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Credit Management. Week 12 – Where we stand. Exams & Project. Business Processes & Functions. ERP systems. Credit & Receivables. Management of Operations Information/ ERP. ERP Project. Sales Order Process. Accounting. Process Modeling. Pricing. Production. Purchasing Process. MRP.

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slide2

Week 12 – Where we stand

Exams & Project

Business Processes & Functions

ERP systems

Credit & Receivables

Management of Operations Information/ ERP

ERP Project

Sales Order Process

Accounting

Process Modeling

Pricing

Production

Purchasing Process

MRP

slide3

Customers prefer credit purchases,

Sellers also provide the credit for more sales,

What’s the issue ?

FI people wants to reduce the risk, so there is a credit limit assigned to customers

Credit Management

Credit Control Area (##FS) sets and controls the credit Limit – manages the credit limit

Which process should trigger the credit control check?

credit control process

Credit Management

SD, FI

Cust: Health Express

Credit limit: $10,000

Ttl. commit: $6,000

Order: 5923

Order amount: $5,000

Credit limit exceeded

Block order

Blocked document list

Review situation

Release order

Pick, pack & ship order

Bill customer

Credit Control Process

What is total commit-ment?

Value of current order + Other total commitments =< Credit limit ?

Open order + Open delivery + Open Billing + Open Receivables (billing document)

Credit Control checks can be set at various steps of Sales Order process (Sales Order creation, Delivery creation. Goods issue,)

slide5

Credit Control Area

Risk Category

Automatic Credit Control

Credit Group:

Determine points at which credit checks are to be made

Static /Dynamic

Reaction

static check
Static Check
  • Check that the customer's credit exposure may not exceed the credit limit
  • The credit exposure (aka, total commitment, current balance) is the total combined value of the following:

Open order: order which has not been delivered

+

Open delivery: delivery which has not been invoiced

+

Open billing: billing document which has not been forwarded to accounting

+

Open items (accounts receivable): documents that have been forwarded to accounting but have not been paid by the customer

total commitment
Total Commitment

- Credit limit: what a company is allowed to owe- Total commitment: what a company currently owes

Open

order value

Credit Limit

Open

delivery value

Delivery items not yet billed

Open

billing value

Not transferred to FI (optional)

Special

commitments

Down payments

Receivables

Unpaid bills

dynamic check
Dynamic Check
  • The customer's credit exposure is split into
    • Static part: open items, open billing, open delivery
    • Dynamic part: open orders
  • Dynamic check:
    • The system checks all open orders that are due for delivery within the horizon date
  • The sum of the static and dynamic parts may not exceed the credit limit
credit horizon
Credit Horizon
  • A period in which a customer’s open sales orders are considered
  • Specified for a dynamic credit check
  • Can be specified in days, weeks, or months
  • Example
    • If you specify a horizon of 2 M (months), then the system ignores all open orders that are due for delivery beyond the two-month horizon
static vs dynamic checks
Static vs. Dynamic Checks

Credit Limit

Open

order

Open

order

Open

order

Open

order

Open

order

Open

order

Dynamic Check

Open

delivery value

Open

delivery value

Receivables

Receivables

Credit Horizon

Static Check

some other check fields
Some Other Check Fields
  • Reaction
    • A – Warning
    • B – Error message
    • C – Like A + value by which the credit limit has been exceeded
    • D – Like B + value by which the credit limit has been exceeded
  • Status/Block
    • Whether block further processing of orders
example of warning
Example of Warning
  • Reaction: C
  • A warning message:
in class exercise
In-Class Exercise

This exercise tests your understanding of Fitter Snacker’s current credit-check system. KLM has unintegrated Sales Order Information Systems and Accounting Information Systems. You are given background data and information about documents in the system as follows:

- Background data:

- Current sales order:

- Document in system:

1. Given the state of the current systems, will credit be granted or denied for KLM Corp.’s current order?

Since the purchase order for NRG-A is not in the accounting system, KLM would allow it. 1584, 864

2. Suppose FS has an ERP system for accounting and sales order, should credit be granted or denied?

Purchase order KLM 82332 for three cases (864 bars) of NRG-A. This order is in the Sales Order Information Systems, but it has not been transferred to the Accounting Information Systems (thus, Accounting does not yet know about this sale).