Tips, Tricks, And Techniques to Configure and Optimize Your SAP Credit Management System

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Tips, Tricks, and Techniques to Configure and Optimize Your SAP Credit Management SystemSharon (Qian) TangApplied Materials

What We’ll Cover …

• What is SAP R/3 Credit Management? • Key capabilities of Credit Management• Credit Check vs. Credit Update• Credit Management configuration • Tables, user exits, and reports • Troubleshooting techniques• Wrap-up

SAP R/3 Credit Management Overview

• Helps you determine whether or not to extend credit to your customers, and minimize your credit risk

Categorize your customers by creditworthiness Group sales transactions by relevance to credit controlEstablish specific credit limit per Risk Category and transaction type

How much to sell on open account R/3 updates credit exposure, triggers automatic credit checks during order and delivery processingIdentify early warning signs, and enhance your credit-related decision making

• Credit Management adds value by letting you sell to marginal customers “safely,” not by over-controlling

• SAP R/3 Credit Management is not an exact science, rather an approximation

• Numerous scenarios of credit “checks and balances”Inconsistent treatments for SD and Service Management, etc.

• Credit issues are often intermittent and hard to replicate

SAP R/3 Credit Management – Why is It So Difficult?

ClientIssue

Frequently Asked Questions About Credit Management

• Is Credit Management an SD or Finance function?• How is a credit check different from a credit update?• How to reconcile credit exposure with transactions?• What kind of credit check should I adopt for various

types of business processes?• Which credit update reports should I use, for what

purposes?• What do I need to consider in order to enable credit

management globally?• How to troubleshoot and reorganize credit data?

In This Session ...

• Key features of SD and A/R Credit Management in R/3SAP Financial Supply Chain Management is not in scope for this session

• The difference between Credit Check and Check Update• Intricacies of R/3’s Credit Check methods, e.g., dynamic

Credit Check• Integration of SAP R/3 Credit Management with FI, SD,

and Service Management• An SAP R/3 Credit Management configuration checklist• A list of useful, time-saving Credit Management reports/

programs • A step-by-step troubleshooting procedure

Create Credit Account

Standard Sales Order Credit Cycle

Credit Management Sales and DistributionFinancial Accounting

Customer: ABC Co.Medium Risk

Credit Limit: $10,000Credit Exposure: $9,000

Enter Customer Order

Order 1001 Sold-to/Payer ABC Co.

Credit Value: $1,200

Mailbox/Blocked Order Transaction

XYZ Co. $8,000ABC Co. $1,200

Investigate and Release

Credit Information SystemContact Customer

Release Order

Credit Information SystemContact Customer

Release Order

Credit Limit ExceedOrder Blocked

Email Credit Rep. (Optional)

Credit Limit ExceedOrder Blocked

Email Credit Rep. (Optional)

Shipping, Billing

Incoming Payment

Quantities Confirmed Included in Delivery Proposal

Total Commitment

• Credit Limit – an upper limit for the total receivables and the foreseeable receivables from the customer

• Credit Exposure Composition

Open sales orders

Internal View of Credit Management

• Credit Control Area and Credit Representative Group Represents the area or group where customer credit is awarded and monitoredRepresents an internal organizational view

Centralized vs. decentralized credit managementGlobal Credit

Total Limit

North AmericaCredit Control Area

EuropeCredit Control Area

AsiaCredit Control Area

Western EuropeCredit Rep Group

Eastern EuropeCredit Rep Group

Alex Summers

John Winters

External View of Credit Management

• Represents types of customers for credit purposes• Captures an external view or customer characteristics

Risk CategoryControls the Credit Check function

Customer Credit Group or Customer GroupIndustry, product groups, geographical locations, etc.

Credit Master

• Payer partner function is subject to credit controlAccounts Receivable protection

• Group multiple customers under a single credit accountCredit limit shared

• Blocked by Credit Management• Date fields

Last internal reviewNext internal review

Next check

Currency Considerations

• A centralized model can use another currency (e.g., group currency) as the Credit Control Currency

• Credit exposure is translated from local or document currency into Credit Control Currency

Simplifies reporting at the global levelMakes it harder to reconcile at a local level

Source: SAP

Credit Check vs. Credit Update

• Credit CheckAutomatic credit checkAction-oriented

Induces credit blockBlocked orders don’t count towards credit exposureService orders can subject to credit check8 standard and 3 user-defined methods to perform credit checks

• Credit UpdateUpdates credit exposureUpdates the database behind the scenesOnly approved open sales value constitutes credit exposureOnly sales documents are subject to credit update3 major methods to update credit exposure

• Credit Update is the foundation that enables Credit Checki.e., credit checks are executed against the credit exposures updated by Credit Update

Credit Check

• Credit checks are action-oriented

Warning, error, no messageSet Check Status or block

• Credit block only makes sense if there are subsequent documents or functions to prevent

Subsequent function(s) exist: Sales Order and DeliveryNo subsequent functions exist: Goods Issue and Service Order

Sales OrderCredit Status: Blocked

DeliveryCredit Status: Blocked

Good IssueCredit Status: Blocked

Credit Check Statuses

• Credit checks are executed against open and approved sales values only

i.e., undelivered quantity• Credit statuses include:

Not performedApprovedNot approvedReleased

• Status for individual check and overall credit status

Processing Credit Block

• Blocked documents can be viewed and reprocessed from the Credit Blocked Order Worklist (VKM1-VKM5)

• Processing options Release Reject

Specify a reason for rejectionForward

Transfer to another Credit Representative GroupReassign

Reset per the requested delivery date

Dynamic vs. Static Check

• Open Delivery, Open Billing, Open Item are always static• Open Order can be set up as static or dynamic

If dynamic, it is subject to the Credit Horizon Calculationi.e., ignore credit exposure caused by future shipments beyond the Credit Horizon, measured by Material Availability Date

Source: SAP

Set Proper Credit Horizon

• Overall, consistency is the key• However, longer Credit Horizons are harder to manage

Potentially, more orders can be blocked• Possibility of large order demands visibility

Large quantities of deliveries will be generated all at onceDelivery with large $ value transaction will deplete available credit all of a sudden

• Should approximate the order to cash cycleOn average, how much in advance are customers ordering from us?How long are our payment terms or how long does it takes for customers to pay?

Current Date

Order Delivery and Invoice Payment

Month 1 Month 2

Credit Update Group 000012

IncreaseDecreaseRelease to Accounting

IncreaseDecreaseBilling

IncreaseDecreaseDelivery Creation

IncreaseSales Order Creation

Open ItemOpen BillingS067

Open DeliveryS067

Open OrderS066

Credit UpdateTransaction

• Controls critical points in SD for Credit Checks (OB45) • Update with Open Order Value: Group 000012

Applicable for delivery-relevant schedule linesTesting steps by regular and exceptional scenariosReduce handoffs wherever you can (billing and accounting)

• Update without Open Order Value: Group 000015Only delivery and billing updates total commitments No open sales order update

No visibility to exposure caused by incoming orders

IncreaseDelivery Creation

Sales Order Creation

Open DeliveryS067

Open OrderS066

• Update for without Deliveries: Group 000018Applicable for order items not relevant for delivery

Service sale, debit/credit memo request, etc.Can be automatically determined by system at time of sales order creation

Delivery Creation

IncreaseSales Order Creation

Open DeliveryS067

Open OrderS066

Sales Information System (SIS) for Credit Update

• SIS contains two tables for credit exposure update • S066: Open Order

Day, week, month intervalsSelect the right interval

• S067: Open Delivery and Open BillingNo time interval

Automatic Credit Control Example

• Step 1: Display credit blocked order

• Step 2: Check scheduled line

Automatic Credit Control Example (cont.)

• Step 3: Display credit master – initial exposure

• Step 4: Release credit blocked order

• Step 5: System updates released credit value

• Step 6: System confirms material

• Step 7: Display credit master – after order release

• Step 8: Display credit master – after Delivery/PGI

• Step 7: Display credit master – after billing

• Step 8: Display SD document flow

• Step 9: Display credit master – after billing cancellation

• Step 10: Change sales order – increase order quantity

• Step 11: Release blocked order and system updates released credit value

• Step 12: Display credit master – after order release

• Step 13: Set the reason for rejection

• Step 14: Display credit master – after rejection

Releasing and Rechecking Documents

• Only check released documents when necessaryMain complaints of Credit Departments

• Credit Check loses some precision within a dayRefer to SAP Note 718260 – Released documents are not checked

Source: SAP

Work with Upstream Business Processes Closely

• Take into consideration all upstream business processes in Sales and Distribution, or Service Management for credit control purposes

• Reject the Sales Document ItemsDo not simply delete items

• Stock Transport OrderNo credit management function possible

Neither Credit Check nor Credit UpdateThink twice before using it with external customers

Example – Customer Consignment Process

• Customer Consignment ProcessConsignment fill-up, not relevant for billingConsignment issue, relevant for billing and credit management

Customers consume inventory first, report usage afterCredit Check is not real time

Helps to have customer report usage more frequentlyCredit Update should be turned on for consignment issue

Source: SAP

Examples – Service Management Process

• Service ordersPlan Cost is used for credit checkCredit update doesn’t take place until transferred to an SD document; refer to SAP Note 555925

Resource related quotation and billing • Service contracts

Static only, update Open Delivery value• Value contracts

Preferred option for contractOnly release order is subject to credit check

Warning

Configuration Warning

• If you haven’t yet configured Credit Management, be careful!

Configuration errors are the primary leading causes for erroneous credit check

It’s very hard to correct the data after-go-liveInvest any extra time needed to test the relevant business processes end to end for credit update and credit check both

Warning

Enterprise Structure

• Define Credit Control Area (txn OB45)

Assign a default Credit Update Group Automatically sets up a Credit Master when a new customer is created

Better option for control• Assign Credit Control Area

Assign a Credit Control Area to a Company Code (txn OB38)Assign a Credit Control Area to a Sales Area directly (txn OVFL)

Determine Credit Control Area

• Assign the permitted company codes to a Credit Control Area (txn OBZK)

• Other ways the system can derive a Credit Control Area:

Customer master (txn XD02)Company Code assigned to the Sales Organization (txn OVX3)User Exits (txn SE37) to determine Credit Control Areas

• Simplifying the process is key!

FI Settings for Credit Management

• Create and read an A/R summary

Performance optimizationReportingDistributed scenario

• Define and assign risk categories (txn OB01)

Low, Medium, High, Very High, and New

Additional FI Settings

• Configure Special G/L (transaction OBXY)

Relevant for Credit Management

Down paymentDown payment request

• Alternative Reconciliation Account

“Safe” Receivables in JapanDeferred Revenue

SD Settings for Credit Management

• Mostly located under Basic Functions of SD configuration in the IMG

• Additional configurations are found elsewhere in SD

Automatic Credit Control

• Define Credit GroupsSales Order, Delivery, Goods Issue, etc.

• Assign Sales Document Type (OVAK/OVAD)

Relevant for automatic credit controlAssign credit group

• Assign Sales Document Item Category (VOV7)

Credit activeRelevant to Billing

Automatic Credit Control (cont.)

• Define Automatic Credit Control (txn OVA8)By Credit Control Area, Risk Category, and Credit GroupUser exit to control transactional credit check

Credit card transactions, prior to version 4.7 Released document is rechecked if:

Current value greater than approved value + deviation %, orCurrent date later than prior release date + tolerance days

This improves system performance and efficiency

Automatic Credit Control (cont.)

• Define Automatic Credit Control (txn OVA8) (cont.)Type of Checks: Static, dynamic, document value, etc.System Reaction: No message, warning, errorStatus/block: Controls follow up actionsCredit Horizon by month can deviate exposure by up to 30 days

Additional SD Settings

• Set up SIS Info Structure S066 Update Parameters (txn OMO1)

Synchronous update, by certain time intervalsAny other update will lead to errors

• Calculate credit priceDefine SD pricing procedures (V/08)

Subtotal “A” to determine the Credit Price (KOMP-CMPRE)Credit Price = Net Value plus Sales TaxUpdated in field VBAP-CMPRE

Subsequent Functions for SD Documents

• SD Requirements and Formulas (VOFM)• Requirements were passed for MRP-controlled materials

Set “Fixed date and qty” – refer to SAP Note 744305

Don't Forget

Source: SAP

Credit Check for Service Orders

• Credit Limit Checks for Service Orders (txn OIOL)Sales Document Type and DIP ProfileType of checks and Credit Group

No checkManual check by function keyAutomatic check

At release of Service Order, or input of Sold-to

Tables and User Exits

• TablesKNKK Customer master credit control area dataV_VMVAH Credit blocked/released SD documents

• User ExitsEXIT_SAPFV45K_001 Determining the credit control areaLVKMPFZ1 Subroutines for user credit check user exit 1LVKMPFZ2 Subroutines for user credit check user exit 2 LVKMPFZ3 Subroutines for user credit check user exit 3

Reporting

• R/3 provides a large number of reports and tools that contain a wide range of information

Credit Management ReportsOthers from related areas

• Master DataRFDKLI41 Credit master list (single customer)RFDKLI43 Credit master list (multiple customers)RFDKLI10 Customers with missing credit dataRFDKLI30 Credit limit overview (short)RFDKLI40 Credit limit overview (extensive)RFDKLI50 Credit limit data mass change RFDKLIAB Display changes to Credit Management

Transaction Data

• RFDKLI42 Early warning list• RVKRED01 SD documents worklist

(blocked/released: VKM1 ~ VKM5)• RVKRED06 New credit check for blocked SD docs

Schedule to run after incoming payment program• RVKRED08 Check sales orders that reach horizon

Schedule to run at the start of a credit period• RVKRED09 Check SD documents in background

Reorganize after Risk Category has been changed• RFDKLI20 Recreation of credit data after

organizational changes Every time organizational elements have changed

Errors and Likely Causes

• Incorrect credit update leads to incorrect credit check results

SIS information structures capture unrealistic valuesProblem is intermittent, exact cause is unknownCan’t replicate the error in development

• Likely causeNewly introduced or changed business processes

Incorrect or inadequate configurationNewly implemented or changed SD user exits

Subsequent functions and copy controlChanged credit update methods

Order-based (group 18) to delivery-based (group 15)Changed SD documents in unacceptable way

Caution

Do Your Due Diligence

• Check your configurationRefer to last section on configurationRefer to SAP Note 18613, Checklist for Credit Management

• Consider all possible business scenarios relevant to Credit Management

• Test each scenario and analyze the resultsDeactivate and reactivate SD user exits to compare the results

• Follow the sequential troubleshooting procedure shown on the slides that follow

Sequential Troubleshooting Procedure

Execute RVKREDSP to lock key SD tables against transactions: VBAK, LIKP, and VBRK

Execute nightly RVKRED07 or RVKRED77 to reorganize SD data after update errors

Continue to observe the dataExecute RVKRED88 to simulate data reorganization

Compare with actual credit exposure data

Continue to observe the dataExecute RVKRED88 to simulate data reorganization

Compare with actual credit exposure data

Contact SAPMore Discrepancies?

RandomUpdate Errors

Sequential Troubleshooting Procedure (cont.)

Execute RVKREDH1 to capture documentschanged/created since reorganization

that may be the source of error

Execute program CHECK_CM to analyze credit management process

for problematic SD documents

Execute transaction MCVR to check SIS updates (S066 and S067)

Deactivate and reactivate SD user exits to compare the results

Configuration User Exits SAP Bug

A Great Program for Troubleshooting: Check_CM

A Great Program for Troubleshooting: Check_CM (cont.)

Resources

• Help.sap.com (ECC 6.0)Follow Financials > Financial Accounting > Accounts Receivable > Credit Management/Risk Management (FI-AR-CR)Follow Logistics > Sales and Distribution > Credit and Risk Management (SD-BF-CM)

• SAP Notes18613 - Checklist for Credit Management425523 - Collection of consulting notes: Credit update425483 - Consulting note collection: Credit checks396338 - Problems in credit management: Analysis help381685 - Analysis of the credit-relevant data of a document377165 - Update open credit values for credit management

7 Key Points to Take Home

• SAP Credit Management is both an FI and SD function• Credit Update <> Credit Check• Grasp how Credit Management should influence

subsequent functions• Credit Management is for much more than just regular

SD processes – consider opportunities with customer consignment and service management, etc.

• Periodic house cleaning activities are important• If you’re just starting your Credit Management

configuration, take your timeIt’s very difficult to correct the data after go-live

• Contact SAP, but do your due diligence to troubleshoot

Your Turn!

How to contact me:Sharon (Qian) Tang

Sharon.Q.Tang@Gmail.com