SAP FSCM Credit Management

Overview of SAP Financial Supply Chain Management (SAP FSCM) will help you to understand different functionalities that SAP FSCM Credit Management provides like integrating external credit information ,scoring,defining Risk Class ,Credit limit Calcutaioons,categorizing new and existing customers on the basis of  their credit data etc.

Purpose of SAP FSCM

• A large number of outstanding receivables or bad debts can have a considerable impact on company’s performance. Companies dealing with high data volumes are investing a great deal of time and money in becoming more customers centric. Credit Management can minimize your credit risk by defining a credit limit for your customers. This is especially important if you do business with customers in financially unstable sectors or countries, or trade with countries that are politically unstable or that adopt a restrictive exchange rate policy.
• With the SAP Credit Management application, you can make a comprehensive assessment of potential, new, and existing customers through Credit scoring.
• With this information, you can decide up front what terms and conditions you want to offer a customer.
• You also have the necessary information to work within the collections process to handle customers on an individual basis to suit their financial circumstances and payment-default risk profile better.
• SAP Credit Management is powerful enough to handle large volumes of data, and it alerts you to take action only in those exceptional situations where your direct intervention is required. This makes business easier.

SAP Financial Supply Chain Management FSCM contains the following:

1. SAP Treasury and Risk Management (FIN-FSCM-TRM),
2. SAP Biller Direct (FIN-FSCM-BD),
3. SAP Cash and Liquidity Management (FIN-FSCM-CLM),
4. SAP Collections Management (FIN-FSCM-COL),
5. SAP Credit Management (FIN-FSCM-CR),
6. SAP Dispute Management (FIN-FSCM-DM)
7. SAP In-House Cash (FIN-FSCM-IHC).

• SAP FSCM provides Treasury and risk management module which is integrated with Financial, Banking, Information System, and Accounting for managing financial transactions and financial risk in the business.
• SAP FSCM provides Biller Direct module; this is an important capability in web-based invoicing and payments. Through SAP Biller Direct, customers and suppliers can access invoicing and payment information via business portal of the company. SAP FSCM biller direct provides seamless integration with accounting system and lets you handle electronic payment and settlement processes with customers or suppliers.
• In SAP FSCM, cash management and Liquidity Management is a tool which improves ability to forecast and react to cash and liquidity positions. All components are preconfigured for real-time reporting and analysis of your liquidity position.
• SAP Collections Management is the module which helps you to improve the productivity of your collections. By making it easy for agents to identify problem accounts or issues, you can greatly increase collection rates.
• Credit Management in SAP FSCM accelerates the ability of your credit managers to extend or reject customer credit limits. Your credit score system for each customer is greatly improved through the real-time aggregation of your own credit data and information from third-party credit scoring agencies.
• SAP FSCM provides Dispute Management which gives your accounts receivable or debt department 100% transparency for customer invoicing and billing issues. Open items, credits to customer, and decision making are all visible through a single access point – SAP FSCM Dispute management accelerates invoice settlement and processing customer invoice complaints.
• Using SAP in-house Cash, you can see net accounts, group cash receipts and payments on a regional basis, and also reduce transaction costs for intercompany payments.

Benefits of Credit Management

• Supports collection and processing information about the credit exposure of a business partner from different SAP and non-SAP systems.
• Automatic updates of credit scoring information.
• Automation of credit management processes by implementing rules for scoring and rating of their business partners. Based on rules the application can calculate credit limit proposals.
• Supports the integration of external credit information providers by standard XML interfaces. Real-time integration with external information provides like D&B ensures accurate customer scoring as well as request for credit insurance.
• Credit limit checks to various time points during the sales and distribution process (sales order entry as well as delivery).

Credit Management Process

• Credit segment: Credit segments are required for calculating the credit limit and enable you to carry out detailed checks at business partner level
• Rating procedure: Ratings states that the business partner current status like good /normal /bad
• Customer Credit group: Category for grouping business partners; defined according to user requirements. This category is used as a selection criterion in reporting and during the creation of work lists.
• Credit limit: Create the set of conditions required for calculating the credit limit
• Credit Score: Create the set of conditions required for calculating the Score
• Risk Class: The system can then determine the risk class of a business partner from the partner’s score automatically as per the requirement.

Organization structure in Credit Management:

 

• Credit Control Area: Credit control areas are organizational units that represent an area responsible for granting and monitoring credit. Credit information can be made available per customer within a credit control area
• Credit Segment: Credit segments are organizational units that represent an area responsible for granting and monitoring credit.

This is the lowest level that credit limits can be defined for a business partner and will allow companies to set individual credit limits across divisions for a customer.

Each credit segment is created with a single currency defined, and all credit limits must be set in this currency.  Credit Exposure is also reported by credit segment in the currency defined. The currency of a credit segment will be set to the associated company code currency.

Credit Segment is an authorisation object, allowing countries to define/control access to users by credit segment.

Credit segments are assigned to the business partner when a business partner is created.

 

Credit Management Data

Credit management data is held within the credit profile at a general data level and at credit segment level.The following data is only held and maintained within the business partner only, i.e. it is not replicated / synchronised with the customer master data.

Scoring rule

The scoring rule used to calculate the customer’s risk score. A scoring rule is a formula, containing a set of rules that looks at things such as a customer payment history, open items, dunning levels and external credit data. A scoring rule (scorecard) will be automatically assigned to each customer when they are created.

Customer risk score

A customer’s risk score is the result of the last time the scoring rule was run.  It is this score that is used to calculate the customers risk class.

Customers risk scores will be recalculated on either a monthly basis.

Risk class

The risk class is derived from the customers risk score.  The table below shows the risk classes that are defined with the system.

The credit limit will be defined in the credit segments currency, normally this would be the related company code’s currency.

Credit Limit : It is the maximum amount limit we can offer to its customers for credit service.

 

Credit Management Standard T codes and Reports

• UKM_BP: Master data of Business Partner.
• SCASE: Like in dispute management we also can create dispute cases in Credit management while making credit checks, so in order to view such disputes we can go with SCASE
• UKM_MASS_UPD1: Credit Rating can be maintained internally or externally, whenever you want to make mass changes to External credit information we can use transaction UKM_MASS_UPD1
• UKM_MASS_UPD2: To do mass change to score
• UKM_MASS_UPD3: To make mass changes to credit limit.
• UKM_MASS_UPD4: To make mass change to Rule for Scoring and Credit Limit Calculation and Check Rule
• UKM_MALUS_DSP: To know the credit exposure of large number of BPs at mass we can use this transaction
• UKM_VECTORS: To Know payment behavior summary

• UKM_COMMITMENTS and UKM_TRANSFER_ITEMS: Whenever sometimes any invoices that are posted in R3 may not get updated in FSCM automatically in such cases we use transaction UKM_TRANSFER_ITEMS to transfer the open item fromR3 system to FSCM system.