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SAP Credit and Collection Management Vidar Greve Johannesson [email protected]
Agenda
1.SAP Financial Supply Management – Business Issues and value proposition 2.SAP Credit Management 3.SAP Collection Management 4.Summary
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Does this Sound Familiar?
Copyright 2002 by Randy Glasbergen www.glasbergen.com
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Cash Flow Cycle
Order placed
Sale + Delivery + Invoice
Delivery + invoice
Actual payment date
Days In Inventory
Days Sales Outstanding
Days In Payables
Days In Receivables
time
(average time to payment of supplier)
Cash payment for inventory
(average customer payment time)
Expected payment date
Cash Flow Cycle © 2011 SAP AG. All rights reserved.
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Free Up Cash with SAP FSCM Companies have big potential to free up working capital by applying best practices 321 bn $
91 bn $
Painpoints in Order to Cash Cycle Cash application 18 % Accessing information 18 %
71 bn $
Payment reconciliation 26 % 49 bn $ 110 bn $
Managing customer behavior 28 % Invoice presentment 29 %
Current Working Capital
Payables
Receivables
Inventory
Best Practice Working Cash NPV released from best practice: 211 bn USD Capital
Discrepancy resolution 47 %
Source: McKinsey (sample of 24 corporate clients)
Source: Paystream Advisors, 2007 (percentage of highest pain scores)
With SAP Financial Supply Chain Management customers were able to •
Reduce the number of bad debt using SAP Credit Management
•
Reduce efforts and costs for invoicing using SAP Biller Direct
•
Reduce DSO through improved discrepancy resolution with SAP Dispute Management and SAP Collections Management
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Typical Barriers of the Order-to-Cash Cycle
Independent functions
Fragmented and inefficient
No coordination in collections/ dispute resolution
Paper-based and laborintensive
Inconsistent credit policies across divisions
Lack of standardization
Poor insight into customer Credit risk
High Cost of Finance Operations High Bad Debt Risk High DSOs
Fragmented stand-alone systems
No insight into process bottle necks
No workflow or data management
Lack control over processes, workflow or prioritization
No integration with GL or AR systems
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Overcome Your Barriers by Optimizing the Order-to-Cash Cycle with SAP
Optimizing the Order-to-Cash Cycle
Barriers Insight & Control
Organization
Processes
Finance Strategies
SAP Solutions
Monitor performance of financial processes Implement financial controls and fraud detection mechanism Control global credit risk
SAP CPM
Establish greater cross-functional coordination Define global customer credit policies
SAP ERP Financials
Establish clear lines of ownership and escalation policies
SAP Dispute Management
Organize unstructured data and collaborate via workflows Streamline labor-intensive processes via standardization and automation
SAP GRC SAP Credit Management
SAP Credit Management
SAP Collections & Dispute Mgmt SAP Biller Direct SAP Accounts Receivable
Straight-through payment processing
IT Systems
© 2011 SAP AG. All rights reserved.
Utilize open standards to connect financial systems with customers, suppliers and banks Integrate collections / dispute systems with accounting and AR systems
Enterprise Service Bundles SAP Biller Direct SAP ERP Financials SAP NetWeaver/SWIFT integration
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Agenda
1.SAP Financial Supply Management - Introduction 2.SAP Credit Management 3.SAP Collection Management 4.Summary
© 2011 SAP AG. All rights reserved.
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Agenda
1.SAP Credit Management – Introduction 2.User Interface of the Credit Manager 3.Master Data 4.Credit Rules Engine 5.Reporting & Mass Change
© 2011 SAP AG. All rights reserved.
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Financial Supply Chain Management with SAP
SAP Credit Management
Check Credit Worthiness
Issue Invoice
SAP Biller Direct (Electronic Bill Presentment and Payment)
Forecast Cash
Finance Working Capital
SAP Dispute Management
Resolve Disputes
Collect Cash
SAP Collections Management
Settle & Pay
Reconcile
Order-to-Cash
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Credit Management – Business Facts Year 2007: approximately 129,822 corporate bankruptcies in Western Europe* Average delay in payments for Western Europe between 8 days and 21 days* Ineffective credit management in distributed sales systems Information needed for credit decisions is spread out all over the company
No credit history available when doing business with new customers Communication between sales, credit, and finance departments is very time-consuming
A customer is treated differently in different business units within the same company © 2011 SAP AG. All rights reserved.
* Source: Creditreform www.scensum.com. 12
SAP Credit Management – Focus
© 2011 SAP AG. All rights reserved.
System to implement a company wide credit policy
Central credit management in a distributed system landscape
Monitor a customer‟s credit exposure in one central system
Customer scoring using own scoring rules creating new reports and queries
Automatically calculate and assign a customer-specific credit limit
Interface to external credit agencies
Web-based access to credit information for sales people
Distribute customer master data via Master Data Management (MDM)
Strategic credit analysis with predefined reports
Credit Manager Portal to speed up credit decisions
Improves productivity by automating credit decision process and focusing on the processing of exceptions
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How to Manage the Credit Risk ? Collect internal and external information about the customer Evaluate and classify the customer according to this information Assign a credit limit according to the risk assessment of the customer Collect information about the credit exposure of business transactions with this customer Ongoing monitoring of the credit limit usage Hedge business transactions for high risk customers Monitor early warning signs Plan sales and marketing activities for low risk customers
Compare credit portfolio with companies‟ strategic goals Share credit information with sales © 2011 SAP AG. All rights reserved.
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Default Probability Sets Risk Hedging Default Probability 30 %
Cash on delivery Letter of credit 20 %
Advance Payment Risk Class III
Check by ext. Credit Agency 10 %
Risk Class II
Invoice
Very Good © 2011 SAP AG. All rights reserved.
Risk Class I
= Customer
Very Bad
Score
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Treatment of Clients Depending on Sales and Default Risk Sales with client High Sales
Possible Actions: Lower sales prices Reduce use of hedging instruments … Customer A
Best Case Client: Customer C Intensify Customer Relationship
Low Sales
Possible Actions:
Reduce business with this customer Change dunning procedure Permanent credit risk monitoring Customer B
Possible Actions: Increase sales prices Increase use of hedging instruments … Customer D
High Risk © 2011 SAP AG. All rights reserved.
Low Risk
Risk of default
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Functional Overview Credit Limit Management
Implement a company wide credit policy
Manage a customer credit profile
Central credit management in a distributed system landscape
Credit Case
Credit case for structured processing of credit limit applications
Track status and result of credit limit applications
Credit Rules Engine
Categorize customers by scoring rules
Automatically calculate and assign a customer-specific credit limit
Credit check rules
Model and implement own customer credit score cards
Credit Information
Interface to external credit agencies
Input parameters for scoring rules
BW Content
Credit Manager Portal © 2011 SAP AG. All rights reserved.
Role-based access to credit management information and analysis www.scensum.com. 17
Credit Limit Management Functions Manages the credit profile of a customer Monitor credit exposure / limit in a central system Web-Based access to customer„s credit profile Rules Engine for implementing own scoring and limit rules Scalable platform to use in B2B and B2C Scenarios Score customers and vendors
Alert
Alert Credit Limit
January
March February
Credit Exposure April
Business Benefit Imlement company wide credit policy Early identification of default risk Reduce processing costs by automating credit decisions © 2011 SAP AG. All rights reserved.
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Credit Case Functions Virtual Folder to track credit applications A credit case contains
Major customer master data & credit profile Status Organizational data Documents Orders Notes Inbox
A credit case can be sent from user to user It is linked to the customer credit data SAP Workflow Integration
© 2011 SAP AG. All rights reserved.
Business Benefit Sales people can enter an application for credit limit change Track status of the application Inform sales when decision is made www.scensum.com.
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Create Limit Application (Example) Customer exceeds credit limit frequently Sales assistant enters credit limit application (credit case)
Send credit case to financial analyst
Assign credit manager manually / automatically
Send workflow item to financial analyst
Send workflow item to credit manager
Send back credit case with financial data
Need more information?
yes
no Approve / reject credit limit application Change limit in master data (manually) © 2011 SAP AG. All rights reserved.
Close credit limit application
Send notification to sales assistant (workflow) www.scensum.com. 20
Creating Credit Limit Request Select Business Partner
Define details
Add note
Add Attachments
Review and save
Confirmation
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Integration Functions Central credit management in a heterogeneous system landscape Import exposure information from various systems Perform credit limit check in real-time Integrate services from external credit agencies into the credit decision process Distribution of customer master data by MDM Business Benefits Minimal effort for connecting SAP and non-SAP Systems and low TCO due to XI Seamless integration of external services increases user productivity Real-time credit limit check guarantees consistent credit decisions Provide customer credit profile to other applications (e.g. CRM)
© 2011 SAP AG. All rights reserved.
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Credit Manager Portal Functions Role based application providing analytical tools needed for quick credit decisions Single point of access for all relevant credit information Work lists inform the user about to-do‟s Platform to make credit information available for sales people Business Benefits Improves user efficiency due to consolidation of various information sources Improves communication between sales, credit and accounting department Sales people can access credit information from customer site © 2011 SAP AG. All rights reserved.
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Credit Analysis Functions Company-wide monitoring of credit risk Analysis of customer payment and order behavior Alert on high risk customers Risk structure analysis of the customer base by country / business unit / customer group
Business Benefits Proactive credit management Identification of risks before customer gets insolvent Hedging of high risk customers reduces unexpected losses Aim marketing and sales activities to lowrisk customers Drive price policy by a customer risk category © 2011 SAP AG. All rights reserved.
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Integration with External Credit Agencies SAP Enterprise Portal Credit Manager Portal Real Time
SAP Credit Management D&B Creditreform XML
Real Time
External Credit Information System
SCHUFA
D+B
Creditreform
© 2011 SAP AG. All rights reserved.
.......
Original XML Document is stored in the document management system that is used by the SAP Business Partner www.scensum.com. 26
Comparison R/3 Credit Management with SAP Credit Management R/3 Credit Management
SAP Credit Management
Master Data
FI-AR Account
SAP Business Partner
FI Data
SAP Business Partner
FI-AR, FI-CA, others
Monitor Credit Exposure
Only for simple systemlandscape (1xFI, 1xSD)
Distributed system-landscape (multiple FI, SD and CRM systems)
Customer Scoring/Rating
Not available
Credit Rules Engine
External Credit Information (e.g. D&B)
Only through partner products
any XML based credit information service
Rule based definition of credit limits
Not available
Credit Rules Engine
Workflow
Only in SD
Create Workflow for any Credit Event
Analysis
Customer fact sheet
Credit Manager Portal (incl. BW Content) and OLTP reporting
Connectivity for non SAP-systems
Not available
PI Server
Agenda
1.SAP Credit Management – Introduction 2.User Interface of the Credit Manager 3.Master Data 4.Credit Rules Engine 5.Reporting & Mass Change
© 2011 SAP AG. All rights reserved.
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Work Center for SAP Credit Management – Modeling the Role of the Credit Manager Each Work Center represents a certain area of activity: Worklist Processing
of credit limit requests
Processing
of blocked sales orders
Processing
of blocked
customers
Each work center provides access to a range of work lists, pre-filled reports and services appropriate to the tasks performed by the user. © 2011 SAP AG. All rights reserved.
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Worklist
Detailed Navigation = View Switch
Links launch applications in Activity Window (user can also start applications related to master data and mass data processing here)
© 2011 SAP AG. All rights reserved.
User receives notifications on credit events (e.g. changes in risk class, score etc.)
User can view details and access directly the dialogue processing of business partner maintenance www.scensum.com. 31
Credit Limit Requests Overview Detailed Navigation = View Switch
Links launch applications in Activity Window
© 2011 SAP AG. All rights reserved.
Pre-delivered default queries with customized values
User can access directly the dialogue processing of the respective request.
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Blocked Customers Detailed Navigation = View Switch
Links launch applications in Activity Window
© 2011 SAP AG. All rights reserved.
Pre-delivered default queries with customized values
Action button leads the user directly to the exact location of the block information in the business partner master data
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Agenda
1.SAP Credit Management – Introduction 2.User Interface of the Credit Manager 3.Master Data 4.Credit Rules Engine 5.Integration with External Information Providers 6.Reporting & Mass Change
© 2011 SAP AG. All rights reserved.
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Master Data in SAP Credit Management Credit data is a component of SAP Credit Management and is stored in SAP Business Partner. It consists of the credit profile data and credit segment data. The credit profile is used for the central storage of customer data relevant for risk assessment (scoring, risk class, external rating, credit check rule). Credit segments can map various areas of a company (such as sales area, countries, company codes). They are used for area-specific administration of credit limits (and their utilization) and to store information on the payment behavior of the customer. The corresponding credit segment data is used for credit checking when the order is created or on delivery within a company area. By using relationships you have the possibility of creating customer hierarchy.
© 2011 SAP AG. All rights reserved.
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Business Partner in SAP Credit Management
Scoring Rule: Rules that define how a customer is scored (e.g. industry, D&B, legal form, country)
Credit Check Rule: Rules that define how a customer is credit checked (e.g. static / dynamic check, oldest open item …)
© 2011 SAP AG. All rights reserved.
External Rating from D&B
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Relationship Higher-level credit management account of … Business Partner 4711 Segment 0000 Credit Exp.: 1.000.000 € Is the higher level credit management account of …
Business Partner 4712 Segment 0000 Credit Exp.: 1.500.000 € Is the higher level credit management account of …
© 2011 SAP AG. All rights reserved.
Total Credit Exposure: 3.100.000 €
Total Credit Exposure: 2.100.000 €
Business Partner 4713 Segment 0000 Credit Exp.: 700.000 €
Total Credit Exposure: 700.000 €
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Agenda
1.SAP Credit Management – Introduction 2.User Interface of the Credit Manager 3.Master Data 4.Credit Rules Engine 5.Reporting & Mass Change
© 2011 SAP AG. All rights reserved.
www.scensum.com. 40
Credit Rules Engine Create scoring formula and credit limit formula by using the formula editor. Parameters (for example business partner data) and functions are used as input parameter. One scoring formula and several credit limit formulas (for each credit segment) are assigned to the rule for scoring and credit limit calculation, which is assigned to each customer in the credit profile. The risk class is determined directly from the score. In customizing, specific score ranges which do not overlap are assigned to each risk class. For the check rule, the system determines the steps which are taken to check the creditworthiness of a customer when a sales order is created. This may include the static check of the credit limit or the check of the highest dunning level. Customer-specific process chains in SAP Credit Management can be defined through events which trigger follow-up actions © 2011 SAP AG. All rights reserved.
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Calculate Internal Credit Scoring (Existing Customer) Customer Address
Birth Date
RegionAge GroupProfession Score ... ATL