SAP Receivables Management in S/4HANA – An Overview

Last Updated on July 4, 2022 by Pradeep

SAP Receivables Management – Definition

SAP Receivables Management is a key part of an optimized order to cash process based on FI-AR. With the help of the automated process, Receivables Management delivers high-quality customer interaction reports.

Examples of Reports

1. Credit Checks for every business transaction
2. Updating of customer credit limits
3. Workflow for dispute resolution
4. Automated creation of credit memos/accounting postings
5. Synchronization between accounting/incoming payments and promised payments and open disputes

Reporting allows operation teams to focus on key customer accounts. This indeed drives down bad debt write-offs by managing credit relationships.

It also improves DSO and working capital with tools to collaborate with your customers on payments.

SAP Credit Management

Credit management is defined as a risk validation process. In this, a company sells products and services to a customer but collects money after a certain time.

Based on market research and reports from agencies, the company will fix some credit amounts for a customer. Hence, this is known as a Credit Limit.

Further, a customer can purchase or get services only within the credit limit. To clarify, if the customer’s Purchase request is more than the credit limit then the system either blocks it or sends a request for advance payment.

How does Credit Management work?

You can maintain the credit limit for a customer in SAP S4 HANA Finance using transaction code FD32. You can have different credit limits for different customers.

For example, you have a credit limit of 1, 00,000 INR set for a customer. Now customers can purchase products/services up to their credit limit.

Let’s say a customer placed their first order worth 60,000 INR. At this time this order is successfully placed as it is within the credit limit.

However, the next order is placed worth 50,000 INR. Now, this time the order will be blocked as it’s exceeding the credit limit.

So, to get the product, the customer has to pay some advance or purchase with only the available balance credit i.e 40,000 INR.

Types of Credit Management

There are two types of Credit Management available in SAP S/4HANA Finance.

Simple Credit Check

The system compares a customer credit limit with the total of all open item values and current sales orders. When the credit limit exceeds, the system sends a warning message to the customer.

Conclusively, in a simple credit check, the exposure of a customer is the sum of all open item values at any point in time. Likewise, it is the sum of the current sales order values.

Automatic Credit Check

This type of credit check provides extra credit facilities to the customer. In this type even if a customer exceeds his credit limit, he can still place an order. This is because of his good purchase/payment history.

There are two types of automatic credit checks.

1. Static credit limit determination
2. Dynamic credit limit determination

We also have some important aspects of Credit Management. Like,

Credit Limit Management

1. It is a system to implement a company-wide credit policy.
2. It also manages a customer credit profile, based on the SAP Business Partner master data structure.

Credit Case

1. We use it for structured, workflow-supported processing of credit limit applications.
2. It also helps to track the status and the result of credit limit applications in the work list approach.

Credit Rules Engine – What it Does?

1. It categorizes customers by scoring rules
2. It also calculates and assigns a customer-specific credit limit automatically
3. Further, it checks Credit rules
4. In addition, it configures follow-up processes with event chains
5. And it gives scores to customers using its own scoring rules

SAP Collection Management

SAP S/4 HANA provides an integrated, automated, and collaborative environment for collecting all accounts receivables. This further gets complete with the integration of all relevant orders, invoice bills, and credit information. It falls under the collections management capability of SAP collections and Dispute Management.

It is a great benefit to be effectively integrated with the rest of the organization through S/4 HANA Finance. Implementation of SAP collections Management is as robust as any third-party A/R system.

Identify Overdue Accounts

1. Review dispute cases and overdue accounts
2. Receivable ageing for customers
3. Collection Specialist can create/renew the promise to pay

Prioritize collections

1. Determine which customers are to be contacted
2. Likewise, determine the terms of payment, consider cash discounts

Generate Worklists

1. Contacts are evaluated and prioritized according to collection rules in the collection strategy
2. 360-degree review of customer data to prepare call

Integrated System of SAP Receivables Management

1. Firstly, Opens and manages dispute cases
2. Secondly, Processes invoice individually or grouped
3. Finally, Analyze results to validate strategy effectiveness

Dispute Management

Dispute Management helps in identifying and documenting disputes earlier in the payment cycle, and tracking and monitoring reasons that drive Sales Outstanding. This system is also fully integrated with SAP FI.

Problems of Invoice Disputes

1. Have various root causes inside and outside Finance
2. Hard to identify
3. Delay payments
4. Increase Day sales outstanding

Features of SAP Receivables Management

1. It automatically identifies disputes based on rules.
2. Driving resolution in Receivable Management increases the quality and shortens resolution.
3. It also builds a structured knowledge database.
4. Finally, it reduces DSO

The Process Flow of SAP Receivables Management

Core Processes of SAP Receivables Management

1. It provides continuous synchronization between A/R and dispute cases.
2. It automatically creates disputes for underpayments.
3. Receivables Management creates and views dispute cases from financial transactions.
4. Similarly, it automatic updates dispute cases by financial transactions
5. It also provides links to financial and billing documents.
6. SAP Receivables Management helps in monitoring the progress and success of collections.
7. Analyzes and escalates dispute cases.
8. Further, it creates notes, views an activity log, or links documents to the case.
9. Performs dispute case analysis and monitors trends that influence dispute resolutions.
10. With SAP Receivables Management, we get automated Workflow and allocation of worklists.
11. It corresponds with customers.
12. Lastly, it assigns workflow for sales teams or collections agents to work with customers.

In Brief

SAP Receivables Management is a key part of the S/4 HANA Finance architecture. It helps your finance operations team to be ready for the digital business resolution related to sales and accounts receivables. With the amalgamation of its efficient methodologies like dispute, credit, and collection you have a stronghold over the complete accounts receivables.

This, furthermore, gives better management of the financial obligations of the business.

Learning this topic is equally important for you as a finance person in SAP. This truly comes under the duties of an SAP S/4HANA Finance Consultant.