Tuesday, October 23, 2012

Documentation of the Credit Check/Exposure in the Order Management

This note explains credit checking attributes and how they affect credit exposure and the application of credit check holds when placing orders.

Credit Check Setups:

1.      Payment Terms
2.      Customer
3.      Credit Limit
4.      Credit Rules
5.      Transaction Type

1.      Payment Terms

(N) Receivables > Setup > Transactions > Payment Terms
Or
(N) Order Management > Setup > Orders > Payment Terms

The Payment Term used when placing the order must be credit check enabled. Modify the Payment Term so that Credit Check Attribute is selected.



2.         Customer

Enable Credit Check box for a Customer either at Header or Address Level, depends on customer's business needs.

(N) Customer > Standard > [ Profile: Transactions tab]


3.      Credit Limit
Credit Limits need to be set up for one or more of the following:

a.      Item category level
(N) Setup > Credit > Define Credit Profiles
b.      Site level
(N) Customer > Standard > [Address – Profile Amounts]
c.       Customer level
(N) Customer > Standard > [Profile Amounts]
d.     Party level (This level is applicable only if Credit Management is installed)

e.      Operating Unit Default level.
(N) Setup > Credit > Define Credit Profiles

Given below is the Example for the Customer Site level credit Check Hold.

4.      Credit Rules

Credit Check Rules defines how and when the credit rule is to be applied.

(N)  Order Management > Setup > Rules > Credit

Option Tab:
Mention the Level of Credit Check and Credit Hold.

Override Manual Release:
This check box enables an order or line which had failed credit checking and then was subsequently manually released to be eligible for additional credit check processing.
• Yes: Manual Released Holds will be overridden. You must also enter a value within the Days to Honor Manual Release field.
• No: Manual Released Holds will be honored. The field Days to Honor Manual Release will be non-updatable.
Exposure Tab:

Use Pre-Calculated Exposure:
This prevents the exposure from being calculated in real time. The Initialize Credit 

Summaries process must be run on a regular basis to obtain latest account balances from Accounts Receivable.
Please run the Initialize Credit Summaries program to update the pre-calculated data.

Note on “Initialize Credit Summaries Table” Concurrent Program:
Order Management enables you to periodically rebuild a credit exposure image (orders, invoices and payments) for all customers or customer sites for all possible credit rule definitions. When you submit the, The Initialize Credit Summaries Table concurrent program, changes to customer or customer site credit exposure are calculated and updated, based upon your exposure setup for each credit check rule defined. Exposure information is stored in a summary table so that the credit check process can refer to summary credit data as opposed to real time transactional data, reducing the effort needed to evaluate credit standing.

Include Open Receivables Balance and Include un-invoiced Orders:
Either one or both of the attributes must be selected (the application will ensure that at least one of these is chosen).

Include Open Receivables Balance:
The Open Receivables balance will be used to calculate the credit amount available to the customer. The balance used is the customer balance taking into account any cleared payments. If Pre-Calculated flag is set the receivables balance used will be the balance of the account when the Initialize Credit Summary process was last run.

Include Payments at Risk:
Selecting this attributes will also include in the customer balance payments, which are at Risk, ie. Payments that have not yet been cleared.

Include un-invoiced Orders:
Un-invoiced orders will be included in amount of credit that is available. ie. Un-invoiced orders that have been booked will reduce the amount of credit available.

5.      Transaction Types

(N)  Order Management > Setup > Transaction Types > Define

In the Order Management Transaction Type, attach the Credit Check Rule on the Main Tab in the Credit Check Rule Region,
Select credit check rules to use when performing checking credit at either Booking, Pick Release and Purchase Release (for drop shipments), Packing, or Shipping within the corresponding Credit Check Rule fields.

You can select a credit check rule for each field within the Credit Check Rule region, or choose to select combinations that suit your business purposes. For example, you can choose to select a credit check rule for booking only, or booking and shipping.

If you leave any of the Credit Check Rule fields blank, no credit checking will occur when an order or order line reaches the corresponding workflow activity within the order or line flow, using the order or order line type specified.
 

To check the Credit Check Rules,

Enter the Order with the transaction type which we assigned the Credit check Rule,

Select the Credit check enabled Payment Terms



enter the line details and book the order. The pop up window appears showing that a credit hold has been applied based on the site profile. 

Sales Order, additional Order Information popup form will show the hold.



We can know the credit check hold orders/lines from the following reports
1.      Lines on Credit Check Hold Report
2.      Orders on Credit Check Hold Report

Metalink:

Introduction

Order Management can be configured to carry out credit checking of customers during order entry based on credit limits and credit check rules.  These credit check rules define how the credit check should be calculated e.g. at what level (order or order line), as well as the exposure factors such as include open receivables balance and include payments at risk i.e. uncleared receipts in Accounts receivable.
Include Payments At Risk Prior To OEXUCRCB.pls version 115.69.1159.20

Prior to OEXUCRCB.pls version 115.69.1159.20 the Include Payments At Risk flag in the Credit Check Rule worked in the following way:
When the Include Payment At Risk was enabled enabled, the payment at risk amount was added to the exposure amount, there by increasing the exposure amount.  So when credit check was run, the calculation regarded the payments at risk as part of the customer's exposure total.  N.B. The open receivables balance total did not include payments at risk.
Simple example scenario:
Open Receivables Balance = $100
Payments At Risk = $50
When Include Payment At Risk is disabled then exposure = $100
When Include Payment At Risk is enabled then exposure = $150
Include Payments At Risk After OEXUCRCB.pls version 115.69.1159.20

After OEXUCRCB.pls version 115.69.1159.20 the Include Payments At Risk flag in the Credit Check Rule works in the following way:
When the Include Payment At Risk is enabled, the payment at risk amount is deducted from the exposure amount i.e. it is not added to the exposure amount but included as eligible for deduction from the exposure amount during the credit check calculation.  N.B. The open receivables balance includes payments at risk as part of the exposure total.
Simple example scenario:

Open Receivables Balance = $100

Payments At Risk = $50

When Include Payment At Risk is disabled then exposure = $100
When Include Payment At Risk is enabled then exposure = $50
Logic Behind the Functionality Change
For calculating exposure, different cursors are used for calculating open receivables balance and payments at risk.  If an account receipt of $100 is made for a newly created customer i.e. an advance payment, then prior to OEXUCRCB.pls version 115.69.1159.20 the cursors returned values as:
Open Receivables Balance = -$100 (negative balance) i.e. Payments At Risk = $100 was added to the exposure.

So, in effect the exposure becomes zero, and even if an order is created for say $50, it will go on credit check hold (having order limit and overall limit set to 0).
Since the customer has already paid in advance, the order should not go on hold.

Open Receivable Days Means
Symptoms
User has an invoice with a transaction date and gl date = xx/xx/xxxx, but
does not want to consider this invoice in credit check calculation.

How is 'Open Receivables Days' field used to accomplish this? 
Cause
Documentation unclear or unknown.
Solution
In 'Include Open Receivables Balance' on Credit Check Rules form, the
'Open Receivable Days' field indicates the range of dates for open receivables
that will be considered in this credit check rule.
Following are the meaning of the value (X in days) entered in the above
mentioned field.
<> Negative Number: Includes past due, current, and future open
receivables up to X days beyond the current date.
<>Positive Number: Includes open receivables with invoice dates X
days earlier than the current date.
<>No Value: Includes all open receivables.

In user's scenario, they have an invoice with a transaction date and gl
date as xx/xx/xxxx, but do not want to consider this invoice in credit check
calculation.
 
User has to put a positive number value in the 'Open Receivable Days' field
which will be greater than the difference in days between today's date and
transaction date of the invoice.

Initialize Credit Summary Table:

How Often Should Initialize Credit Summaries be run?
Solution
Assumption: Use Pre-Calculated Exposure is checked on the Exposure tab of the Credit Check Rules form.
The frequency with which you run Initialize Credit Summaries is business dependent. However, Oracle can provide some recommendations.

1. If you want your customer's credit exposure to be very close to the online credit exposure calculation, then you will need to run it frequently (maybe this is hourly). Be careful as the parameter for Initialize Credit Summaries is Lock Tables. The tables to be locked are AR tables, so make your decision wisely as running Initialize Credit Summaries may impact your AR application users.

......If you want to lock the AR tables when you run Initialize Credit Summaries, it might be best to do this at night when no other users will be impacted.

3. When you first create a customer you would like to invoke credit checking on (or make changes to an existing customer's credit limit/order credit limit), then you will need to run Initialize Credit Summaries.

.....As a side note, if you make changes to an existing customer's credit limit/order credit limit and you want to re-credit check existing orders, run the credit check processor concurrent request.

4. If you enter all of your collections by let's say 2PM, then you should run Initialize Credit Summaries after that time to calculate a more accurate credit exposure.

5. If you enter many orders for a particular customer on a daily basis and want credit checking to include each order in the credit exposure, then you run Initialize Credit Summaries after each order or every other order.

Summary: The frequency with which you run Initialize Credit Summaries will be based on your business needs. Oracle has provided the above guidelines to give some insight as to when you might want to run Initialize Credit Summaries.

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