Manage your Credit Risk in SAP

The component Risk Management from R4CM is fully integrated in the corporate finance and accounting process in SAP and can be interfaced to external data sources such as credit bureaus, payment pools and trade credit insurers. The module combines and processes data from different internal sources such as own payment experience, last sales revenues and external data sources such as credit report information and trade insurers. In order to perform internal scoring and deliver a risk category to each customer, the module enables the customisation of scorecards. This involves mapping relevant data inputs from the chosen sources with a punctuation value so that a scoring value can be delivered. A higher score value is correlated with a lower risk category for the customer.    

It basically depends on the branch and country specifics to where the customer belongs, and if the customer is a new or an existing one with available own payment experience. The most common data sources to assess in a scorecard for new customers normally includes: Credit information reports, payment pools, sales force surveys, and, when available, financial statements and balance sheet figures. For existing customers, the internal corporate SAP data source gains relevance by including figures from their own payment experience, sales revenues, negative indicators such as dunning levels andamount of invoices in dispute.

As a result of the scoring, every customer gets a score value, which is correlated with a risk category. The higher the score value, the lower the risk category for the customer. A percentage of last sales revenues or optionally sales forecast is predefined to each risk category in order to deliver an own credit limit recommendation for a specific credit segment or credit control area. The resulting credit limit recommendation should cover the expected open amounts on average corresponding to the incoming sales orders and invoices under consideration of their payment terms. An easy formula for a recommended credit limit considering only invoices is:

Credit limit = Average monthly turn-over x payment deadline in months