This chapter of SDK101 will talk about Credit Management in general and later we will see how to implement and manage Credit Management in SAP S4HANA.
What is Credit Management and Why is it required?
Credit Management is a risk mitigation process for organizations that deals with customers in credit.
For example, If company ABC has a B2B business model and sells electronic items to retail shops in credit. Then Company ABC has to make sure that the retail shops should pay back the credit amount in the given time period. In addition to that, company ABC should also wants to know which all customers should have higher credit and for which all customers a credit limit of smaller amount should be set.
Credit management helps an organisation to set company-wide credit policy. And based on this credit policy a company can monitor, evaluate, and control credit situations and allocation to customers.
Based on information from various sources, Credit Terms is defined for customers.
- For existing customer, its transactional history is used. Like payment behavior, reminder sent for payments, delay in payments, existing open items and other.
- For new and existing customers, we can request credit report from credit agencies like Dun & Bradstreet and use this report to assign the Credit Terms
- next important factor to consider is the geographical political situation of the region where goods is sold.
Credit Term is important because it evaluates the customer on their credit worthiness and help segregate the customers. Based on the segregation and other factors we define credit limit to the customers which is used during each credit-related sales with that customer.
How Credit Management Works?
Credit Management helps define the Credit Limit of a customer. It is the maximum amount allowed