Credit Control Area

Definition

An organizational unit that represents the area where customer credit is awarded and monitored.This organizational unit can either be a single or several company codes, if credit control is performed across several company codes. One credit control area contains credit control information for each customer.

Use

Credit and risk management takes place in the credit control area. According to your corporate requirements, you can implement credit management that is centralized, decentralized, or somewhere in between. For example, if your credit management is centralized, you can define one credit control

area for all of your company codes. If, on the other hand, your credit policy requires decentralized credit management, you can

define credit control areas for each company code or each group of company codes.Credit limits and credit exposure are managed at both credit control area and customer level.You set up credit control areas and other data related to credit management in Customizing for Financial Accounting. For more information, see the Implementation Guide under Enterprise Structure ®Definition or ® Assignment ® Financial Accounting and then Maintain credit control area. You assign customers to specific credit control areas and specify the appropriate credit limits in the customer master record.See also: Specifying Credit Limits by Credit Control Area Credit and Risk Management Settings: Overview

Structure

The following graphics illustrate the relationship between credit control area, company code, sales organization, customer and currency for central or decentralized credit management respectively.Decentralized Credit ManagementIf your credit policy requires decentralized credit management, you can define credit data for your customer for each company code. In the graphic below, the customer has a business relationship with two company codes: You define a currency for each credit control area. The relationship between credit control area, company code, sales organization and currency is illustrated in the following graphic:

Central Credit ManagementIf your credit management is centralized, you can combine your company codes in one credit control area. Credit management then regards the customer as valid for all company codes. In the following graphic, the customer has a business relationship to two company codes that are combined in one credit control area:

The next graphic illustrates the relationship between the credit control area, company code, sales organization and currency in a central organization. If the credit control area includes company codes with different local currencies to that of the credit control area, the system converts the receivables into the currency of the credit control area.This also applies to the open order, delivery and billing values.

What is Credit Management ?Most enterprises extend credit to their customers. This literally means, selling their goods and collecting money at a later point of time. The amount of credit extended is determined by the customer’s credit worthiness (Also called credit limit ) . The number of days for which credit is extended is based on the payment terms associated with that transaction.

For ex., Customer A could be given a credit limit of $ 100,000 by the company.

Now lets say the customer orders goods worth $ 20,000 with payment terms of Net 45 2 % ( Meaning if the customer pays for the goods within 45 days of purchase, he will be given a 2% cash discount. So instead of paying $20,000, the customer would need to pay ($20,000 – 2% of 20,000) = $ 19,600. This is to encourage timely payment of their bills and improve cash flow).

The same customer could also place another order for $ 60,000 and still be within his credit limit.

The value of Order A ( $ 20,000 ) and Order B ( $ 60,000 ) put together is called the credit exposure of the customer. If the customer places another order for $ 30,000 more, he now exceeds the credit limit set for him.

So, at the point of ordering (Order C) the customer’s total receivables ( Value of Order A + Order B ) along with his current order ( Order C ) is checked against this credit limit. Since the customer exceeds the credit limit set for him, the order would be blocked.

Credit Exposure = Value of all Open Items + Value of the current Order$ 110,000 = ( $ 20,000 + 60,000 ) + ( $ 30,000 )

This is a very simple example of credit management. In reality, credit management can get pretty complicated and not all the scenarios will be covered in this document.

Types of Credit ManagementTypes of credit checks:

1. Simple credit check2. Automatic Credit check1. Static Credit Check2. Dynamic Credit Check

Simple Credit CheckThis is very similar to the example we have discussed earlier. Simple credit check compares the Customer’s credit limit to the total of all the items in the order and the value of all open items.

Credit Exposure in Simple Credit Check = Value of all Open Items + Value of the Current Sales Order.

Open items are orders that have been invoiced to the customer but the payment for the invoices have not been received yet. The system can be configured to either block the delivery, send a warning or an error message when the credit exposure has exceeded the credit limit of the customer.

Dynamic Credit CheckSimple Credit Check alone is not sufficient for most businesses. Instead of just considering open items only, there is a need to consider existing open orders and open deliveries as well. Also, for old and seasoned customers, even if the credit exposure exceeds the credit limit set for the customer, the order can still be processed because of the good payment history with the company.

However, for new customers credit needs to be strictly monitored. For the purpose of Credit Management, SAP allows us to recategorize customers into different ‘Risk Categories’. Some examples of risk categories could be Medium Risk, High Risk, Low Risk etc.

Dynamic Credit Management can be broadly divided into 2 components.

Static Credit Check Open Deliveries + Open Invoices + Open ItemsDynamic Credit Check

Open Sales Order Value with a Time period ( Called Time Horizon )

Horizon:The use of time horizon can be best explained with an example. Most orders for the holiday season are pre-ordered because of the holiday rush. Orders might start to pile in as early as June, July. The delivery however is to be done in November or December.

For example, in August , Order A for $ 50,000 is a Pre-Ordered to be delivered in November.

Similarly for the month of December, another order, Order B is placed for $ 40,000 to be delivered in December.

In case of static credit check, the credit exposure is already $ 90,000. If a regular order is placed in August for another $ 30,000 the credit exposure would exceed the credit limit of $ 100,000. However, in case of dynamic credit check, a horizon of say 2 months would be used to exclude all orders for which the delivery has to be beyond the stipulated horizon.

So, order C would not be blocked in case of dynamic credit check.

Organizational Structures & Master DataMonitoring Credit during SD ProcessingThe master data for those customers whose credit we wish to monitor is created in SD. We determine how high a customer’s credit limit is to be when creating this data.

Credit Control AreaAn organizational unit that represents the area where customer credit is specified and monitored. Credit Management takes place in the Credit Control Area. A Credit Control Area can include one or more company codes. It is not possible to divide a company code into several Credit Control Areas.

Path: IMG -> Enterprise Structure -> Assignment -> Financial Accounting -> Assign Company Code to Credit Control Area.

CustomizationCustomization Settings for Credit Management in SD

1. 1. Define Credit GroupsCredit Group groups together different business transactions which should be dealt with, in the same manner with regard to credit check.We enter Credit Groups when we configure the Sales document types for Credit Management.

The following credit groups are contained in the standard SAP R/3 system:

01 = credit group for sales order

02 = credit group for deliveries

1. credit group for goods issue

1. 2. Set Sales Documents and Delivery Documents for credit managementWe can specify in Customizing when,at the point of Order, Delivery or Goods Issue a check on the customer’s credit limit is to take place.We can specify the Sales document and Delivery document types for which a credit check should be carried out.We can also specify if Credit check can occur at the time of Goods Issue.

We can specify the system response if credit check is set.The system can respond in the following ways:

– Warning Message

The document can be saved.

– Error Message

The document cannot be saved.

– Setting a Delivery Block

The document can be saved, but a delivery block is automatically set.

1. 3. Set Sales and Distribution document items for credit managementWe can specify for each item category whether credit check is to be carried out.

Path: IMG -> Sales and Distribution -> Basic Functions -> Credit Management/Risk management-> Credit Management/Risk management Settings -> Determine Active Receivables Per Item Category.

1. 4. Define type and scope of credit checkso Simple Credit check

A credit limit check can be carried out when sales documents are created or changed.The check is carried out within one credit control area. Simple credit check compares the Customer’s credit limit to the total of all the items in the order and the value of all open items.

o Automatic Credit checkThe automatic credit check can target certain aspects during a check and run at different times during order processing.

We can determine an automatic credit check for any combination of the following:

– Credit Control Area

– Risk Category of the Customer

– Credit group

Path: IMG -> Sales and Distribution -> Basic Functions -> Credit Management/Risk management -> Credit Management -> Define Automatic Credit Control.

ExampleNow lets see an example, by creating 3 Sales orders.

Check the Credit Limit for the Customer.

Transaction Code: FD32

Here the Credit limit is set at 1,000,000 and the credit exposure is currently 0.

Now lets start creating the orders.

Transaction Code: VA01Order Value 1: 200.000,00

Create a second Order.Order value 2: 600.000,00

The credit exposure now is 800,000 ( 200,000 + 600,000 )

Create a third order.Order value 3: 300.000,00

We get the following error message when we create the Order, because the total of the net document value and the open items value has exceeded the credit limit of the customer.

Credit Management in SAP SD

1. Credit Management is an area of SAP SD which is tightly integrated with the FI module and is used to control and manage the credits given by the business to its customers.

2. Credit Control Area is the organizational unit that is responsible for awarding and monitoring the credits to the customer.

3. A company code(CC) can be assigned to only one Credit Control Area(CCA). However, one CCA can have many CCs assigned to it.Thus, there is a one-to-many relation between a CCA and a CC.

4. The above assignment results in either a Centralized or a De-Centralized or an in-between implementation of the Credit Management System. Centralized Credit Management is whereone single CCA monitors the credit of customers assigned to all the Company Codes within the client. On other extreme is a fully de-centralized credit management system where one CCA monitors the credit in only one company code.

5. Credit Limit is the maximum permissible limit up to which a customer's credit exposurecan reach.If during Sales Order Processing the customer crosses this limit,depending upon the customisation settings,either a warning can be issued (with or without blocking further processing ) or else an error can be generated.

6. The Credit Limit is assigned both at customer master level and credit control area level.This is done by creatingCredit Master Data. One can distribute the maximum credit limit allowed to a customer into individual credit limits for various credit control areas.The total of these individual credit limits should not,however,exceed the Maximum Limit to the customer.

7. The credit check happens in the currency of the credit control area.Thus different currencies of varying company code's are converted in the currency of CCA for credit checks.

8. Credit Exposure is a total of various components which depend on the type of check being performed.The credit exposure is checked against the credit limit of the customer.

9. Types of Check : Based on customizing following checks can be performed a)Simple Credit Check : A simple credit check takes place only in the sales order.Here the credit exposure is calculated as Credit Exposure =Total receivables + Value of the Sales Document If this value exceeds the credit limit as specified in CCA for this customer or error can be issued. This type of credit exposure is assigned to the Sales Document Type in T-Code OVAK as shown below :

b) Automatic Credit Control : It adds to the functionality of basic credit check in more than one ways. For Example, it can do the credit check based on the maximum order value so that if the value of the current order exceeds a specified limit , credit check blocks the document or it can do the credit check based on the oldest open item(receivable) .If this item is of date earlier than the date specified in credit control settings ,then the order is blocked. Also the credit check can be performed during the order creation or delivery creation or during goods issue and warning or errors can be issued suitably(by default only errors are issued at Goods Issue whatever be the settings). The Automatic Credit Control can further be :i) Static Credit Check : Here credit exposure is defined as Credit exposure = Open orders + Open deliveries + Open billing documents + Open itemsWhere Open Order values –- Value of Orders not yet delivered. Open Delivery Values –- Value of Deliveries not yet billed Open Billing Document Values –- Value of billing documents not yet invoiced. Open Item Values–- Value of invoiced items for which payment is to be received i.e the receivables. ii) Dynamic Credit Check : Here credit exposure is broken down as Credit exposure = Static part + Dynamic Part Where Static Part is (Open Deliveries + Open Billing Docs + Open Items) Value Dynamic Part : Open Order Values here contain all undelivered and partiallydelivered orders along with a Horizon Period. All the deliveries scheduled after this horizon period, which is a future date, are NOTincluded in the credit check.

10) The automatic credit check is controlled through a combination as: Credit Control : CCA + Risk Category(of a customer)+ Credit Group(towhich the document belongs) Thus each separate combination of the above may result in a different set of control elements values.11) Credit Group : Groups the documents having similar credit control requirements e.g. all the sales documents are grouped in a credit group '1' or deliveries belong to group '2' and credit group '3' is for Goods Issue etc.This is because one would want to control credit differently during Goods Issue than it does during sales order creation. 12) Risk Category : For grouping the customers based on their risk profile for example New High Risk Customers or Seasoned Low Risk Customers. 13) Deriving a Credit Control Area : A CCA in a sales document (VBAK-KKBER) is defaulted from the company code in the sales document owing to it being assigned only to one Credit Control Area.However one can overwrite this assignment and derive other credit control area in the sales document. The order(priority top to bottom) from which a CCA is derived in the document is a) User Exit EXIT_SAPFV45K_001 – For Deriving from all the fields in Sales Order b) From Payer's Sales Area Data c) From Sales Area of the Sales Document d) From the Company Code For assignments a) , b) and c) the relevant CCAs should be permitted for the Company Code in the assignment. 14) In pricing procedure value relevant for credit check is stored in Subtotal 'A'. 15) Update Groups : The credit update controls when the values of open sales orders, deliveries, and billing documents are updated.Update group '0012' has the broadest scope and functions as follows : - Sales doc: increases order value- Delivery: decreases order value & increases delivery value- Billing: decreases delivery value & increases billing amount- Invoice: decreases billing amount & increases open item value 16) For Credit update Item should be made relevant for billing and determine credit indicator should be set in transaction VOV7.

Customizing Settings A) Creating a New Credit Control Area : T-Code : OB45

Above : a) Currency : Currency in which credit is checked.b) Default Data: Any new customer created under this CCA (via Company Code) will automatically have this credit data in default. c) All Co Codes indicator : Is used to represent that this credit control area is permitted for postings in every company code you have defined. B) Assigning Company Code to Credit Control Area. T.Code : OB38

C)Permitting CCAs in company code ( For derivation of CCA through Sales Area,Payer Master or User Exit) T.Code: OBZK

D)Assigning CCA to Sales Area T.Code :OVFL

E) Assigning CCA to Payer Customer Master : T.Code: XD02

N.B: CCA is derived from either one of the above maintained CCA's in E) , D) or B) (listed in decreasing priority.Example if CCA is maintained in both E) and D) the CCA will flow from E).Similarly if its listed in D) and B) it will flow from D).It is defaulted from B) if its not maintained else where. F) Defining Credit Management Type and credit group for Sales OrderT.Code : OVAK

* D is for automatic credit control.Rest are for Simple Credit Check.Credit group is used only for option 'D"

G)Defining Credit Management for Delivery and Goods IssueT.Code – OVAD

*If you want to deactivate credit check at any of these levels remove the credit group entryfrom corresponding columns.

H) Risk Category T.Code - OB01

*This Risk Category can be assigned to customer in credit master data. I) Creating Credit Master DataT.Code : FD32a) Initial Screen

b) General data Screen :

Total amount is maximum permitted limit for a customer inclusive of all CCAs. Individual Limit is maximum limit allowed in any one of the CCA.

c) Credit Control Data Screen

J) Automatic Credit ControllT.Code :OVA8a)

b)

SAP SD Credit Management Tcodes

All business have their own credit management needs, SAP allows you to specify your own automatic credit checks based on a variety of criteria. You can also specify at which critical points in the sales and distribution cycle the system carries out these checks.

SM30 - Table/View

V_TVTW - Define Distribution Channel V_TVTA_KKB - Assign sales area to credit control area V_T014 - FI - Define Credit Control Area T001CM - FI - Assign Permitted Credit Control Area to company code

OVXG - Set up Sales Areas e.g. Sales Organization Distribution Channel Division Distribution Channel Division

FD32 - Customer Credit Management

OVAK - Define credit limit check by sales document type

Check Credito A - Credit limit check and warning messageo B - Credit limit check and error message (no sales order can be created)o C - Credit limit check and delivery block (block delivery if hit credit limit)

Options B and C -> used for checking open order values (when you create/change the sales order)

o D - Automatic credit control with open order values More control in transaction OVA8 - Automatic credit control You check for open orders and deliveries, or just open deliveries. or open order values with other options

Credit groupo Allows you to combine different sales document types for the credit limit check

VKM1 - Blocked SD Documents - Finance have to released the delivery block

OVAD - Define credit limit check by delivery order

whether the automatic credit check occurs at the time of delivery creation and/or goods issue

OVA7 - Define credit limit check by item category

Set whether to include/exclude item category for credit limit check

OVA6 - Define credit group. You can groups together different business transactions which should be dealt with in the same manner with regard to the credit check. You enter the credit groups when you configure the sales document types for credit management and define the (D - automatic credit check).

SAP default credit groupso 01 - credit group for sales ordero 02 - credit group for deliveryo 03 - credit group for goods issue

OVA8 - Automatic credit control - Double click on the line items

You can have the followings credit limit check :-

Static

Depends on the customer total value of open orders, deliveries, billing documents and open items.

Open items

No of days open Overdue open items checks is based on the ratio of open items that are overdue by a certain number of days.

Max open items % The customer balance must not exceed a certain percentage.

Oldest open items

If you don't want to deliver to the customer at all when even only 1 invoice is overdue. Tick the Check for Oldest Open Item and Set the field Days oldest item = 1.

Days oldest item No of days allowed for overdue or payment terms.

Use of the credit check Oldest Open Item. If a user attempts to alter the order quantity of a released sales document that was previously blocked, it would be reblocked again by the system. The system only reblocks the sales document if the new order quantity is above a certain % amount.

Released documents are still unchecked

The preset % is whatever you want to set it as when configuring your automatic credit processing. You enter a deviation % and number of days,eg, you can set it so that an order can be changed by up to 10% within 30 days of original order entry date without it going back on credit block.

Next Review Date

If a customer has a credit limit of 1000 USD, and you would like to restrict this credit limit only to be available in current month (say March). If the document day is in April then the credit limit is zero.

You can use the "NextReview date" and "Number of days" fields and combined it with the "Last int.review" field in customer credit master "Status" view (FD32).

VOKR - Display of work list for credit management (configure the display variant)

Credit Control Areaby Jayanth Maydipalle on August 24, 2013

An organizational unit that represents the area where customer credit is awarded and monitored.

This organizational unit can either be a single or several company codes, if credit control is performed across several company codes. One credit control area contains credit control information for each customer.

Credit control area is an organizational unit which checks the credit limit of the customer .One credit control area can include more company codes .That means the relation is one to many .

Define Credit Control Area:

IMG – Enterprise Structure > Definition > Financial Accounting > Define Credit Control Area

T Code: OB45

Assign company code to credit control area:

IMG – Enterprise Structure > Assignment > Financial Accounting > Assign company code to credit control area

T.Code: OB38

Credit and risk management takes place in the credit control area. According to your corporate requirements, you can implement credit management that is centralized, decentralized, or somewhere in between.

For example, if your credit management is centralized, you can define one credit control area for all of your company codes.

If, on the other hand, your credit policy requires decentralized credit management, you can define credit control areas for each company code or each group of company codes.

Credit limits and credit exposure are managed at both credit control area and customer level.

Customizing settings in Credit Management:

1. Transaction OVFL

Check which credit control area is assigned to the sales area.

Sales area:

Credit control area:

2. Transaction XD02 or VD02

Check which credit control area is assigned to the payer.

Payer:

Credit control area:

3. Transaction SE37

Is user exit EXIT_SAPV45K_001 being used

4. Transaction OBZK

For the settings under items 2 – 4, field “All company codes” must be marked in Transaction OB45, or the credit control area must be entered under the relevant company code in table T001CM of the credit control areas allowed.

Company code:

Credit control areas allowed:

11. Define document groups for credit checking -T.Code: OVA6

The document credit group is used to combine different document types for the purposes of credit management processing. As a standard part of the SAP system, documents are classified into three document groups:

1. Orders

2. Deliveries

3. Goods Issue

The custom document groups can also be defined here. The document group is assigned to a document type (in transaction OVAK and OVAD, which are explained later). The document group is used in conjunction with the risk category in the credit master data and the CCAr to define the automatic credit checks carried out by the system.

7. Transaction OVAD, “Assign document types to document group – Deliveries Types”

Define which delivery types are eligible for credit checking by assigning the credit check to the document group.

Delivery type:

Credit group for delivery:

Credit group for goods issue:

8. Transaction OB01, Define Risk Categories.

Credit management/Change risk category

Definition of the risk category for each credit control area. This risk category can be assigned to a credit account by using Transaction FD32.

9. Transaction OVA8, Maintain Automatic credit control (individual credit checks for key fields)

Here, the individual credit checks for key fields

o credit control area

o risk category

o credit group are set. Take these key fields from the above settings and go to the detail

screen. In particular, check whether fields “Reaction” and “Status/block” are set correctly. To carry out follow-up actions in case of a credit block, the credit check status must be set (field “Status/block”).

10. Transaction FD32

Credit master data for the payer of the relevant document.

Credit account:

Credit limit:

Risk category:

Currency:

12. Transaction OVA7

Update of the credit value is active for the corresponding item type if the check box is marked. This field corresponds to

field “Active receivable” in Transaction VOV7.

Item type:

Active receivable:

13. Transaction V/08, Maintain pricing procedure for credit management

In the pricing procedure used for pricing, subtotal “A” must be entered in a line for determining the credit value (mark the pricing procedure and doubleclick on “Control”). Usually, the net value plus taxes is used. This way the system is determined to use this subtotal for credit pricing. The credit price is stored in field VBAP-CMPRE and used for update and credit check. You can find the used pricing procedure of the order under “Item -> Condition -> Analysis”.

Pricing procedure:

Line with subtotal = ‘A’:

15. Transaction OMO1, Updating: Sales Information structures

Check which kind of update customer has chosen for structure S066 (Open orders: credit mgmt)? In any case, “Synchronous update (1)” HAS to be chosen as the kind of update. All other settings will lead to errors.

Info structure S067 (Open deliveries/billing documents). This takes its values from S066.

SALES ⇒ S066

DELIVERY ⇒ S067

BILLING ⇒ S067

Transaction: OB12 – Credit management groups (to group customers)

Freely definable grouping term used to group customers together. Customers can be allocated to a credit group. All customers within a credit group are treated in the same way within credit management. The credit group is assigned to a CCAr.