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Credit Management

OTCCM300 Credit Management

Course Agenda

Credit Management Overview Credit Master Credit Reporting Credit Blocked/Released

OTCCM300 Credit Management

Key Changes to Credit Management

Credit Management

Ability to track offline activities on an account Ability to track amount of credit used and flag system when customer is breaching the limit Ability to carry out credit checks across multiple company codes per credit control Area Ability to create risk categories for customers that perform different risk analysis, per category Ability to exclude disputed items from credit check

OTCCM300 Credit Management

Key Benefits for Credit Management

What do you think the benefits will be?

OTCCM300 Credit Management

Key Benefits for Credit Management

Effective Credit Management processes



Effective management of credit blocked sales documents Reduced bad-debt write-offs Disputed items no longer risk triggering an unnecessary credit hold Proactive management of credit risk Reduction in Days Sales Outstanding

OTCCM300 Credit Management

Credit Management

The Credit Management process allows you to:


Minimize credit risk by specifying a credit limit for customers

Evaluate customers credit worthiness to assign a credit limit and risk category
Identify early warning signs of customers ability to pay Enhance the credit-related decision-making process Determine if credit-blocked Sales Orders should be released or cancelled

OTCCM300 Credit Management

Credit and Risk Management: Process Overview


The credit and risk assessment of a customer helps in assessing a customers credit worthiness. The process enables you to:
Assign a credit limit to a customer Determine if the credit-blocked order should be released or cancelled

The off-line process of analyzing a credit risk remains unchanged The difference is the new system and tools available to the Credit Analyst

OTCCM300 Credit Management

Activities in Credit and Risk Assessment

Activities involved in performing credit and risk assessments on McCain customers include the following:
Collect customer credit information Review customer financial statements Evaluate customer credit information Determine the risk Extend or Refuse Credit Determine credit limit and risk category Release or cancel credit-blocked orders

OTCCM300 Credit Management

Customer Account Analysis Activities


Perform the following activities when analyzing a customers account:
Review the customer account for open credits Determine the appropriate application of open credits to open debits Reconcile payments on account to close open items Follow-up with the customer Request refund checks for customer overpayment

OTCCM300 Credit Management

Credit Management (contd)

In SAP, the Credit Management process integrates the Order Management Accounts Receivable (A/R) process in the SD and FI Modules respectively.

The Credit Management process is depicted below.

Material Master Data Management

Availability Checking

Sales and Marketing

Customer Master Data Management

Order Entry

Pricing Execution

Order Fulfillment

Invoicing/ Billing A/R

Pricing Master Data Management

Credit Checking

OTCCM300 Credit Management

Credit Management Process: Order Entry

During order entry, the system performs an automatic credit check. The credit monitoring process is displayed below.

Enter Sales Order

Credit Check Approved ? No Blocked Orders

Yes

Process Sales Order

Generate Billing Document

Release Blocked Orders

Post Incoming Payment

OTCCM300 Credit Management

Credit Management Business Process: Basic Steps

The Credit Management process includes the following steps:


Maintain Customer Credit Data Assign and Evaluate Credit Limits Release/Not Release Blocked Orders Execute A/R and Credit Reports

1 Maintain Customer Data

2 Assign and Evaluate Credit Limit/ Risk Category

3 Release or Cancel Blocked Orders

4 Execute A/R Reports

OTCCM300 Credit Management

Credit Exposure

Credit exposure is the sum total value of:


Open Orders Open Deliveries Open Billing Documents Open Items

Open Orders

Open Deliveries

Open Billing Documents

Open Items

Credit Exposure

OTCCM300 Credit Management

Course Agenda

Credit Management Overview Credit Master Credit Reporting Credit Blocked/Released

OTCCM300 Credit Management

Customer Credit Master

The Customer Credit Master is where McCain:


Setup credit limits and risk categories for each customer Determine risk and credit exposure at any given point in time Review customer sales and payment history Update information on credit limits for new customers; otherwise, the system automatically blocks sales orders Review the audit trail of changes made to credit master data

OTCCM300 Credit Management

Credit Master Overview Screen

OTCCM300 Credit Management

Credit Master Status Screen

OTCCM300 Credit Management

Customer Master Definitions


Header Data
Customer Customer # and Name Credit Control Area All customers are assigned to a credit control area 1:1 with Company Code

Credit Limit Data

Credit Limit Maximum limit of receivables (and foreseeable receivables) that McCain will allow for this customer Credit Account Customer # the system uses to monitor the credit limit (this # can be different than the Customer # above) Credit Limit Used Portion of the Credit Exposure for the credit limit given Credit Horizon Date Future Date that defines the credit horizon. All sales orders between the current date and the future horizon date will be subject to automatic credit check

OTCCM300 Credit Management

Customer Master Definitions (contd.)


Credit Limit Data
Receivables Total of Open Receivables for Credit account (can have multiple customers rolling up to one credit account) Special Liabilities Down payments or other credits on the customer A/R Sales Value Total value of open orders within the Horizon Period orders not yet invoiced Credit Exposure Total sum of Receivables, Special Liabilities and Sales Value Secured Receivables Receivables backed by a financial guarantee

OTCCM300 Credit Management

Customer Master Definitions (contd.)


Internal Data
Risk Category Classification characteristic used to group customers and subject higher credit risks to more rigorous automated credit checks Credit Representative Group A grouping that allows credit accounts to be assign to specific credit analysts Customer Credit Group N/A Customer Group N/A Reference Date N/A (Can use in lieu of Next Review Date) Blocked Selecting this box blocks the customer such that orders cannot be saved Texts This is where the credit analyst maintains notes regarding the credit decisions and discussions with the customer

OTCCM300 Credit Management

Customer Master Definitions (contd.)


Internal Data
Last Internal Review Date Date the credit account was last reviewed by the credit analyst Next Review Date Date that the next credit review must take place for this credit account External Data - Optional Credit Information Number External Identifier for customer Last External Review Date when last review was performed by External Source (Credit Agency) Monitoring N/A Payment Index Score for customer as a payer Rating Score for the customer as a credit risk Recommended Credit Limit As provided by External Source

OTCCM300 Credit Management

Customer Credit Master Transaction Codes


The credit and risk assessment transaction codes (t-codes) include: T-code
FD32 FD33

Name
Customer Credit Management Change Customer Credit Management Display

Description
Enter credit and risk management master data for existing customer Display customer credit master data

FDK43
FD24

Credit Management: Master Data List


Credit Management Changes

Display credit management master data


Review any credit master data changes

OTCCM300 Credit Management

Instructor Demonstration
Change Customer Credit Master Data (FD32)
Scenario: Change the credit master of a new customer so that the appropriate credit limit and other attributes are assigned to the customer.

OTCCM300 Credit Management

Course Agenda

Credit Management Overview Credit Master Credit Reporting Credit Blocked/Released

OTCCM300 Credit Management

A/R Account Analysis Process


The A/R account analysis process enables you to monitor:
Open Items Overdue Accounts Due Date Lists Short Payments Overpayments

OTCCM300 Credit Management

Credit Management Reporting Transaction Codes


The credit and risk assessment transaction codes (t-codes) include: T-code Name Description
F.31 FCV3 S_ALR_87012218 S_ALR_87012178 Credit Overview Credit Management: Early Warning List Credit Master Sheet The system shall provide a report of days overdue analysis. Customer Line Item Report View customer credit status View upcoming A/R payments for a credit control area or by customer Summarizes Customers Credit Data Report overdue receivables, identifying the customer and receivable items. Reports are used to prioritize customers that need to be contacted

FBL5N

S_ALR_87012168

Aging Report

Reports are used to prioritize customers that need to be contacted

OTCCM300 Credit Management

Instructor Demonstration
Display Customer Credit Overview (F.31)
Scenario: Review the credit exposure of a customer.

OTCCM300 Credit Management

Instructor Demonstration
Early Warning List (FCV3)
Scenario: Review the customer credit accounts that are close to triggering a credit block.

OTCCM300 Credit Management

Instructor Demonstration
Display Customer Credit Master Sheet (S_ALR_87012218)
Scenario: Review the credit exposure of a customer.

OTCCM300 Credit Management

Instructor Demonstration
Customer Open Item Analysis by Balance of Overdue Items (S_ALR_87012178)

Scenario: Review report of overdue items by customer.

OTCCM300 Credit Management

Instructor Demonstration
Customer Line Item Display (FBL5N)

Scenario: Review customer items both Open and Cleared.

OTCCM300 Credit Management

Instructor Demonstration
Due Date Analysis for Open Items (S_ALR_87012168)

Scenario: Report is used to prioritize those customers that need to be contacted.

OTCCM300 Credit Management

Course Agenda

Credit Management Overview Credit Master Credit Reporting Credit Blocked/Released

OTCCM300 Credit Management

Automated Credit Check During Sales Order Entry

To assess risk at the time of sales order entry, the system:


Applies the credit check to ensure the customers credit limit is not exceeded Determines the correct document checks and the time frame associated with the check all depending on the customers risk category Checks whether the credit account has been reviewed by the scheduled next review date Checks the oldest open item on the account

OTCCM300 Credit Management

Customer Credit Hold/Release Transaction Codes


The credit and risk assessment transaction codes (t-codes) include: T-code
VKM1 VKM2 VKM3

Name
Blocked SD Documents Released SD Documents Process Blocked Sales Documents

Description
Release or Not Release credit blocked Order Retrieve a list of Credit-Released Orders Credit Analyst views all blocked sales documents due to credit check failure and makes decisions whether the blocked Order can be released despite unavailability of credit limit. Credit Analyst can select orders that need to be released and then release them collectively or individually.

VKM4

Release Blocked Sales Documents

OTCCM300 Credit Management

Instructor Demonstration
VKM1 - Release Credit Block on an Order
Scenario: Release the credit block for a customer who has exceeded the credit limit.

OTCCM300 Credit Management

Instructor Demonstration
VKM2 Re-block a Credit Released Order
Scenario: An order has been Credit Released but events take place that require the credit analyst to put that order back on Credit Hold

OTCCM300 Credit Management

Questions?

OTCCM300 Credit Management

Appendix

Appendix
NOTE:
The following slides are optional they may be reviewed on an ad-hoc basis, or printed and posted on the classroom wall for reference during the training session.

OTCCM300 Credit Management

New Terms in Credit Management

Term
Blocked Order Credit Limit Customer Risk Category Sales Order

Description
An order that has been stopped from further processing until the block is removed The maximum amount granted to a customer as credit A business partner with whom a business relationship exists; customers are also involved in the issue of goods or services A code used to classify customers according to commercial risk A customer request that is sent to the company for delivery of goods or services at a certain time; the request is received by the sales area responsible for fulfilling the Order

OTCCM300 Credit Management

New Terms in Credit Management (contd)

Term
Credit Control Area Credit Master File Credit Account Credit Risk Category

Description
Highest organizational entity in Credit Management and provides guidelines; specifies, checks, and monitors credit limits for customers The customer credit account that holds credit related data for each credit account customer Organizational entity representing the highest level at which credit exposure is monitored and where Orders are subject to credit checking The credit risk category (automatic credit control) holds the business decision process and data on whether to release new orders for shipment or to block them

OTCCM300 Credit Management

Roles and Responsibilities

Role
Accounts Receivable (A/R) Credit Specialist

Responsibility
An A/R Credit Specialist analyzes a new customers credit worthiness and proposes credit limits, performs credit reviews of existing customers, and recommends changes in maintaining credit accounts. The A/R Credit Specialist also monitors news about customers and makes recommendations about changes to their credit accounts A Credit Manager approves changes to Customer Credit Accounts and approves Customer Credit Limits

Credit Manager

OTCCM300 Credit Management

Credit and Risk Management: McCain Process Overview


At McCain, the following process steps take place:
Determine credit worthiness, Risk Category, and Credit Limit (manual)

Credit Application forwarded to Credit Department (manual)

Notify Sales (manual)

Notify Customer (manual)

Maintain Credit Master

Create Credit Account

Change Customer Accounting (Review alternate Payer)

Change Customer Credit Management

Display Customer Credit Management

Display Credit Master Changes

Credit Management Master Data List

Credit Limit Check

Block Sales Document

Process Blocked Sales Document

Release Blocked Sales Document

Contact Sales Rep and Customer (manual)

Process Rejected Order

OTCCM300 Credit Management

Business Process Flow - Manage Credit Master

OTCCM300 Credit Management

Business Process Flow - Manage Blocked Sales Documents

OTCCM300 Credit Management

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