Collection Management-Part I

Working capital is a significant component in any enterprise’s financials and it is important that the organization accords enough importance to the working capital in order to ensure the right balance between liquidity and profitability. Receivables constitute a substantial proportion of the working capital. Therefore management of working capital would imply management of receivables also. An organization is therefore required to determine the optimum level of credit and also its management.

The management of receivables within SAP is governed by SAP Credit, Collection and Dispute Management module.

This document deals with the Collection management module of SAP Financial Supply Chain Management.

Traditional ways of managing receivables include ageing reports and dunning. These reports are no longer supported in today’s world and a more dynamic approach to credit management is needed. With Collection Management, SAP has brought about a paradigm change in the way receivables are managed.

In Collection Management, we follow up on the receivables based on the priority accorded to the customer. This is a more scientific and proactive way of keeping track of the customers as customers who are likely to default are given higher priority and are effectively followed up.

This document is divided into 2 parts- Part 1 would deal with the basic configuration settings in Collection Management module and the Part 2 would deal with the process flow in SAP.

Note:Customers need to be created as business partners with role collection management.

The important steps in configuration of Collection Management are as follows:

Basic Data configuration:

Define Company codes for SAP Collection Management

The company codes for which Collection Management is required to be activated are defined in this step. The SPRO path for this is as follows:

Financial Supply Chain Management-Collection Management-Basic Settings for Collection Management-Basic Data-Define Company Codes for SAP Collections Management.

Defining Collection Strategies:

Collection Strategy is a set of rules based on which customers are accorded valuated and accorded priority in the worklist. The collection strategy will also help to determine the currency in which the worklist will be generated.

Creation of collection strategy is a three step procedure:

1. Defining Basic Rules
2. Defining Collection Rule
3. Processing of Strategies

Each of these steps are defined below:

Defining Basic Rules

The basic rules contain conditions which are used to determine the priority that has to be accorded to business partners in Collection Management i.e.-high/low.

SAP has already defined some Basic Rules and additionally own rules can be defined. For example, a basic rule can be the Risk category of the customer-higher the risk category of the customer the greater is the priority that has to be accorded to that customer.

The spro path for this is as follows:

Financial Supply Chain Management-Collection Management-Basic Settings for Collection Management-Collection Strategies-Basic Rules-Define Basic Rules

Define Collection Rules

A Collection Rule is a group of Basic Rules in Collection Management. The spro path for defining collection rule is given below:

Financial Supply Chain Management-Collection Management-Basic Settings for Collection Management-Collection Strategies-Collection Rules-Define Collection Rules

Processing of Strategies

A collection strategy groups together various collection rules. It helps to valuate the business partner based on points assigned to each of the collection rules contained therein, thereby determining the whether the business partner is more likely to default and whether more emphasis and has to be laid in following up with that particular customer:

The spro path for the same is defined below:

Financial Supply Chain Management-Collection Management-Basic Settings for Collection Management-Collection Strategies-Process Strategies

An example of a sample strategy for sample valuation of two customers is given defined below:

The sample consists of rules with valuation points assigned to it. The characteristics of two customers are defined and their valuation is derived thereof. As shown in the example above, a collection rule can also contain prerequisites. Collection rule 5 will be applicable to a customer only if the pre-requisite is fulfilled.

Defining priorities and its derivation:

In the above example we have derived the priority of customers A as very high and for Customer B as low. The derivation of priorities is based on the following configuration in SAP.

This is two-step process in SAP:

First is to define the priorities in the below spro path

Financial Supply Chain Management-Collection Management-Basic Settings for Collection Management-Collection Strategies-Priorities-Define Priorities

The next is derive the priority based on percentage point valuation. This is defined in the following spro path:

Financial Supply Chain Management-Collection Management-Basic Settings for Collection Management-Collection Strategies-Priorities-Define Derivation of Priorities.

Organizational Structure for Collection Management:

The organizational structure for collection management comprises of

• Collection segment
• Collection profile
• Collection group
• Collection specialist

Each of these elements are defined in the following spro path:

Financial Supply Chain Management-Collection Management-Basic Settings for Collection Management-Organizational Structure.

Collection Segment

A collection segment groups together company codes/credit segment in SAP. If receivables from two or more company codes are to be processed together they would be grouped into a collection segment.

Defining Collection Segment:

Assigning Company Codes/Credit Segment to Collection Segment

Collection profile

A group of collection segment comprises the collection profile. The collection profile is assigned to a business partner in the collection management segment.

Defining collection profile:

Assigning collection segment to collection profile

Assigning Collection Profile to the Business Partner in the Collection Management Role:

Collection Group

A collection group comprises of collection specialists who follow up with the customer for securing payments. A collection group is assigned a collection strategy. The implication of this is that all collection specialists who belong to a particular group will use the same strategy for the business partners assigned to them.

The collection specialist is provided with a worklist i.e. list of customers who have to be contacted, sorted in the order of priority. With this worklist so generated in SAP a collection specialist is equipped with all necessary information to contact the customer, recording of the conversation/promise made by the customer and the requirement to contact the customer on a particular day.

Defining Collection Group

Further a collection group will also be assigned to a collection segment:

A sample org structure in collection management is defined below:

In the above example, receivables of Customer 1 in Company code 1000 and 2000 are to be processed together-hence they are grouped to collection segment 1. Similarly its receivables in Company code 3000 and 4000 are to be processed together-hence they are grouped to collection segment 2.. Each of these collection segments(for instance, Coll Seg1) are assigned a collection group(for instance, Coll Group 1) which comprises of specialists(Mr A, B, C) who are assigned a strategy(Coll Stategy 1, in this case).

Once the org structure for collection management is ready the same, the next steps would be to transfer the customer open items from AR module in SAP to the Collection Management module in SAP. Thereafter worklist would be generated and monitored by the collection specialist. In the process promise to pay, re submission and dispute cases can be created. This would be dealt in the second part of the document.