In the previous versions of D365 F&O, there were crucial features missing around credit management. That’s why I have seen many developments in that area of the ERP.
Fortunately, Microsoft released a brand new feature called credit management that covers most business cases that I have encountered. However, there is a big limitation in some industries as project invoices are not covered by the credit management feature yet.
First you need to activate that feature in the Feature management workspace.
The credit management functionality is embedded in the Credit and collection module. The credit management process can include any of the following steps :
- Create/update credit limits for customers
- Create temporary credit limits to temporarily increase or decrease customer credit limit
- Add information about insurance and guarantees
- Create customer credit groups that link customers together so that they share a single credit limit.
- Assign risk scores to customers
- Set up a workflow to manage the approval of credit limit changes and sales order releases
- Set up advanced blocking rules for sales order
- Put sales order automatically on hold
Navigate to Accounts receivable > Customers > All Customers, then select a customer
Extend the Credit and collections tab
I would like to focus on some fields.
A] Account status: it shows when a customer is blocked and for which reason. That field is linked to the Invoicing and delivery on hold field.
When you update the account status, it updates automatically the Invoicing and delivery on hold field.
B] Customer since: That information helps you identify long term relationships you have with some customers. It might also be used to calculate the risk score.
C] Last review date: Credit limits need to be reviewed every month/quarter/year and that field helps the credit team to generate reports that list the customers that need to be reviewed.
D] Credit limit in customer’s currency: it is a game changer for companies that sell internationally. The credit limit can now be maintained in the customer’s currency.
E] Insurance and guarantees: That field cannot be populated manually. The amount insured is inherited from the insurance stored in the insurance and Guarantees form. It is explained later in that article.
The credit limit is detailed in the following chapter.
Create/update credit limits
The credit and collections parameters drive the logic how to manage credit limits in D365 F&O
- Do you agree to let users adjust credit limits manually ?
- Which exchange rate type do you want to use when the credit limit is converted in the customer’s currency?
- Do you want to use the Credit limit used rule ?
Navigate to Credit and collections > Set up > Credit and collections parameters, then go to the Credit tab
Extend the Credit limits fasttab
If Allow manual editing of credit limits is not marked, a credit adjustment journal is needed to populate the credit limit of a customer. A workflow can be activated to approve credit limit requests, credit limit adjustments, and temporary credit limits.
Navigate to Credit and collections > Credit limit adjustments > Credit limit adjustments
There are two types of adjustment that you can select as shown in the following screenshot.
💬: A temporary credit limit is only valid for a period of time (From date.. To Date), especially when there is a significant rise in sales in a specific month for instance.
We select “Credit limit” as we want to create a credit request to populate the credit limit of a customer.
Select the customer, enter the new credit limit, and select the expiration date.
In our case, there is no workflow for approval. It depends on the size of your company as in international companies the segregation of duties forces us to activate an approval workflow.
In addition, you can develop an interface with your credit insurance company to automate the population of credit limits on customers. For instance, Euler Hermes provides SmartLink that integrates their business intelligence into your ERP systems. You can get Euler Hermes data (Customer data, credit requests answers…) in real time.
Please open that URL if you would like to deep dive: https://www.eulerhermes.co.uk/support/services/smartlink.html
Credit insurance companies protect companies against potential non-payment by their customers. Credit insurances are subscribed by companies to protect themselves from that risk.
Two types of contracts are available:
Navigate to Accounts receivable > Customers > All Customers, then select a customer and extend the Credit management tab in the action pane
Click Insurance and guarantees
Select the type of contract, the insurer/Guarantor, the coverage type, the contract dates, the value insured or guaranteed.
You can also choose to increase the credit limit by a certain amount when you sign a coverage contract with your credit insurance company.
A sales order is put on hold automatically based on blocking rules.
Indeed, rules can be used to place a sales order on credit hold. There are two rule types:
Navigate to Credit and collections > Setup > Credit management setup > Blocking rules
For instance, as soon as one invoice is overdue for the customer US-001, all sales orders raised for that customer will be put on hold automatically.
There are two additional settings that control scenarios that will block a sales order:
- Change in payment terms
- Change in settlement discounts
Blocked sales orders are sent to credit management.
Navigate to Credit and collections > Credit management hold list > Open credit holds
Select Blocking reasons to check why this sales order was put on hold
💬: One parameter is crucial to understand if you want to reduce the number of sales orders put on hold because of ‘credit limit expired’ reason.
I recommend to mark Ignore credit limit expired rule when expiration date is blank in the Credit holds tab of the Credit and collections parameters form
Once a sales order is on hold, you need to evaluate that there are still reasons to keep it on hold any longer.
On Tuesday a sales order is put on hold because the customer has an overdue balance.
On Wednesday, you receive a payment from that customer and you book it in D365 F&O through a customer payment journal. That payment settles all overdue invoices and that means there are no appropriate reasons to keep that sales order on hold anymore. That’s why, I recommend you to set up a batch job to run that evaluation every day.
Select Evaluate blocking rules, then click on Process blocking rules
It opens that dialog
Mark Batch processing and set up the recurrence
The credit controller can also release or reject manually a sales order or multiple sales orders (by selecting more than one line).
Once released, you keep a track of those released sales orders which is a good thing. You can identify who released it as well.
Navigate to Credit and collections > Credit management hold list > Closed credit holds
That’s it for today. I will cover other credit management topics in another article.
I hope it helps you understand a little more how you could leverage those functionalities.