Working with SAP Credit Management

The standard sales process and credit management functionality are very much integrated. From executing a credit check during sales order entry which could lead to blocking the sales order, via checking the customer credit fact sheet and updating the internal customer credit rating, up to calculating a new credit limit and releasing the sales order again.

In the past, SAP has created two distinct solutions for credit management.

The first one is called "FI-AR-CR" Credit Management. It uses an accounts receivable master record (i.e. a customer master) and it doesn't support processes like automated customer scoring. To work out an accurate credit limit and to categorize customers into risk groups using FI-AR-CR Credit Management, offline processes are needed to support the core processes in the system. This is SAP's traditional credit management solution.

In 2004, SAP released a second credit management solution as part of SAP Financial Supply Chain Management (FSCM). The objective of this second credit management solution was to remove the offline processes and use SAP to manage the credit management process end to end. The solution reduced the need for manual tasks and the need of paper to control the process and it introduced the ability to import data sources into SAP so that a more accurate credit risk categorization was possible. Possible data sources were rating information from rating agencies like Moody’s or D&B, or financial data from published customer accounts.

To summarize the scenarios:

Looking at the impact of these scenarios on the business processes when a customer is converting their SAP ERP system to SAP S/4HANA, the following can be said:

• With scenario A, scenario B, and scenario C, there is no real change to the customer's business processes when converting their system to SAP S/4HANA.
• With scenario A and scenario C, some transactions become obsolete and are replaced by other transactions.

In SAP S/4HANA basic credit checks can be performed by using the base edition of SAP Credit Management (i.e. basic S/4HANA Credit Management).

No additional license is required for this base edition that offers basic functionality. If additional functionality is required (like scorecards, automatic determination of credit limits, workflow support, integration of external credit information), customers need to license SAP Credit Management.

Besides these two editions of SAP Credit Management, SAP also offers SAP S/4HANA Cloud for Credit integration. SAP S/⁠4HANA Cloud for credit integration is a cloud application which allows external credit risk information to be used in order to make better credit decisions and to automate the monitoring of customers’ credit risk. It allows credit controllers to quickly access and request the newest credit information provided by external credit agencies. This way, credit controllers can make their decisions faster and based on accurate data.

SAP S/⁠4HANA Cloud for Credit integration extracts information from credit reports that are provided by the credit agencies and automatically updates the following organizational and credit data into your SAP Credit Management system:

• Rating for a business partner provided by the credit agency

• Legal form

• Business partner identification number

• Industry code

• Date founded

As a result, in SAP Credit Management, the internal credit scoring is automatically recalculated according to settings in Customizing. The business partner’s risk class and credit limit can be recalculated. This automated and simplified process enables the credit controller to take faster credit decisions based on the most recent data.

When the solution is integrated with on-premise systems, the system administrator can adjust the list of data fields that is automatically taken over using certain business add-in (BAdI) implementations.

SAP S/4HANA Cloud for Credit integration uses the SAP Digital Payments Add-On, which runs on the SAP Business Technology Platform.

A credit segment is an organizational unit used in SAP (FSCM) Credit Management for credit assignment and control. It can represent for example a product group or a business area. In FI-AR Credit Management (FI-AR-CR), credit segments are not used. In a telecommunications company, the following credit segments could for example be defined to represent product groups:

• Fixed network
• Internet
• Cellular network

Credit segments can be defined in Customizing (transaction code SPRO) using the following menu path: SAP Customizing Implementation Guide → Financial Supply Chain Management → Credit Management → Integration with Accounts Receivable Accounting and Sales and Distribution → Integration with Sales and Distribution → Define Credit Segment.

To assign the credit control area to the defined credit segment(s), follow menu path: SAP Customizing Implementation Guide → Financial Supply Chain Management → Credit Management → Integration with Accounts Receivable Accounting and Sales and Distribution → Integration with Sales and Distribution → Assign Credit Control Area and Credit Segment.

One credit segment can be linked to many credit control areas. To one specific credit control area, however, only one credit segment can be linked..

From a master data point of view, business role UKM000 must be created for each relevant customer.

When migrating a system to SAP (FSCM) Credit Management, the following statements apply:

• All configuration activities for SAP Credit Management are listed in Customizing under SAP Customizing Implementation Guide → Financial Supply Chain Management → Credit Management.
• The credit limit check for sales document types can only be specified as type D in SAP Credit Management, or it can be left empty (no credit limit check). Credit limit check types A, B and C are no longer available.

Letter of credit functionality is also available. The basic letter of credit functionality is included in the core SAP S/4HANA system:

• Manage basic master data
• Determine nominal amount
• Assign a letter of credit as payment guarantee to sales documents
• Block sales and delivery documents if not complied with terms in letter of credit
• Make risk check decisions
• Recheck, release or reject the blocked documents

Advanced trade finance functionality using letters of credit is covered by SAP S/4HANA Treasury and Financial Risk Management.

Reviewing the migrated Customizing settings after migration, is advisable. An example: in SAP Credit Management, risk classes are maintained only once for a customer, for all segments, instead of maintaining them in the customer’s credit control area.

Certain prerequisites apply for the migration from SAP FI-AR-CR to SAP Credit Management. An example: the migration for Accounting needs to be completed. Another example is that if a customer is running own code in their system, the usage of SAP objects in that code needs to be eliminated. For details on how to adapt custom code that uses now changed objects, see the following SAP Notes: 2227014 (for Finance) and 2227014 (for Sales).

Migration FSCM Credit Management to SAP Credit Management is not needed. Reviewing BadIs UKM_R3_ACTIVATE and UKM_FILL is advisable however. A customer should consider using the default implementation provided by SAP. This allows FI-data to be read in real-time with the default implementation of BadI UKM_R3_ACTIVATE. The implementation of BadI UKM_FILL is then no longer needed.

The figure describes the one solution architecture that is achieved via the integration of SAP Credit Management in SAP S/4HANA:

In terms of (advanced) analytical capabilities, SAP Credit Management supports for example the SAP Fiori app called Credit Limit Utilization. This is part of the standard business role Credit Controller. Characteristics of this app include:

• The app calculates credit limit utilization by comparing the credit limit granted to a business partner with the amount used up already by the business partner (i.e. the credit exposure). The percentages and amounts seen when drilling down are calculated by business partner and credit segment.

• View Top 10 business partners with the highest credit limit utilization as a percentage:

  You can analyze which business partners in which credit segments have exceeded the credit limit and which business partners are within or beyond the threshold value defined.

  You can customize the threshold value. In addition, you can customize the display currency into which all amounts are converted and an exchange rate type for the conversion.

• View top 10 business partners with the highest credit exposure:

  You can analyze how much of the credit limit has been used up by each business partner and for each credit segment.