SAP has always had Credit Management processes within its core offering of ERP within Sales & Distribution and Finance. The core objective is to manage risk within the Accounts Receivable ledger and current and future sales orders. The ability to record a credit limit against a different customer by business unit is a given as well as being able to have real time analysis of their credit exposure and to rate the risk of credit issues by different categorisation of customers. The core of these objectives can be performed via standard FI-AR Credit Management and for some SAP clients this meets their current requirements. However to work out an accurate credit limits and to categorise customers into risk groups offline processes would need to support the core.
How initial SAP FSCM helped
Nearly 8 years ago now SAP released SAP FSCM Credit Management to enhance their core processes. The objective of the new solution was to remove the offline processes and use SAP to manage the process end to end. In turn the new solution provides users the control within the process and the reduction of manual tasks and the reams of paper to control the process. By introducing the ability to import data sources into SAP enables provides more accurate Credit Risk categorisations. External data could be rating information from rating agencies like Moody's or D&B, or Financial data from published customer accounts. By using key information from external sources and linking it to internal data such as payment history provides users of SAP FSCM the ability to score credit risk in an automated process as well as being more accurate. Further to this Credit Limit allocation can be calculated with the same data, even including the new Credit Risk categorisation or score. Again this process is automated and depending on the rules that are defined more accurate. In turn the core SAP FSCM solution provides more accurate credit scoring and credit limit allocation in an automated process. This provides a reduction in manual effort and should reduce the level of bad debt a client may have.
New functionality - just released
Over the past couple of years the product development team within SAP has taken the solution to the next level. The core process has been maximised and so new processes have been introduced. The processes focus on "credit decisions" that are made and recording them in SAP. Currently if a sales order is blocked, a decision is required how this should be dealt with. Should the order be released, or should the Collections team request a payment, or perhaps the Credit Limit should be increased. At the moment, these decisions are recorded and processed outside of SAP and therefore not in SAP. When analysing the Credit Exposure of a customer it is beneficial to have not only the information about current issues, but also the ability to see the history of previous decisions. The process of the "documented credit decision" was born and first released in Enhancement Pack 6 which is currently in Ramp Up. Due to the benefits this could provide and legal requirements within Germany, SAP decided to "down-port" this functionality to Enhancement Pack 4 & 5 which can be accessed via a "BC Set". Surprisingly the news of this down-port has not been promoted that well. There is an OSS note that covers this, as well as detailing the relevant support pack the system needs to be on. Moving into April 2012, the number of SAP ERP 6 systems that are on Enhancement Pack 5 is approaching 20% so the number of customers who could benefit from this new piece of functionality is slowly increasing.
Should you change your process?
Most of the Credit Managers I know that have implemented the basic SAP FSCM Credit Management solution are content. They have realised the process improvement and believe they run a steady ship. To some point they are correct, however they are not striving to improve on their current process. Some clients may be monitoring credit limit request outside of SAP and others may be manually approving blocked sales orders, or deliveries and noting the outcome. Without knowing that this is now available as standard within the later Enhancement Packages, Credit Managers will be content, but will be making decisions without having all of the information. Credit Managers need to make decisions throughout the day and the more insight they have the more accurate they can be.
When I introduce the new functionality to Credit Managers they seem to recognise this as the missing piece of the jigsaw. Decisions need to be made with information gathered over a period of time, and by collating this in a single system (SAP) provides efficiency and accuracy. Further to this reports can now be easily accessed to detail the number of sales orders that have evoked a credit block, the number that were resolved by manual over ride, or credit limit increase, or customer early payment. You can report on the number of credit limits that were requested to be changed, the amount that were approved, or rejected and in the process of being approved. With all of this insight the Credit Manager and his team can be a more accurate picture of the true risk a customer provides.