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Credit Management

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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Credit Management

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  1. Credit Management

  2. 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

  3. 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?

  4. 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,)

  5. Credit Control Area Risk Category Automatic Credit Control Credit Group: Determine points at which credit checks are to be made Static /Dynamic Reaction

  6. Automatic Credit Control

  7. Automatic Credit Control

  8. Customer Credit Limit – Master data

  9. Customer Credit Limit – Master data

  10. Before any outstanding Sales Order

  11. After Creation of Sales Order

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. Example of Warning • Reaction: C • A warning message:

  19. 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).

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