INDEX

Executive Summary 1

Why implement FSCM C&C in your organisation? 2

What needs to be done before FSCM C&C can

be implemented in your organisation? 4

What can FSCM ECC 6.0 C&C do in

comparison with R/3? 4

What is needed from a system landscape perspective? 5

Some business implementation considerations

per FSCM C&C module/ Best Practice 7

Limitations of FSCM C&C 8

FIGURES

Figure 1: FCSM Credit and Collections focus 2

Figure 2: System Scenario’s 5

Executive Summary

Many finance departments in the present market struggle

with their role in the organisation. Market conditions

change rapidly therefore they want to play a more

strategic role and spend less time with high labour

intensive processes. Core financial processes are

automated whereas other important financial processes

are still very labour intensive and costly. The financial

manager of today wants to optimize his department’s

performance and do more for less cost. Nowadays

improving cash flow is one of the most important key

focus points

SAP has developed FSCM to assist with this focus by

optimizing the financial and information flows within

a company and between business partners. It delivers an

integrated approach to present business environment

challenges.

Using SAP FSCM, companies can optimize their cash

management, reduce the cost of invoicing, simplify

accounts payable and accounts receivable, and lower the

costs that occur through reconciliation or mistakes. SAP

FSCM contains solutions for displaying accounts and

invoices, paying over the Internet (SAP Biller Direct),

efficient processing of disputes and withheld payments

(SAP Dispute Management), managing credit default risks

(SAP Credit Management), and an effective approach to

collecting your receivables (Collections Management)

Before implementing SAP FSCM a closer look has to be

taken at the current business in order to assure an

effective set up of the modules to be implemented.

This White paper will explain the process and business

questions to implement FSCM to enhance your

organization to the fullest.

The solution for effectivecredit and collectionsmanagementFSCM – Credit and Collections

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 1

Why implement FSCM C&C in your organisation?

Deteriorating markets causing an increase in overdue

receivables, more hours spent on logging and tracking

disputes, too much cash tied up, increasing DSO. All

indicators that it’s time to evaluate your receivable

management and strategy. For many companies a financial

supply chain involves a highly paper based, off line

process where split information flows restrain payment

flows and thus tie up large amounts of cash in your

organization. So what is the effect of all this? In short;

increased risks, deteriorating cash flows and rising

operating cost.

Do you want to control, evaluate and manage credit

and collections risks effectively? SAP FSCM optimizes the

financial and information flows within a company and

between business partners and banks. It delivers an

integrated approach to present business challenges.

SAP FCSM helps streamline your order to cash and invoice

to pay process, reducing operating cost, increase faster

collections, and enhance cash flow forecasting. At the

same time it comes with a repository of ‘standard build-in’

integration objects for a variety of (external) data sources

and processing systems frequently used in the market.

These range from payment systems to credit rating

agencies. Via process and system integration you can

enhance your performance, data processing and deliver

information faster with less (human) effort.

Another great area of interest at redesigning your

financial supply chain is getting your teams responsibilities

organized such that workload is ‘spread’ effectively.

This will assist in determining the correct focus for the

right people so that priorities are clear.

The FSCM C&C modules in short will bring you:

CREDIT MANAGEMENT BILLER MANAGEMENT DISPUTE MANAGEMENT

CASH & LIQUIDITY MANAGEMENT

TREASURY & RISKMANAGEMENT INHOUSE CASH

COLLECTIONS MANAGEMENT

Financial Supply Chain Management

PaymentsDisputeCasesCollectionInvoicingCredit Risk

ManagementMarket Risk

Management

FinanceWorkingCapital

CashProjection

Figure 1: FCSM Credit and Collections focus

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 2

FSCM-Credit Management will take you one step

further to being ‘in control’ by:

• Improved decisions support

• Control your customer’s credit exposure with

up-to-date credit-profiles

• Integration of dispute and dunning information

FSCM-Biller Direct supports your B2C business by:

• Invoicing your business

• Electronic payment for customers via a portal

• Integrated approach between customer service

and finance

FSCM-Dispute Management reduces a

companies DSO by:

• Early detection of payment issues and disputes

• Increase cash forecast accuracy

• Effective & timely dispute resolution process

FSCM-Collections Management effectively

manages receivables:

• Use of work list to distribute and prioritize cash

collection

• Proactive collection strategy

• Dynamic and real time collection management

With SAP’s FSCM workflow the staff involved (across

companies) collaborate on issues - through SAP - in a

structured way, shorter communication lines leaving less

room for errors. On top of that your staff will have their

own dash-board, where all information specific to their

role is kept up-to-date and prioritized. The effect is

that you can do more with less staff and/or increase the

productivity of your staff.

What needs to be done before FSCM C&C can be implemented in your organisation?

The objective for credit & collections management is to

guarantee that customer payments are collected and

processed quickly to supply a constant flow of cash into

the business. Before an FSCM implementation can be

started at your company, your business processes need

to be analyzed first and important company and policy

strategic decisions need to be taken.

The basis for efficient SAP FSCM system is a well

functioning SAP ECC system. A quick scan therefore

needs to be performed to review the current key business

processes related to FCSM vs. the current SAP

configuration and identify areas of improvements

(‘Gap analysis’). The quick scan will concentrate on the

following areas:

• Current Account Receivables and associated processes

• Integration with Logistical Processes

• Organization specific strategy & policies

• Country specific legal requirements

• Demographical factors such as:

- Current Market

- Diversity in Customers

- Country specific characteristics

- Etc.

The outcome will reveal strength and weaknesses in your

credit & collections management and strategy as well

as improvement options to enhance your organisation.

Findings will be classified as follows:

• High priorities and have a big business impact.

• Medium priorities and have a medium business impact.

• Low priorities and have a low business impact.

The findings will be reported, followed by

recommendations on which FSCM components to set

up and what the implementation timeline will be. This

then will be the basis for the FSCM implementation.

What can FSCM ECC 6.0 C&C do in comparison with R/3?

Credit Limits

First of all when switching on SAP FSCM Credit

Management the Credit Management function in R/3 will

be disabled and there is no need to maintain any more.

Credit limits can be transferred or re-entered.

The functionality of credit limits is already part of SAP for

a long time. R/3 allows credit limits set up per customer

for blocking of sales orders, deliveries etc. Assigning limits

to customer groups instead of individual customers. Work

with risk classes to control credit checks.

FSCM in comparison to R/3 provides the opportunity to

calculate a scoring rule per customer based on predefined

parameters. This includes e.g. payment history and sales

history whereby the system facilitates external information

(from e.g. a credit rating agency) to be uploaded in order

to be part of the scoring rule determination. If a credit

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 3

limit hierarchy applies then changes due to this upload will

be automatically calculated to all levels of the hierarchy.

Dispute cases

From R/3 4.7 the dispute option was already available in

multiple areas of Accounts Receivables Accounting.

E.g. post residual item with incoming payment, line item

display, account clearing etc. From there, when applicable,

dispute cases could be created. With FSCM 6.0, this is

fully integrated with the Accounts Receivables processes

for processing of payments, lockboxes or checks and

automatic creation of dispute cases.

Secondly a direct connection exists between dispute

management and collections management as part of the

collection strategy. Dispute cases created are automatically

updated when payment, offsetting credit memo or manual

clearing is processed. The update is then visible in the

dispute cases. In CRM dispute cases are also viewable but

since it’s Account Receivable driven changes can only be

made from there.

Thirdly workflow integration is possible between involved

departments in resolving a dispute case.

Biller Direct

This application is new and provides the possibility for

customers to manage their open items and create dispute

cases from the web portal. This portal also allows your

staff and customers to work together more closely

in order to resolve disputes using the same channel of

communication.

What is needed from a system landscape perspective?In order to operate FSCM 6.0 efficiently, ideally is that

your company runs its business on mySAP2005. A

connection to My SAP ERP 2004 (ECC 5.0), SAP R/3

Enterprise, SAP R/3 4.6C or other external systems is

possible. This however requires strong involvement of

ABAP support. RFC connections will have to be set up

which involves extensive testing.

FSCM as functionality heavily relies on “business

partners”. The basis for a business partner resides in the

customer master, within Financial Accounting-Accounts

Receivable. Therefore ECC 6.0 includes CVI (Customer

Vendor Integration) which controls synchronization of

master data between SAP Financial Accounting and

FSCM. Configuration setting needs to be made for this.

In conjunction with other systems specific synchronisation

solutions need to be developed.

Next to the above for connection of SAP Credit

management to the mentioned systems NetWeaver

technology SAP PI (Process Integration) is needed.

Biller Direct is developed in a “Java Environment” hence

Java resources are needed when setting up this module.

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 4

ONE SYSTEM SCENARIO

MULTIPLE SYSTEM SCENARIO

Figure 2: System Scenario’s

* SAP Collections Management and SAP Dispute Management

have to be set up on the same system if both are used

How does process integration with SAPECC or other FCSM modules work?

FSCM in general

FSCM works with the concept of “business partners”

These can be directly maintained within FSCM. However

most companies prefer the customer master as the leading

master record for the business partner. Any additional

roles then are created within FSCM. Master Data needs to

be transferred upon creation or synchronized in case of

changes.

Credit Management

Credit Management determines when a customer order

or customer account needs to be blocked based on your

settings and calculations. Hence Credit Management

integrates directly with modules like Account Receivables,

Sales & Distribution and CRM. The communication

platform for this is NetWeaver PI. Connection to non

SAP systems is possible (e.g. credit agency systems). For

reporting a connection to BI and the “credit manager

portal” are available.

Credit Management communicates directly with

Collections Management when defining a risk class of a

specific business partner. When a risk class changes, your

collections strategy will take this into account. The relation

between credit limits utilization and credit exposure can

also be part of your collection strategy.

Biller Direct

SAP Biller Direct is integrated with SAP Dispute

Management. From Biller Direct customers can create

dispute cases themselves for e.g. invoice errors or partial

payments. Customers can also view the status of a dispute

case, enter reason codes, up or download attachments

and communicate on time with the respective department

that handles the dispute case.

Dispute Management

SAP Dispute Management is fully integrated with Account

Receivable and allows creating or updating a dispute case

from an open item.

Incoming payments, credit memo clearing and other

clearing transactions connected to a dispute cases

automatically update the dispute case.

There is also a possibility that residual items be converted

to dispute cases manually or automatically when

processing your bank statements. Amount limits,

customers and discrepancy reasons can be controlled.

Collections Management

Collections Management is closely integrated with

Accounts Receivable. The automatic creation of work lists

and the collection strategy determined for collections

specialists prioritizes the customers to be contacted and

open items to be addressed.

Some business implementation considerations per FSCM C&C module/ Best Practice

Credit Management in AR vs. Credit

Management in FSCM

For companies that have a distributed landscape the

option of choosing for Credit Management in FSCM is a

favourable one since only in FSCM you can gather and

process information of a business partners credit exposure

from various SAP and non SAP sources. This is then

consolidated by FSCM and reflected in a risk score for

central processing and monitoring.

Thorough Credit Decisions have to be taken first

In order to properly evaluate the creditworthiness of cus-

tomers by the use of internal rating policies and external

credit data to support quick and consistent credit decisi-

ons, the organization needs to determine the rules

between not shipping and taking a risk. In short what

drives a credit score in FSCM?

Do you want credit limit usage, sales history, payment his-

tory, external credit information part of a scoring rule?

Allowing generous payment conditions for “low risk” cus-

tomers or advance payments for “high risk” customers.

What drives a score for a specific customer or group of

customers?

The usage of internal and external hierarchies to imple-

ment different credit policies has also changed from the

SAP R/3 functionality. The top node hierarchy can now

determine how credit limits need to be divided over the

lower levels. Individual overspent without exceeding the

top node credit limits can also be configured.

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 5

The use of Electronic Banking System (EBS)

It’s clear for everybody that there are great benefits for

companies by knowing their cash position at their bank as

timely as possible. Using the electronic bank statement

functionality (EBS), companies can reconcile business

transactions in real time with transactions that have been

posted at their bank. However, often few companies really

fully utilize the full functionality and benefits of their EBS.

In order to benefit from EBS all transactions both incoming

and outgoing have to be analyzed for a specific period of

time. Even with the most sophisticated cash-management

strategy, transactions in EBS can fail or post incorrectly

for many reasons, requiring manual post processing

transactions after initial upload of EBS. A well configured

set up is therefore crucial. Working with e.g. search strings

can increase the hit rate.

The advantage is that multiple bank statements can be

uploaded at the same time decreasing processing time

and increase timeliness of up to date receivable positions.

This will increase the effectiveness of FSCM.

Effective resolution of Invoice disputes

Invoice problems and overdue payments can happen

regardless of how effectively your have implemented your

credit management. These all contribute to an increase

of DSO affecting your cash flow significantly. In order to

process these disputes quickly and efficiently finance

employees need to gather a lot of information from

different department and have frequent contact with

the customer. All these communication lines are time

consuming and even more important information gathered

is often not logged in a structured and consist manner

so that all parties involved can easily access important

information.

To increase efficiency with handling and processing

dispute cases a few best practises are to be considered

for implementation:

Dispute cases can be created automatically. When using

the EBS function for processing payments the system can

automatically create dispute cases based on a pre defined

set of rules.

Control your external correspondence function. This

function allows you to attach missing invoices, delivery

documents etc. and fax or e-mail it to your customer. In

addition to these statistics, reporting can be done on the

frequency of missing information from your customer.

Limitations of FSCM C&C

With every new system a few side remarks have to be

made. The FSCM C&C modules contain basic set up by

SAP where functionality can be enhanced by implementing

standard delivered business add-ins (Badi). The main

reason is that the strategies that need to be determined

are company specific, hence requirements can differ a lot.

It’s extremely important that you define your credit and

collections policy and strategy well in order to get the

most out of FSCM.

THE SOLUTION FOR EFFECTIVE CREDIT AND COLLECTIONS MANAGEMENT 6

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