What is Credit Management?
Credit Management provides a comprehensive system for developing and implementing policies that will help evaluate and maintain credit worthiness of customers. It allows Credit Analysts to look at credit-related data that's dictated by various attributes attached to a customer record either at the global account or the account site level. Credit analyst or credit managers can make better informed decisions based on policies tailored to your business needs and market conditions.
Is Credit Management part of Receivables?
Yes, its part of the Receivables Cloud Application as it mainly deals with customers and evaluates their ability to pay on time and their credit scores. Credit Management gets much of its data from the transactions created in Receivables such as aging transactions, overdue payments, etc.
Most of Credit Management's default attributes come from a
customer's profile class, such as the customer's assigned credit analyst, credit review cycle, credit currency, order amount limit, credit limit, etc.
A credit analyst or credit manager would want to make sure the organization minimizes the risk of Financial loss by not giving customers a credit limit too big. If the customers are delinquent payers, that means credit analysts or credit managers want to be careful on the type of credit that they provide for those particular customers. Based on multiple data generated from Receivable transactions and uploaded external information (called data points), credit analysts can put Credit Limits on customers.
Which users are responsible for Credit Management?
The Credit Analyst
- Regularly monitors the credit-worthiness of customers and the customer accounts
- Assists in the resolution of credit-related issues
- Reassigns credit folders to other credit analysts if needed
The Credit Manager
- The credit manager can perform everything an analyst can do, plus more.
- Perform tasks as part of the "Managed Credit Review" advanced privilege.
- Has access the case folders of customers and customer accounts and assigned to his or her staff.
- Has the final approval for a Case Folder decision.
What are Data Points and How are Credit Limits evaluated?
Data Points are pieces of credit information pertaining to a customer. Data points are categorized depending on what type of data is being used. Sources of Data Points are different for New and Existing customers.
For Existing Customers, Receivables transactions such as Invoices and Receipts automatically generate data points depending on their ability and frequency to pay. It can be the number of past due invoices, bank account average balance, percentage of invoices paid promptly, the total amount of due invoices, etc. If the existing customers have a history of delinquency, they will most likely have a lower credit limit.
For new customers, their Credit Limits would be determined from data points gathered from external sources such as bank and trade references. This data will drive what type of credit limit you place initially for a new customer.
Types of Data Point Categories
Credit Management in Oracle Fusion Applications provides a set of predefined data points in the following categories:
Data Point
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Description
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Aging
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Data related to a customer's open balances
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Bank References
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Information about a Customer's bank accounts
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Billing and Payments
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A Customer's transaction and payment history
|
Business Information and Credit
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Data Related to a customer's credit history, both within its own enterprise and with external credit agencies and monitoring services
|
Collateral
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Information about a Customer's collateral as it relates to establishing or requesting credit
|
Financial Data
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Data related to the health of a customer's business, such as profits, losses and cash flow
|
Guarantors
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Information about third parties willing to guarantee customer credit
|
References
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Information about third parties that provide references for the customer
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Trade References
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Information about third parties in the same trade that provide statements of creditworthiness for the customer
|
Venture Funding
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Information about investment funding for the customer
|
Additional
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additional data points available for user-defined categories and values
|
Each data point isn't the same. Other Data Points can be more important than others. these are called Data Point Weights.
What are Data Point Weights?
Data point weights indicate the importance of a data point. The higher the weight, the more important the data point is. These data points are then placed into a Credit Case Folder to be reviewed by a Credit Analyst or Credit Manager to form the basis for determining a customer's credit worthiness.
What are Credit Case Folders?
A Credit Case folder is a repository containing data points to be used to conduct a credit review of a customer or customer account. It is like a physical folder where you put documents (data points) about a customer that's relevant for decision-making when it comes to the credit analysis process.
What are Credit Reviews?
Credit Reviews is the task that involves a Credit Analyst opening up a Credit Case folder and reviews the data points provided for a Customer. For example, before a person can loans a car or a home, his or her credit-worthiness is being evaluated based on their work history, salary, their assets, etc.
From the data points provided, a Credit Analyst can then make informed decisions about a Customer's Creditworthiness and either close a Credit folder or assign it to another analyst for review.
There are three ways Credit reviews are initiated:
Credit Check Failure
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Occurs when a Customer fails a credit authorization request.
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Periodic Review
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Occurs when a Customer is included in a scheduled run of the periodic
credit review process
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Ad-hoc Manual Review
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occurs when a credit analyst manually initiates a credit review for a
new customer or for an ad-hoc review of an existing customer
|
These reviews use scoring models to analyze data points and rate a customer's credit-worthiness accordingly.
What is a Scoring Model?
A scoring model is a model or guideline on how to rate your customers based on a combination of data points (including categories and weights) to determine the credit score of a customer. The scoring model is assigned to the case folder and will automatically compute the credit score of a customer to help a credit analyst analyze data and make decisions. An organization can create multiple scoring models depending on the needs of their business.
To know more about Scoring Models and how it calculates Credit Scores, check out the article:
Defining a Scoring Model Calculation for Credit Management in Oracle Fusion Applications
