Oracle Apps Order Management - Overview of Credit Checking

The ultimate goal of Credit Management processes is to minimize the financial risk that your organization assumes as a result of day-to-day operations. Order Management's credit checking feature is the process by which orders are validated and released against your credit checking business rules. Using credit rules, system parameters, and credit profiles, Order Management credit checking verifies that your customer has a sufficient credit availability with your organization to allow orders to be processed and shipped in advance of payment.

Order Management enables you to perform credit checks on customer orders or order lines, and automatically hold orders or lines that violate your credit setup. Using Order Management credit checking effectively requires a complete understanding of the functional components as well as a careful consideration of timing and performance factors. For example,

• You can choose to perform credit checking automatically at pre-specified workflow events against real time transactional data or pre-calculated summary exposure amounts. Pre-calculated exposure amounts can be either:
• Real time transactional data summarized at a specific point in time.
• Exposure amounts imported into Oracle Order Management exposure tables.
• Real time transactional data summarized at a specific point in time plus exposure amounts imported into Oracle Order Management exposure tables.
• You can choose to perform credit checking across orders with different currencies within a single organization, specifying the currencies to include when calculating overall exposure amount.
• You can choose to perform credit checking across all organizations within a single operating unit.
• You can choose to perform credit checking on external transactions utilizing the credit check processes and exposure balances maintained within Oracle Applications.

Order Management Credit checking includes:

• Validating orders and lines against existing credit limits to enable continued flow through order and line workflows.
• Placing credit holds at either the order or line level, including notifications to appropriate parties of credit holds.
• The functionality to either manually release or schedule credit reassessment processes for order or line credit holds.
• Approvals for orders that exceed credit limits.
• Reporting and querying tools to effectively manage your credit processes and ensure credit holds are processed in a timely manner.

Depending upon your business practices, you may not want to perform credit check for all orders, but rather only those orders that could pose a credit risk. Orders that could be exempted from credit check can be:

• Orders of a given type. For example, you may want to exclude staff sales or internal sales orders from credit checks. Credit checking rules are assigned to order types. While setting up order types, if the credit check rule fields are left blank, this would automatically exclude orders of that type from credit check.
• Orders for a given customer. For example, a manufacturer may wish to exclude all orders from its largest customer from credit check. With Order Management and Oracle Receivables, excluding a specific customer from a credit check can be achieved by disabling the Credit Check flag for this customer in the individual customer profile.
• Orders for a given class of customer. For example, a manufacturer may wish to exclude all orders from internal customers from credit check. You can group all your internal customers into one Customer Profile Class, and then set up credit checking rules to exclude that profile class of customer. With Order Management and Oracle Receivables, while setting up a customer profile class, you can disable the Credit Check flag. Customers that have this customer profile class assigned to them would then be excluded from credit check.
• Orders for a given customer billing address. For example, a manufacturer may wish to exclude orders that will be invoiced to one of its' largest customer corporate headquarters from the credit check process. With Order Management and Oracle Receivables, the individual bill-to sites can have a different transaction profile from the parent customer. While setting up the bill-to site profile, enabling the Credit Check flag determines whether orders billed to that address will be credit checked.
• Order lines with a given payment term. For example, order lines with a cash on delivery payment term can be excluded from the credit checking process. With Order Management and Oracle Receivables, the payment terms also have a Credit Check flag. Disabling this flag will automatically exclude order lines with that payment term from the credit evaluation. Only those lines that have payment terms with credit checking turned on are compared against the credit limits.
• Order lines that are paid via Commitments. These lines are in effect prepaid, so you do not need to credit check them.
• Orders with payment type = Credit Card. These orders will have credit card authorization in place of credit checking.

When using Oracle Order Management to define your credit management policies, you should familiarize yourself with the following Oracle credit check concepts:

• Credit Profile
• Credit Check Rules
• Credit Usage Rules

Credit Checking Components

The Credit Check process can be performed for orders or order lines, and the determination on whether credit checking is performed is based upon all of the following:

• the credit check rule definition and order type the definition is attached to
• order or line payment terms.
• enabled credit profiles.

Credit Checking will only occur for an order or line when all three levels enable credit checking. If one level disregards credit checking, credit checking does not occur for the order or line.

Credit Exposure

When you perform credit checking in Order Management, you determine what type of exposure to use when determining credit worthiness. Order Management enables you to perform credit checking against real time transactional data or current exposure amounts stored in exposure summary tables.

• Real time transactional data is all related transactions which are summarized at the point credit checking is invoked.
• Current (pre-calculated) exposure amounts can be either:
• Real time transactional data summarized at a specific point in time or
• Exposure amounts imported using the Credit Exposure Import concurrent program.

When defining your Credit Check rules, you specify the type of exposure to utilize when performing credit checking.

Credit Check Rule

Definition

Credit Checking Rules within Order Management enable you to specific how you will determine credit worthiness of orders when performing credit checking. Credit Check Rules are attached to Order Management Transaction Types using pre-specified workflow events as the credit checking trigger, and provide you with various options when determining your customer's credit exposure. For example, you might want to perform a high-level credit check before booking, but you may want to apply more specific controls before shipping the product to your customer.

In Order Management, separate credit checking rules can be assigned for use at the time of booking, pick release, purchase release, packing, or shipping within corresponding order or line workflow processes. You can also choose to perform credit checking at multiple points within an order or line workflow processes by selecting credit check rules for a combination of booking, pick release, purchase release, packing, or shipping.

Order Management Credit Check Rules enable and control:

• credit check level
• credit check hold level
• currency conversion type used during exposure calculations
• the exposure method used for validating credit checking
• whether to include open receivables balances, uninvoiced order balances, freight and special charges, or taxes
• Hold management procedures
• notifications of credit holds to appropriate personnel.

See: Defining Credit Checking Rules

Credit Checking Rule

Level

The Credit Check process can be performed at sales order header or sales order line level. Additionally, the payment terms used for orders and order lines must be enabled for credit checking to occur. See Payment Terms.

1. Order Header Level: Order Level credit check uses exclusively header level information ignoring different bill-to sites detailed at line level. Order level credit check uses the credit profile attached to the customer Bill-to site defined at order (header) level. Credit checking will use order totals and will evaluate credit exposure against the credit profile attached at header level, and holds are always applied at header level.

Note: Sales Order header level credit checking enables backward compatibility with previous credit check versions.

2. Order Line Level: Line level credit check uses data at the sales order line level. If you have sales order lines that are attached to different Bill To sites and if you want to use the specific credit profiles attached to those Bill To Sites, you should use Sales Order Lines level credit check.

Additionally, you could use line level credit check when you have defined customer relationships in your system and you actively use them in Order Management. In this situation, you are able to create a sales order whose lines could be attached to different bill-to sites owned by different customers.

Credit Checking Rule

Hold Level

You can choose to place credit holds for orders or lines that fail credit check validations at either the sales order or sales order line if you use order line level credit checking. Credit checking holds are automatically placed based upon your credit rule definition, and you can automatically release order or order line credit holds when a customer's credit exposure has been reduced to a point that enables credit checking validation to pass successfully. You automatically release credit holds by scheduling the Credit Check Processor concurrent program to run at specific intervals.

Credit Checking Rule

Override Manual Release (check box)

In previous releases of Oracle Order Management, you had the ability to manually release order or line credit check holds that were placed by credit check process. However, no additional credit checking of manually released credit holds occurred.

You can now specify whether or not you wish to enable additional credit checking if an order or line credit check hold was released manually. The Override Manual Release check box, used in conjunction with Days to Honor Manual Release field, enables you to define the duration (number of days) you will forego additional credit checking if an order or line credit check hold is released manually.

Your Order Management Transactions Type definitions will control whether or not additional credit check processing can occur for manually released holds (credit check rules entered for booking, pick release, purchase release, packing, or shipping within your transaction type definitions).

Credit Checking Rule

Days to Honor Manual Release

This field, in conjunction with the Override Manual Release check box, enables you to define the duration (number of days) manually released holds will be honored and not overridden by additional credit checking processes.

For example, suppose you have defined a credit check rule in which you have enabled the Override Manual Release check box, with a value of 15 within the Days to Honor Manual Release field. Assume that this credit check rule is assigned to the transaction type as a credit check rule for booking and shipping. If you manually release an order or line from credit check hold after booking, and if you ship the order or order line within 15 days, Order Management will not enable credit checking to occur again. However, if you ship after Day 15, then Order Management will enable the credit checking process to be invoked again.

Credit Checking Rule

Conversion Type

Conversion types for credit check rules enable you to model a fixed exchange rate between currencies or use an average exchange rate. When performing credit checking, the credit limit currency does not necessarily have to be the same as the functional currency. Conversion types are limited to the values you define within the Oracle General Ledger Conversion Rate Types window.

Credit Checking Rule

Exposure

You can choose how you wish to validate credit worthiness during credit checking by determining the exposure method used.

Previous versions of credit checking calculated customer exposure accessing underlying transactional tables. When a credit check request was executed, underlying transaction tables were summed to generate customer balance information.

In order to improve performance, Oracle Order Management has incorporated an additional option, the use of pre-calculated exposure. Using this option, credit checking will validate exposure against balance information stored in a summary table. The summary table is updated as often as your business practices require, and updates to the table are performed by submitting a concurrent program. This program accesses both Oracle Receivables and Order Management transactional tables, and should be scheduled to run periodically, based on your specific business needs.

Credit Checking Rule

Values to include within exposure calculation

Your credit checking rule definition can include or exclude the following credit related details when calculating credit exposure:

• open receivables balances
• uninvoiced order balances
• freight and special charges
• taxes
• payments at risk

Credit Checking Rule

Notifications

You can choose to send notifications whenever a sales order or order lines fails credit check. The notification is sent to the person who created the order.

Order Management Order Transaction Type

Order Management Order Transaction Types enable you to also control when credit checking occurs and the credit check rule to be utilized when calculating credit exposure (outstanding credit balance) by assigning credit check rules to Order Management Transaction Types.

When you assign a credit check rule to a transaction type within the Order Management Transaction Types window, you enable credit checking for all orders or order lines which use the order type. Select a credit check rule for an order type by selecting a credit check rule within the Booking, Pick Release and Purchase Release, Packing Or Shipping fields of the Credit Check Rule region.

You can assign the same credit check rule to a single function (field), multiple functions, or all functions, or use a different credit check rule for each function, depending upon your business needs.

Payment Terms

Payment Terms specify the due date and discount date for payment of an invoice. Payment terms also enable you to choose whether or not the payment term will be used for controlling credit checking. Each payment term can be enabled for credit checking by selecting the Credit Check check box for the payment term so you never unnecessarily perform credit checking.

All orders, except orders with a Payment Type of Credit Card are included when exposure calculations are performed, regardless of their payment terms. If an order is to be paid by credit card and has already been approved (approval date not null) it will never be included in exposure.

Credit Profiles

Credit profiles define the maximum financial risk you are willing to withstand on your regular operations. The Credit Check check box in the credit region of the Standard Customer window (for the customer master record) must be enabled in order to perform credit check. You can define the credit profile information at the following levels:

• Customer and Customer Site: This profile defines your credit policies for individual customers or customer sites. You can accept the default credit policies from a Customer Profile Class, or you can customize credit limits to fit the particular customer.

You can implement credit policy changes by modifying a Profile Class and cascading the changes to individual Customer Profiles. Check current limitations for multi-currency credit check set up.

• Organization: This type of Credit Profile is used to define an organization's (operating unit) credit policy for credit control and credit checking. It is used as a default when customer/customer site credit profile is missing.

Organization Default provides a higher level in the customer profile hierarchy (customer site - customer - organization default), and the fulfilled credit profile at operating unit level enforces credit checking for any customer which does not have credit limits defined at the customer or site level.

• Item Category: Item Category Credit Profiles enables you to define credit information by Order Management Item Category.

Item Category credit profile is completely independent from customer credit profiles. Item-category credit check will place a credit hold for transaction amounts over pre-defined category credit limits.

Item Category credit profiles can be used to model credit limits such as service line for insurance coverage which can prevent you from shipping materials that exceed a pre-defined monetary limit.

There is an embedded hierarchy provided by credit checking routines for establishing credit information between the following entities:

• Customer Site
• Customer
• Organization Default

When customer site and customer credit profiles do not exist, the Organization Default credit profile is used, if it exists.

Global Credit Checking

With this release, Oracle Order Management enables you to perform global (across multiple operating units) credit checking. Global credit checking ensures that all organizational data, irrespective of the operating unit, is considered during the credit checking process. You enable global exposure credit checking if you select the Global Exposure checkbox when defining Credit Usage Rules.

Global Credit checking is currently only enabled at the following levels in the credit checking hierarchy:

• 1. Customer level credit checking: Global credit checking will use the overall credit limit defined at the customer level for all operating units.
• 2. Organization (org) Default level credit checking: Global credit checking will use the overall credit limit defined at the organizational level for all operating units within the organization.

The credit check engine will identify the overall limit (which level within hierarchy) to utilize for credit checking, calculate the credit exposure for all the operating units, and then validate the calculated exposure against the overall credit limit selected.

Multi-currency Credit Check

You can perform multiple currency credit checking by sharing credit limits across currencies you specify.

With Single currency credit check you must define a credit limit profile in each currency if you want to control your customer exposure in that currency. In other words, every currency is treated individually for credit check purposes.

With Multi-currency credit checking, you need to define just one credit profile (i.e. in US dollars) and share it among the other currencies.

Multi-currency Terminology

• Usage Rule Sets: Usage rule sets define the set of currencies that are involved in a specific credit check process. A usage rule set specifies which transactions (based upon transaction currency) qualify for use with a credit limit.

Usage Rule Sets can be assigned to a customer profile class, or credit profiles: customer, customer site, item category, or organization. If you do not assign a credit usage rule set to your credit profiles, then the credit checking is performed as Single currency credit check.

Support for Credit Checking External Transactions against exposure balances maintained within Oracle Order Management (OE_EXTERNAL_CREDIT_PUB)

With this release, Order Management enables you to perform credit checking of external amounts utilizing the Oracle credit check process and exposure balances maintained within Order Management. The API essentially perform the same credit checking process as the Order Management credit check engine except for the differences listed in the table below:

OM Credit Check Engine	Check External Credit API
Validate if the item categories flag is enabled for the credit check rule. If, enabled, perform item category credit check for each item category of the sales order.	Item category limits will not be checked. The API will give an error if the credit check rule has the item categories flag enabled.
Check that the Credit Check flag is specified for the customer profile and payment term. If either of these items are not enabled, do not perform credit check for the sales order.	Ignore the Credit Check flag setting at the Payment term. Only the Credit Check flag specified at the default/customer/site credit profile is validated to see if credit checking will be performed. For anything else, it is assumed that credit check is needed when the API is called. It is up to the calling program to determine credit check should be done or not.
The credit check level (order / line) selected for the credit check rule setup determines what level the credit engine will perform.	The API will only allow credit check rules that utilize order level credit checking; the API does not support line level credit checking and will error out if a line level credit checking rule is provided.
If the Send Holds Notification check box is enabled for the credit check rule, the credit check engine will send a workflow notification to the creator of the sales order when a credit hold is placed on the sales order.	The API will not send any notifications. It will ignore the Send Hold Notifications flag set at the credit check rule.
When an order fails credit check, it is placed on credit check hold. The hold contains the reason for the failure.	When an order fails credit check, a reason is returned to the calling program in addition to the Failure result. It is up to the calling program to take appropriate action, such as placing the sales order on credit check hold.

Given a credit check rule, a bill-to site, and the transaction amount and currency, the API will credit check the amount against the credit limits and exposure within Oracle Applications and return the result of the credit check. The calling routine then can perform the appropriate action depending on the result of the check.

You must create a custom program that can execute PL/SQL procedures to utilize the Check External Credit API. For each sales order in the external system, a call will need to be made to the Check External Credit API to credit check against the exposure data stored inside Oracle Order Management. Prior to executing the call, ensure the following:

• Group all the lines for the external transaction into a single amount and single currency, along with the credit check rule to utilize.
• Determine appropriate customer (Bill To site) within Oracle Applications to associated your external transactions with.

The API will return the result of the credit check.

• Depending on the result of the check, the custom program can take the appropriate action for the sales order such as place a credit hold on it.