In an article titled “Guard against Nonpayments with Credit Data Reorganization,” Rohana Gunawardena, SAP practice director at Quality Systems & Software, stated that “to protect your business against the high cost of nonpayment, your credit department needs accurate and timely credit data. SAP provides standard functionality that can cover a multitude of scenarios. However, the credit data update is susceptible to glitches that require periodic reorganization of the credit data.”

To learn more about SAP’s credit data functionality, I interviewed Rohana about the use of SAP credit management (SAP CM) and the challenges finance managers may face when implementing the solution.

Why must credit data be reorganized?

Over time SAP credit tracking data can become out of sync, which results in false credit blocks or credit releases. To ensure accurate management of customer credit exposure and order management, the credit data should be reorganized on a periodic basis.

What could happen if a company fails to reorganize its credit data?

There is a general SOX [Sarbanes-Oxley] requirement to ensure financial risks are managed in an appropriate manner. Without accurate credit data, customer credit exposure cannot be measured. However, the greatest risk to the company is either the blocking of sales that should be allowed and a subsequent loss of business or granting credit to an overstretched customer that may not be recovered. Also, there is an impact on credit management staff who may grow to mistrust the SAP system or assume credit blocks are system errors and release orders without due care.

In your quote at the beginning of this article, you state that the credit data update is susceptible to glitches. Do you know if SAP is revising the software?

The current SAP direction is to develop FSCM-CM [Financial Supply Chain Management – Credit Management], so all new functionality is focused on this module. However, FSCM-CM builds on the base of standard SD-CM [sales and distribution – credit management], so it suffers from similar problems. I do not see a major overhaul in the SAP CM functionality on the way. The glitches that do occur are part of the core SAP system design to prevent minor errors from stopping a whole transaction (e.g., a completed sales order is not lost because a single update of auxiliary data cannot be completed). The overall design is unlikely to change any time soon.

What would you say to someone considering using SAP credit management software?

Credit management is critical to any business to avoid issues with collections. Remember, your sale is not a sale until you are paid; if you don’t get paid it is a loss. In the current business environment with news of bankruptcies on a daily basis, companies need to carefully manage their customer credit lines. The SD-CM functionality is the best way to do this for a company using SAP SD for sales order management. The glitches mentioned can be managed with periodic maintenance of the credit data. In my article I bring together all of the tools provided by SAP to manage credit data and instructions on how they should be used.

What is the greatest benefit to finance managers who implement SAP credit management?

Users can really benefit from direct integration into the sales order entry process, which allows customers’ orders to be entered into the system and then sent to the credit management department for review. This integration takes the credit manager out of playing catch-up with the order entry team.

What features would you like to see added to updated versions of SAP credit management software?

I’d like to see better reporting of credit usage by sales order item. All finance managers love reconciliation. This feature would allow them to take the credit used balance and match it back to the sales order items.

I’d also like to see better support for long-term contracts. The current functionality takes 100 percent of contract values for credit usage (e.g., a service contract for $1.2 million structured at $100,000 per month billing plan payment is considered a $1.2 million use of credit, whereas most companies would only consider one future monthly payment of $100,000 as the current impact to credit. Usually dynamic credit management is configured with a 30-day (or similar) credit horizon, so long-term commitments do not impact the current credit exposure.

Users have two options for credit data reorganization: a classic approach and a performance-optimized approach. Can you briefly describe the benefits of using each approach?

My first choice is the performance-optimized approach as it does not update sales orders. This approach avoids issues such as recalculation of delivery lead times. Also, the credit problems tend not to be in the sales orders. However, if you determine that the issue with credit data is due to the sales order (e.g., incorrect calculation of the credit price in the SO item), then use the longer classic approach.

What advice would you give to a project team assigned to a new SAP credit management implementation?

Carefully work with your end users to determine the credit risk categories and the appropriate system response. Usually, an initial setup is overzealous and results in too many sales orders being sent for review by the credit managers.

Consider how information from external credit rating agencies will be used — i.e., how it can be imported to the SAP credit master and can it be used to automatically set the customer’s SAP risk category.

What SAP functionality (credit management or other options) can help companies reconcile their books during quarterly closing periods?

Credit management is more closely aligned to ongoing operational processes than financial processes and close, so there are no close-specific activities for credit management.

What can help is open AR [accounts receivable] analysis and the determination of overdue debts, which need to be written off or provisioned for. On the front end, this risk can be minimized with good credit management procedures.

What is the most commonly asked question about SAP’s credit management functionality that your clients ask you?

“How flexible is the functionality? Can it meet my business needs?” In general, the functionality is quite flexible with several user exits, BAdIs [Business Add-Ins], and the provision for custom credit rules to be coded.

Gary Byrne

Gary is the managing editor of Financials Expert and SCM Expert. Before joining WIS in March 2011, Gary was an editor at Elsevier. In this role he managed the development of manuscripts for Elsevier’s imprint responsible for books on computer security. Gary also has held positions as a copy editor at Aberdeen Group, a Boston-based IT market research company, and as an editor at Internet.com, a publisher of content for the IT community. He also gleaned experience working as a copy editor for International Data Corp., a Framingham, MA-based IT market research company. He earned a bachelor of science degree in journalism from Suffolk University in Boston. He enjoys traveling, sailing as a passenger onboard schooners, and helping his wife, Valerie, with gardening during summer weekends. He’s a fan of all the Boston sports teams and once stood behind Robert Parish in a line at BayBank. He felt small and didn’t ask for an autograph. You can follow him on Twitter at @FI_SCM_Expert. His online footsteps can also be found in the SAP Experts group on LinkedIn.

You may contact the author at gary.byrne@wispubs.com.

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