 ABC 20 500 Letter of Credit for customer 6 of $600 3. System performs a credit check against remaining $400 of the sales order. 2. The system determines that letters of credit are allowed and finds one for this customer valued at $600. 1. At sales order entry, the sytem determines what types of payment guarantees are allowed for the payer and document type.

16. Credit Management 4.6fi_19.16 A User Exit at the Header Level Billing View of the Payer Master Record The Sales Area of the transaction Company Code of the Sales Organization Order of checks for determining the Credit Control Area First Last Credit Control Area Determination Options

17. Credit Management 4.6fi_19.17 Early Warning List Creates a report on customers who are likely to become critical The Early Warning List derives its information from the A/R Summary. It is necessary to run the A/R Summary on a timely basis to ensure up to date information. Management can use the results of these reports to determine a course of action on clients. Automatic actions can also be set in customizing.

18. Credit Management 4.6fi_19.18 SD Creating SD - Documents FI Report: RFCMCRCV Non distributed systems: CHECK a) perfor- mance+ b) Distributed systems: CHECK a) b)perfor- mance? A/R Summary Creates Actual Data CHECK Report: RFDKLI42 Early Warning List via RFC A/R Summary in distributed and non-distributed systems

19. Credit Management 4.6fi_19.19 Preliminary settings are done here. AR Summary It contains all credit information for an account in compact form Can be used for SD credit checks both in distributed and non-distributed credit management Increases efficiency in non- distributed systems as repeated read of open items is avoided

20. Credit Management 4.6fi_19.20 AR Summary - Aging Settings A/R Summary aging settings in A/R A/R Summary aging settings in SD

21. Credit Management 4.6fi_19.21 Credit Management Chapter Summary Key Terms –Credit Management –Credit Control Area –Credit Limit –Automated Credit Checking –Static Credit Checking –Dynamic Credit Checking –Risk Category

22. Credit Management 4.6fi_19.22 Credit Management Chapter Summary Key Terms –Document Credit Group –Risk Management –Early Warning List –A/R Summary