Describe credit management processes
Customer credit management lets you manage credit limits and control the flow of sales orders through the posting process. Those credit limits are based on credit rules you create.
The credit management process can include any of the following steps:
Update credit attributes for customers to provide additional information about their credit worthiness.
Create credit limits for customers by using credit limit adjustments.
Create temporary credit limits for customers by using credit limit adjustments. In this way, you can temporarily increase or decrease customer credit limits based on business requirements.
Add information that can affect the credit limit, such as information about insurance and guarantees.
Create customer credit groups that link customers together so they share a single credit limit.
Assign risk scores to customers, and then use the scores to automatically generate credit limits for those customers through credit limit adjustments.
Create blocking rules that put an order on hold during one or more posting processes based on factors such as:
Risk
Payment terms
Credit limits
Overdue amounts
Percentage of the credit limit that used.
Manage a list of sales orders that are on hold, review the reasons for the hold, and mitigate issues.
Release sales orders so they continue through the posting process.
Set up a workflow to manage the approval of credit limit changes and sales order releases.
Credit limit adjustment
You can navigate to the Credit and collections module > Credit limit adjustments > Credit limit adjustments page. You can make credit limit adjustments for an individual customer or for a customer credit group. Once you select the Post button on the Credit limit adjustments page, the newly adjusted limit is in effect.
The customer credit group can be configured under the Customers menu in the Credit and collections module. This page isn't bound to a legal entity, and you can define any customer from any legal entity as a part of a customer credit group.
All the customers defined in one group share the same credit limit. You can select the Aged balances button in the action pane to view the aging balance for each customer based on the aging period definition selected.
Credit risk
In Finance, you create scoring groups for assessing customers based on available data related to spending and payment habits of the customers. You can create scoring groups based on different types of data such as average balance held, country/region, number of years in business, or number of years as a client. Based on these values, you can define the risk categorization of the customer.
You can define the risk classification by assigning the scoring range that can mark a customer as a part of a risk group. Risk scores come from the scoring groups mentioned previously.
Scoring group and risk classification are the two variables for the Automatic credit limit. You can set up a credit limit configuration for a high-risk customer. If a customer in Finance meets the criteria for the high-risk configuration defined previously, the system automatically puts a credit limit on the customer account and apply the necessary blocking rules during the sales order processing.
Blocking rules
Blocking rules define the setup to determine when a sales order should be put on hold. It follows several rules that are defined on the tabs of the Blocking rules page.
On the Days overdue tab, you can define the overdue days that block the sales order from being processed based on the customer/credit management group and risk group.
The account status group checks the customer’s account status to determine if the sales order should be put on hold.
You can put a sales order on hold if the terms of payment on the order don't match the default payment terms for the customer. However, sometimes the payment terms differ but are so similar that you don’t want to put the order on hold. You can rank payment terms so that some of them have the same rank, whereas others have a higher or lower rank.
The next tab looks at the credit limit expiration date of the customer and adds grace days. If the credit limit expired and the added grace days are exceeded, the Sales Order will be put on hold.
On the Overdue amount tab, the system checks the combination of the overdue amount and percentage of the credit limit that is being used already and puts the sales order on hold if the threshold is met.
You can set up rules to put a sales order on hold based on the sales order amount. You can also configure logic to release the sales order from blocking.
The next tab looks at the credit limit usage of a customer and determines if the order should be put on hold. If the percentage of the credit limit is exceeded, the Sales Order will be put on hold.