Automate SAP Accounts receivable (AR) processes: Customer Analysis Credit Management Data Integration (CM- FSCM) Cash allocation

1. ACCOUNTS RECEIVABLE
BUSINESS PROCESS
AUTOMATION
by Rui Fonseca Dias

2. 2
01 INTRODUCTION
02 CUSTOMER ANALYSIS
03 CREDIT MANAGEMENT
04 DATA INTEGRATION (CM- FSCM)
05 CASH ALLOCATION
AGENDA

3. 3
Introduction
01

4. INTRODUCTION
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Business Process Automation (BPA)
› Is the strategy that a business uses to automate processes in order to
contain costs. It consists of integrating applications, restructuring labor
resources and using software applications throughout the organization.

5. 5
Customer
Analysis
02

6. CUSTOMER ANALYSIS
ROFF PRESENTATION NAME 6
What is interesting to analyze?
› Customer General Information
› Credit Rating Agencies Advices
› Financial Statements
› Financial ratios
› Scoring
› Rating and Credit Limit Calculation
› Secure Analysis Through Approval Matrix
› Customers Payment Behavior

7. CUSTOMER ANALYSIS
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Customer General Information
Date on which an institution chooses to claim as its starting point.Date founded
Private equity, Industrial Group, Private/Family, etc…Ownership
Chemical Industry, Electronics, construction, Textile, Plastics, cosmetics,
etc…Sector of activity
Institutional Shareholders, Individual Shareholders, Groups Employees,
etc…Shareholder Struc.
Corporation/Capital Company, Corporation at stock exchange,
Partnership/Non Incorporated, Public Sector, Physical Person, etc…Legal Form

8. CUSTOMER ANALYSIS
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Credit Rating Agencies Advice
The Big Three credit rating agencies:
Other Credit agencies:
• Dun & Bradstreet
• Credit Reform
• Experian
• Coface
• Serasa (BR)
• Sinotrust CN)

9. CUSTOMER ANALYSIS
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Credit Rating Agencies Advice
A credit rating Agency provides:
• Rating
• Recommended Credit limit
• Financial statements
• Multiple reports and analysis
What if you could do it in real time? Would it be an advantage for your business?

10. CUSTOMER ANALYSIS
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Financial Statements
What are Financial Statements?
Financial statements are records that outline the financial activities of a business, an individual or any
other entity.
Examples of Financial Statements:
• Balance sheet
• P&L
• Cash flow statement

11. CUSTOMER ANALYSIS
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Financial Ratios
• Useful indicators of a firm's performance and financial situation.
• Most ratios can be calculated from information provided by the financial statements.
• Financial ratios can be used to analyze trends and to compare the firms financials to those of other
firms
• In some cases , ratio analysis can predict future bankruptcy.

12. CUSTOMER ANALYSIS
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Financial Ratios
Why is it important to use financial ratios?
Quiz: Which scenario is the most likely? 2015 or 2014?
*COGS – Cost Of Goods Sold
Balance Sheet Data 2015 2014
Sales 5 M € 4 M €
COGS* 3 M € 2 M €

13. CUSTOMER ANALYSIS
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Financial Ratios
5−3
5
=0,4 (40%)
4−2
4
=0,5 (50%)
2015
2014

14. CUSTOMER ANALYSIS
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Scoring
• A scoring model is a formula that assigns points based on known information to predict an unknown
future outcome.
Where are the scoring models mostly used in society?
In the examples presented above, customers are individuals… Why don’t we score collective societies?
Home Loan
Age..
Job…
Income…
Asset valuation…
Loan Amount…
...
Life Insurance
Age..
Health habits..
Job…
Clinical history…
...
...

15. CUSTOMER ANALYSIS
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Scoring
• Scoring Model Example
• Date Foundation - 10%
• > 25 years = rate 2
• 10 <= X < 25 years = rate 3 = 0,3
• < 10 years = rate 4
• Customer Since - 20 %
• >= 15 years = rate 2
• 15 years > X => 5 years = rate 3
• < 5 years = rate 4 = 0,6
• EBITDA / Sales - 20 %
• > 15 % = Rate 1
• 10 % <= X < 15 % = Rate
• 7 % <= X < 10 % = Rate 3 = 0,3
• 7 % <= X < 10 % = Rate 4
• < 5 % = rate 5
• Net treasury evolution - 10 %
(Cash & Cash equivalents – Short term financial debt ) (Y-Y-1)
• > 20 % = Rate 1 = 0,1
• 15 % <= X < 20 % = Rate 2
• 10 % <= X < 15 % = Rate 3
• 5 % <= X < 10 % = Rate 4
• < 5 % = Rate 5
• Payment Performance - 20%
• <= 2 days = rate 1
• 5 <= x < 10 days = rate 2 = 0,4
• 5 <= x < 10 days = rate 3
• 10 < x <= 30 days = rate 4
• > 30 days = rate 5
• Repayment capacity (Net Fin Debt / EBITDA) -20%
Net Financial debt = ( long term financial debt + short term
financial debt - Cash & cash equivalents.
• < 2 = rate 1
• 2 <= x < 4 = rate 2 = 0,4
• 4 <= x < 5 = rate 3 = 0,6
• 5 <= x < 7 = rate 4
• > 7 = rate 5
• Rating = 0,3 + 0,6 + 0,3 + 0,1 + 0,4 + 0,6 = 2,3 ≈ 2

16. CUSTOMER ANALYSIS
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Scoring
• Scoring - Penalties
• Country Rating
• Score < 2= penalties 0
• Score = 3 penalties + 0,5
• Score = 4Penalties + 2
• Score =5 penalties + 4
• Negative turnover evolution
(Turnover Y – Turnover Y-1 ) / Turnover Y-1
• -7, 5 % Penalties +0,5
• -7,5 %<= x < - 6% Penalties +0,4
• -6 % <= x < -5% Penalties +0,3
• -5 % <= x < -4% Penalties +0,2
• -4 % <= x < -3% Penalties +0,1
• >= 3 % Penalties 0
Final Rating = 2,3 + 0,5 = 2,8 ≈ 3

17. CUSTOMER ANALYSIS
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Credit limit Calculation
• The credit limit corresponds to the maximum credit risk that the supplier agrees to take on a particular
client.
• Where are the scoring models mostly used in society?
Why don’t we calculate credit limit for collective societies?
Credit Card
Age..
Income
Other Credits
Account Balance
...
...

18. CUSTOMER ANALYSIS
ROFF PRESENTATION NAME 18
Credit limit Calculation
Credit Limit calculation- Example
Existing Credit Limit – 25% = 100.000 x 25% = 25.000 €
Credit Limit = 1/10 Net Equity – 25% = 1/10 x 1 M x 25 % = 25.000 €
Credit Limit = 1/10 Company Valuation – 25% = 1/19 x 2 M x 25% = 50.000 €
Credit Limit = 1/30 Net Turnover – 25% = 1/30 X 300 K X 25% = 22.500 €
Total calculated = 122.500,00
Penalties:
Date founded
• < 5 years – 10 % = 122.500 - 12.250 = 110.250, 00 €
• >5 years + 10 %
• > 10 years + 20 %
ROE – Return on equity
• 0,2 to 0, 4 = - 5% Credit Limit
• 0,1 to 0,2 = -10% Credit Limit = 110.250 – 11.025 = 99.225 €
• 0 to 1,1 = - 15% Credit Limit
• < 0 = -20 % Credit Limit
EBDITA Negative
• If the EBDITA is negative – 50% Credit Limit = = 99.225 € X 50% = 49.612,5
Credit limit = = 49.612,5 ≈ 50.000 K

19. CUSTOMER ANALYSIS
ROFF PRESENTATION NAME 19
Secure Analysis - Approval matrix
• An approval matrix is needed in order to distinguish the different credit managers level and power of
authority.
Role Rate Rate 1 Rate 2 Rate 3 Rate 4 Rate 5
Credit Analist 200.000 € 150.000 € 75.000 € 50.000 € 1
Credit Manager 2.000.000 € 2.000.000 € 1.000.000 € 500.000 € 100.000 €
Zone Credit
Manager
3.000.000 € 3.000.000 € 2.000.000 € 1.000.000 € 250.000 €
Process expert/CFO 50.000.000 € 50.000.000 € 50.000.000 € 50.000.000 € 50.000.000 €

20. CUSTOMER ANALYSIS
ROFF PRESENTATION NAME 20
Customer payment behavior
It is important to check if the customer is paying within the dates established (due/maturity date), in order
to:
• Anticipate Liquidity Issues
• Activate dunning procedures
• Chase customers
• Align with cash forecast

21. 21
CREDIT
MANAGEMENT
03

22. CREDIT MANAGEMENT
ROFF PRESENTATION NAME 22
What is?
› Credit Management (CM) is the function within a company to control
credit policies that will improve revenues and reduce financial risks.
› A credit manager is a person employed by an organization to
manage the credit department and make decisions concerning
credit limits, acceptable levels of risk and terms of payment to
their customers.

23. CREDIT MANAGEMENT
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SAP -Master Data (FD33)
Upper limit for the
total receivables
(M)
Customer
account that the
system uses to
monitor the
credit limit (M)
Classification
characteristic for
customers with
regard to the
credit risk. The
credit risk
category controls
all credit checks
(A)
Credit manager
(A)
Customer Group
(M)
Last date on which the
credit data of the
customer was checked
externally (A)
Customer Payment
Behavior (A)
customer Rating (1-5)
– (M)
Preferred provider
Recommended credit
limit (A)
Date of the last check
on the customer's
credit limit (A)
Date of the next
internal review of
the customer's
credit limit (A)
Indicates that
Risk category
must be manually
maintained (M)
Credit Status (M/A)

24. CREDIT MANAGEMENT
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› Payment Index
› Automatically calculated - Based in the last 6 months Customer
Weighted Payment Average delay
Standard Transaction FD11
Standard table KNB4
 Payment average delay ≤ 3 days → Good Payment Experience (100)
 Payment average delay ˃ 3 days → Bad Payment Experience (200)

25. CREDIT MANAGEMENT
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› Risk Category
› Classification characteristic for customers with regard to the
credit risk. The credit risk category controls all credit checks

26. CREDIT MANAGEMENT
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› Credit Status
› Customer Classification
Standard Transaction FD11
Standard table KNC1

27. CREDIT MANAGEMENT
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› Next int. Review/Last int. Review
› Last Internal review - Last time that customer was analyzed
› The next Internal review - date until the credit limit is valid.
› Some dynamic rules can be made, such as:
› Customer Country Rating
› Customer payment Behavior
› External providers Advice
› Rating evolution

28. 28
BPA-Data
Integration
(CM- FSCM)
03

29. DATA INTEGRATION
ROFF PRESENTATION NAME 29
What is?
› Data integration involves combining data residing in different sources
and providing users with a unified view of these data.

30. DATA INTEGRATION
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CM and FSCM
› Financial Supply Chain Management (FSCM) is a set of software tools
and processes designed to enhance an organization’s product flow,
maximizing profitability and minimizing expenses. To accomplish this
objective, FSCM takes advantage of principles that have proven
effective in supply chain management (SCM) for decades.

31. DATA INTEGRATION
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Customizing
The enhancement of standard transaction BP, can be made only by
customization. The menu area BUPT is responsible for the management of
this transaction.

32. DATA INTEGRATION
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Customizing – Applications (BUS1)
This transaction customizes the applications that a BP may have.

33. DATA INTEGRATION
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Customizing – Views (BUS3)
Each view represents a developed DYNPRO screen number. These screen
numbers will be included in the transaction BP. The screen is the first
object on the customizing chain for BP enhancement.

34. DATA INTEGRATION
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Customizing – Sections (BUS4)
Each section can include one or more views. This also means that each
section can contain one or more DYNPRO screens.

35. DATA INTEGRATION
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Customizing – Screens (BUS5)
A screen can include one or more sections, it represents a different Tab in
BP transaction. The screen is the final object on the customizing chain for
BP enhancement.

36. DATA INTEGRATION
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Customizing – Screen Sequences (BUS6)
It is defined the sequence where the costum screens will be outputed and
at which screen sequence level.

37. DATA INTEGRATION
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Customizing – Business Data Toolset (BUS7)
In this transaction we can define customized function modules, to enhance
events raised by BP transaction.
› DLVE1 - This event is responsible to ensure DB updates.
› ISDST - This event is responsible for the filling of the customized tables and structures on standard transaction BP
› ISSTA - This event is responsible for the initialization of all custom tables and structures.
› XCHNG - This events checks if there was any change on the custom data in order to make DB update or not.

38. DATA INTEGRATION
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Customizing – Create BP Role

39. DATA INTEGRATION
ROFF PRESENTATION NAME 39
Customizing – Credit Segment

40. DATA INTEGRATION
ROFF PRESENTATION NAME 40
BP Enhanced – Result
(System demo)

41. 41
Cash Allocation
03

42. CASH ALLOCATION
ROFF PRESENTATION NAME 42
WW-Accepted formats
› File Formats
› CODA (Belgium and Exports, etc…)
› CSB43 (Spain)
› ETEBAC (France)
› MT940 (Germany, Austria, etc…)
› Multicash

43. CASH ALLOCATION
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WW-Accepted formats
› Main Standard Tables used in RFEBKA00 (T CODE: FF_5)
› FEBKO
› Electronic Bank Statement Header Records
› House bank, Account ID, GL Account, statement date, etc..
› FEBEP
› Electronic Bank Statement Line Items
› Documents posted, payment amount, payment currency, etc…
› FEBVW
› Electronic Banking Management Records
› Bank data
› FEBRE
› Reference record for electronic bank statement line item
› Customer Name, Invoice References, etc…
› FEBCL
› Clearing data for an electronic bank statement line item
› Customer number (found), invoice reference (found)

44. CASH ALLOCATION
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WW-Accepted formats
› Customizing -Postings

45. CASH ALLOCATION
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WW-Accepted formats
› Define Search String for Electronic Bank Statement
SPRO→SAP Reference IMG →Financial Accounting →Bank Accounting →Business Transactions →Payment Transactions →Electronic Bank Statement
→Define Search String for Electronic Bank Statement

46. CASH ALLOCATION
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WW-BadI’s/user exits/enhancements
› BADI -FIEB_CHANGE_BS_DATA
› Before bank statement interpretation, where the Man

47. CASH ALLOCATION
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WW-BadI’s/user exits/enhancements
› User Exit -FEB00001 (Electronic account statement)
› Find the customer based on user behavior

48. CASH ALLOCATION
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WW-BadI’s/user exits/enhancements
› User Exit -FEB00001 (Electronic account statement)
› After Standard algorithm Interpretation
› If the posting period for GL Bank Account is closed. The documents ate posted in the system date (current
date)
› Find customer based on the name that comes in the bank statement
› If the sum of the invoices with “dunning block” is the same as payment, selects it.
› If the sum of the invoices with “promised for” is the same as payment, selects it.
› If the sum of the overdue invoices is the same as payment, selects it
› start summing the older invoices until find the same amount as payment
› BadI: FEB_BADI
› Before the posting, it possible to manipulate all, examples:
› Company code
› Document type
› Amounts, texts, etc….

49. CASH ALLOCATION
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USA –Lockbox
› Fil

50. CASH ALLOCATION
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USA –Lockbox

51. CASH ALLOCATION
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USA –Lockbox
Main Standard Tables used :
› FEBKO
› Electronic Bank Statement Header Records
› House bank, Account ID, GL Account, statement date, etc..
› FEBEP
› Electronic Bank Statement Line Items
› Documents posted, payment amount, payment currency, etc…
› FEBVW
› Electronic Banking Management Records
› Bank statement data
› AVIK
› Payment Advice Header Bank statement data
› AVIP
› Payment Advice Line Item

52. CASH ALLOCATION
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USA –Lockbox

53. CASH ALLOCATION
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USA –Lockbox
› Enhancement in RFEBLB20
› After Standard algorithm Interpretation
› If the posting period for GL Bank Account is closed. The documents ate posted in the system date (current
date)
› Find customer based on the name that comes in the bank statement
› If the sum of the invoices with “dunning block” is the same as payment, selects it.
› If the sum of the invoices with “promised for” is the same as payment, selects it.
› If the sum of the overdue invoices is the same as payment, selects it
› start summing the older invoices until find the same amount as payment
› BadI: FEB_BADI
› Before the posting, it possible to manipulate all, examples:
› Company code
› Document type
› Amounts, texts, etc….

54. CASH ALLOCATION
ROFF PRESENTATION NAME 54
Conclusion
With the appropriate business Rules Automatic cash allocation can be increased from 30 to 80 %

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ROFF PRESENTATION NAME 55
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