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Chapter 5
These problems should not arise with an integrated information system. When a sale
is made, the system immediately increases the customer’s accounts receivable balance.
When the company receives and records a payment, the accounts receivable balance is
immediately decreased. Because the underlying database is available to Accounting and
Marketing and Sales, sales representatives have access to up-to-date customer balance
information. Thus, sales representatives do not need to make a request to Accounting for
the customer’s accounts receivable balance.
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With that background, we can now consider how Fitter handles credit management,
using unintegrated systems.

Fitter’s Credit Management Procedures
As described in Chapter 3, when a new order comes in to Fitter, a sales clerk refers to a
weekly printout of a customer’s current balance and credit limit to see if credit should be
granted. Assuming the customer’s order would not present credit-limit problems, the sales
clerk enters the sale in the sales order entry system, which is a stand-alone computer
program. Sales data are transferred to Accounting by transferring files at the end of each
day. An accounting clerk uses the data transferred from the sales system to prepare
customer invoices.
Accounting must make adjustments for any partial shipments before creating an
invoice. The accuracy of the adjustment process depends on whether the warehouse
transmits order changes to Accounting in a timely fashion. After creating the invoice,
Accounting makes the standard revenue-recognition accounting entries: a debit to
accounts receivable and a credit to sales for the amount billed.
Accounting clerks also process customer payments. Clerks receive and manually
handle checks. They enter data in the accounting program, increasing the cash balance
and decreasing the accounts receivable balance. These data are later used to make
updates to individual customer accounts, reducing the amount that customers owe to
Fitter. If time permits, accounts are posted (and the bank deposit is made) on the day
payment is received; otherwise, the entries are done as soon as possible the next day.
Thus, there can be a delay between the time Fitter receives a check from a customer and
the actual reduction of the customer’s accounts receivable balance, which can lead to
mistakes in credit management.
Now let’s look at how SAP ERP could improve Fitter’s credit management process.

Credit Management in SAP ERP
The SAP ERP system allows a company to set a credit limit for each customer. A company
can configure any number of credit-check options in the SAP ERP system, including when
to check a customer’s credit (for instance, at order creation, at creation of the delivery
document, or at the goods issue) and who to notify when an order would cause a customer
to exceed its credit limit (for instance, the sales clerk or credit management personnel).
Figure 5-5 shows a dynamic credit check with Reaction C selected.
Reaction C means that if the order being saved will cause the customer to exceed its
credit limit, the system will issue a warning indicating the amount by which the order
exceeds the credit limit. Because the system is issuing a warning, the order can be saved,
but it will be blocked from further processing until the credit problem is cleared.

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