Standard Credit Management has been around for a long long time. It is a stable solution that is widely used and provides a good tool for most clients that use it. The point people are missing is that the SAP FSCM solution takes Credit and Risk Management to another level. The benefits are so significant that I believe the product is a must have.
The main benefits can be broken down into three areas...
Enabling you to make better decisions
Full integration of the process
Use of internal data for credit analysis
To fully understand the business benefits of SAP FSCM Credit Management, it is important to review how standard SAP Credit Management is used and the associated processes.
Common usage of SAP Credit Management
A common customer will load external data from credit rating companies into their Credit Masters. This will enable them to categorise the customer into a Risk Category. After this there will then be some manual work to derive a credit limit based. This process needs to occur at set intervals to ensure the customer has the correct Risk Category.
Aside to this, there are ad-hoc processes where a credit limit is reviewed, and the external credit rating company will re-classify the customer. Within SAP it is not easy to identify the number of times the customer went above its agreed credit limit, how many times the Credit Limit was changed and whom and when this was requested.
Enabling you to make better decisions: This should be the key objective for a SAP FSCM Credit Management implementation. Within SAP FSCM you have the ability to use actual SAP data to set credit limits for customers or to group your customer into a risk category.
Example - You may find that your external credit rating company has a good score, as the customer pays its other suppliers in 35 days. In isolation this would be used to provide a good credit rating for the customer and a good credit limit. However if you analysed your SAP data and saw that the same customer was paying you on say 65 days, you would be less inclined to give them a good credit rating, you would give them a poor score, and would be hesitant to provide them with a good credit limit. Comparing actual payment terms against the terms supplied from external credit ratings could help you improve the relationship with the customer. You could share this information with the Collections team and the sales team to re-negotiate the agreed payment terms and try and reduce their average payment days down to align with that of your competitors. Remember, high levels of bad debt are really just an historic trend. No one knows what is round the corner and so implementing an enhanced solution with more accurate information allows you to make better decisions for your business.
Full integration of process - The traditional SAP Credit Management solution requires a high degree of manual processing. A key benefit within SAP FSCM Credit Management is the ability to request a credit limit change from within SAP FSCM. This is a simple case that records the request for a new Credit Limit and is easy to approve. Further to this the process can be integrated to propose Credit limits based on both internal and external data. This removes the manual offline calculations and provides a consistent approach. Data from external credit agencies can be automatically uploaded into SAP, and interfaces can be built. The manual steps of combining many external credit agency scores into a single score is also removed within the new functionality.
Use of internal data for credit analysis - This is the most commonly used benefit for SAP FSCM Credit Management. This is the most noticeable difference between the two solutions and the one that grabs the headlines and rightly so. The use of internal SAP data is a major step forward for both credit rating and credit limit proposals. A customer’s credit rating could change dramatically within SAP FSCM for late payments, high levels of credit exposure and high dunning levels, something is missed by external Credit rating agencies.
You can measure the benefit of reducing the manual effort of creating new credit limits and reviewing changes, however you cant see the full benefit around future bad debt. Comparing your current bad debt for a fiscal year only indicates how you performed against a previous year. This cannot serve as an indication as to the future trends of bad debt.
Being able to quickly identify when a customer changes its payment behaviour, or repeatedly asks for a Credit Limit increase is something that you can track within SAP before the customer turns into a bad debt. It is also a recommended approach to analysis the customers that became a bad debt, to see if you can spot any trends and build warnings against these within your process. By changing your processes and using actual data will enable you to make better decisions and avoid potential bad debts.