Credit Management in OLTP

Account receivables can have a big impact to the cash flow of an organization. Bad credit can hurt your company’s bottom line. Manging customer credits help the company to manage the risk and avoid the issues.

In this post, I will touch credit check and credit limit, centralized and decentralized credit management, and credit limit currency.  This is a a result of studying various credit management features in the OLTP system. The objective is to understand how the these various system works and understand how the credit management process looks like, and how BI can help in these processses.

Credit Check and Credit Limit

In order to manage the customer credit, an organization should establish the credit policy and enforce credit limit for their customers. Credit limits are normally specified by credit management staff in the individual customer profiles. Credit limits are initially established based on the default policy and may involve in doing a credit check on the customers. The initial credit check typically gets the credit information from external data provider. OLTP may handle this business flow by allowing integrating the external data.

Credit Limit Management: Centralized and Decentralized Process

A OLTP may allows the multiple credit limits to be entered for a customer. A customer may order goods and services from different regions or lines of business of the deploying organization. In JD Edwards (EnterpriseOne, or just E1), the deploying organizations is allowed to use Line of Business processing. A customer can be assigned to one of more “E1 companies”. Multiple E1 companies can share the same customer record but can also track and store their specific information by E1 companies.

In E-Business Suite (EBS), credit limits are held by customer profiles. The EBS “operating unit” can be used to represent the regions or lines of business. Multiple EBS operating units can share the same customer record while each operating units can establish their individual customer profiles. This can be done in two ways: 1- creating a customer account for each EBS operating unit or 2- override the customer profiles at the site use level.

PeopleSoft use set based reference sharing mechanism to share the customer credit information.

SAP offers a sophisticated control by allowing centralized and decentralized credit management process. The idea is similar to the set based reference data sharing in PeopleSoft applications. The customer credit information is entered against the customer master and a credit controlling area. A credit controlling area is an (dummy) organization unit by which the customer credit is monitored and managed. Each credit controlling area can be linked to one or more SAP “company codes”.

Credit Limit Currency

The currency used to control credit limit may be different from the currency used in the organization unit that the transaction is entered against. The currency can also be different from the transaction currency entered in the customer invoice. This rule is applicable to all systems that I examined.

E1allows the customer credit limit shared across all “E1 companies” when the Line of Business process is not used. A currency code entered directly on the customer record determines the currency code in which the credit limit is entered.

In EBS, a customer profile can have multiple credit limit amount in different currency codes. In EBS order management module, a credit usage rule set can be defined to list all the transaction currency codes that share a customer profile credit limit amount. Any transactions entered under the specified list of currencies will be converted to the credit limit currency for credit limit check.

In SAP, each credit controlling area include a currency code which is used to manage the customer credit. The system converts the receivable transactions from the transaction currencies to the currency of the credit controlling area. Each customer for each SAP company code can only have one credit area so the transaction currency only need to be converted to that credit control area currency.

How are the customer credit limit profiles used in Business Intelligence?

Each customer can have the account receivable balances organized by the customer credit profiles. If the credit profile is established by credit controlling area, the customer account balance can also summarized by the credit controlling area.

The account receivable balance can be converted to the customer credit profile amount currency. If the customer profile is estalished by credit controlling area, the currency from the control area will be used to summarized the AR account balance.