SAP Credit Management

SAP Credit Management


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Table of Contents

What is Credit Management ?

Types of Credit Management

Simple Credit Check

Dynamic Credit Check

Organizational Structures & Master Data



What is Credit Management ?

Most enterprises extend credit to their customers. This literally means, selling their goods and collecting money at a later point of time. The amount of credit extended is determined by the customer’s credit worthiness (Also called credit limit ) . The number of days for which credit is extended is based on the payment terms associated with that transaction.

For ex., Customer A could be given a credit limit of $ 100,000 by the company.

Credit limit Example

Now lets say the customer orders goods worth $ 20,000 with payment terms of Net 45 2 % ( Meaning if the customer pays for the goods within 45 days of purchase, he will be given a 2% cash discount. So instead of paying $20,000, the customer would need to pay ($20,000 – 2% of 20,000) = $ 19,600. This is to encourage timely payment of their bills and improve cash flow).

Credit limit and Credit Exposure

The same customer could also place another order for $ 60,000 and still be within his credit limit.

The customer is still within his credit limit

The value of Order A ( $ 20,000 ) and Order B ( $ 60,000 ) put together is called the credit exposure of the customer. If the customer places another order for $ 30,000 more, he now exceeds the credit limit set for him.

The customer now exceeds his credit limit

So, at the point of ordering (Order C) the customer’s total receivables ( Value of Order A + Order B ) along with his current order ( Order C ) is checked against this credit limit. Since the customer exceeds the credit limit set for him, the order would be blocked.

Credit Exposure = Value of all Open Items + Value of the current Order

$ 110,000 = ( $ 20,000 + 60,000 ) + ( $ 30,000 )

This is a very simple example of credit management. In reality, credit management can get pretty complicated and not all the scenarios will be covered in this document.

Types of Credit Management

Types of credit checks:

  1. Simple credit check
  2. Automatic Credit check
    1. Static Credit Check
    2. Dynamic Credit Check

Simple Credit Check

This is very similar to the example we have discussed earlier. Simple credit check compares the Customer’s credit limit to the total of all the items in the order and the value of all open items.

Credit Exposure in Simple Credit Check = Value of all Open Items + Value of the Current Sales Order.

Open items are orders that have been invoiced to the customer but the payment for the invoices have not been received yet. The system can be configured to either block the delivery, send a warning or an error message when the credit exposure has exceeded the credit limit of the customer.

Dynamic Credit Check

Simple Credit Check alone is not sufficient for most businesses. Instead of just considering open items only, there is a need to consider existing open orders and open deliveries as well. Also, for old and seasoned customers, even if the credit exposure exceeds the credit limit set for the customer, the order can still be processed because of the good payment history with the company.

However, for new customers credit needs to be strictly monitored. For the purpose of Credit Management, SAP allows us to recategorize customers into different ‘Risk Categories’. Some examples of risk categories could be Medium Risk, High Risk, Low Risk etc.

Dynamic Credit Management can be broadly divided into 2 components.

Static Credit Check Open Deliveries + Open Invoices + Open Items
Dynamic Credit Check Open Sales Order Value with a Time period ( Called Time Horizon )


The use of time horizon can be best explained with an example. Most orders for the holiday season are pre-ordered because of the holiday rush. Orders might start to pile in as early as June, July. The delivery however is to be done in November or December.

Example of Horizon in Dynamic Credit Check


For example, in August , Order A for $ 50,000 is a Pre-Ordered to be delivered in November.

dynamic credit check horizon

Similarly for the month of December, another order, Order B is placed for $ 40,000 to be delivered in December.

In case of static credit check, the credit exposure is already $ 90,000. If a regular order is placed in August for another $ 30,000 the credit exposure would exceed the credit limit of $ 100,000. However, in case of dynamic credit check, a horizon of say 2 months would be used to exclude all orders for which the delivery has to be beyond the stipulated horizon.

So, order C would not be blocked in case of dynamic credit check.

Organizational Structures & Master Data

Monitoring Credit during SD Processing

The master data for those customers whose credit we wish to monitor is created in SD.We determine how high a customer’s credit limit is to be when creating this data.

Credit Control Area

An organizational unit that represents the area where customer credit is specified and monitored.Credit Management takes place in the Credit Control Area.A Credit Control Area can include one or more company codes.It is not possible to divide a company code into several Credit Control Areas.

Path: IMG -> Enterprise Structure -> Assignment -> Financial Accounting -> Assign Company Code to Credit Control Area.



Assign the company code to credit control area


Customization Settings for Credit Management in SD

  1. 1. Define Credit Groups

Credit Group groups together different business transactions which should be dealt with, in the same manner with regard to credit check.We enter Credit Groups when we configure the Sales document types for Credit Management.

The following credit groups are contained in the standard SAP R/3 system:

01 = credit group for sales order

02 = credit group for deliveries

  1. credit group for goods issue


  1. 2. Set Sales Documents and Delivery Documents for credit management

We can specify in Customizing when,at the point of Order, Delivery or Goods Issue a check on the customer’s credit limit is to take place.We can specify the Sales document and Delivery document types for which a credit check should be carried out.We can also specify if Credit check can occur at the time of Goods Issue.

We can specify the system response if credit check is set.The system can respond in the following ways:

– Warning Message

The document can be saved.

– Error Message

The document cannot be saved.

– Setting a Delivery Block

The document can be saved, but a delivery block is automatically set.


  1. 3. Set Sales and Distribution document items for credit management

We can specify for each item category whether credit check is to be carried out.


Path: IMG -> Sales and Distribution -> Basic Functions -> Credit Management/Risk management-> Credit Management/Risk management Settings -> Determine Active Receivables Per Item Category.


Credit Management settings for Item Category

  1. 4. Define type and scope of credit checks
  • Simple Credit check

A credit limit check can be carried out when sales documents are created or changed.The check is carried out within one credit control area. Simple credit check compares the Customer’s credit limit to the total of all the items in the order and the value of all open items.

  • Automatic Credit check

The automatic credit check can target certain aspects during a check and run at different times during order processing.

We can determine an automatic credit check for any combination of the following:

– Credit Control Area

– Risk Category of the Customer

– Credit group

Path: IMG -> Sales and Distribution -> Basic Functions -> Credit Management/Risk management -> Credit Manageemnt -> Define Automatic Credit Control.

Define automatic credit control


Now lets see an example, by creating 3 Sales orders.

Check the Credit Limit for the Customer.

Transaction Code: FD32

Set the credit limit for customers using FD32 transaction

Here the Credit limit is set at 1,000,000 and the credit exposure is currently 0.

Now lets start creating the orders.

Transaction Code: VA01

Order Value 1: 200.000,00

create an order with an order value of 200,000

Create a second Order.

Order value 2: 600.000,00

Create another order worth 600,000

The credit exposure now is 800,000 ( 200,000 + 600,000 )

The credit exposure is now 800,000

Create a third order.

Order value 3: 300.000,00

We get the following error message when we create the Order, because the total of the net document value and the open items value has exceeded the credit limit of the customer.

The credit limit has been exceeded

0 thoughts on “SAP Credit Management

  1. justin says:

    hi siva

    Just a clarification in yesterday class you mentioned simple and automatic credit management .
    in the notes it is given simple and dynamic ,and dynamic is again sub-dived into static and dynamic .

    IS it a Automatic or dynamic!!



  2. SAK says:

    I understand that a Company Code can have only one Credit Control Area assigned. In that case, why is it necessary to assign a Credit Control Area to a Sales Area? By definition, the Sales Area includes the Sales Org., which can be assigned only to a single Company Code.

    In other words,
    For example, let’s say a Company Code has 10 different Sales Areas under it. Once I assign a Credit Control Area to the Company Code, why would it be necessary to again assign Credit Control Area to these Sales Areas individually?

    Kindly clarify. Thanks.


      • Shyam says:

        Hi Sir,

        From the Sales Order system comes to
        know that which sales area this order belongs to and from
        that sales area it comes to know that which sale Org. this
        order belongs to, from that Sales org. it come to which
        Co. code the order belongs to and finaly from that Company
        code it comes to know this order belongs to which CCAr. So
        as to finally find the customer credit limit for that CCAr
        and compare the Sales order value with that Credit limit.

        Pls correct me if im wrong..


  3. Sai Lakshmi says:

    Very good to understand the concepts for a beginners level…great job siva.

    A suggestion: Would be really thankful if you can cover special scenarios and some common errors that we come across during configuration.

    Thanks once again!


  4. Juan says:

    This is a crazy question. When considering open items in the credit exposure, can purchase orders (paid or not) to the same customer (as a vendor from this point of view) be included to net in favor as a financial document would do?



  5. Deitz44 says:

    What is the order of consumption of credit? What does it consider first in determining the available credit? (open items, special liabilities or sales values)


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  7. Rajat Kumar says:

    There is a user exit :FV45K001 which will determine the credit control area

    Priority level

    1- User exit : FV45K001 If activated
    2- Sales Area
    3- Customer Master
    4- Company code

    these are the priority level where the Credit control area determined in SAP

    If User exit is not maintained and Sales area also credit control is not available then Credit control area should pick from customer master
    Hope it clear



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