In this post I wanted to explore the automatic credit limit updates but I soon found out this feature contains more than just automatic credit limit allocations. Users can now also use customer credit groups, insurance policies and guarantees. These features are fundamental in every Dynamics 365 for Finance and Operations implementation. They are a great addition to the product.
First I will explain the automatic credit limit concept and then I will demonstrate how to:
view and update risk scores
update credit limits
configure scoring groups, risk classifications and automatic credit limits
manage temporary credit limits
exclude customer from automatic credit limits
work with multi-currency credit limits
use customer credit groups
create insurance policies and guarantees
Automatic credit limit overview
Automatic credit limits rely on a (risk) point system. Points can be allocated based on a number of fields but can also be allocated based on transactional data such as the average 12 months customer balance. You can configure automatic credit limits to give a high credit limit to customers with a low calculated score or give the highest credit to the highest scoring customers.
The customers risk score will determine the risk group. The risk group itself is not linked to a single credit limit but the risk group has a conditional credit limit system. The conditional evaluation method assesses the scoring groups value to determine the credit limit.
To simplify this process, I have created a flow diagram. In this example the customer’s scoring group total is 120. A risk score of 120 falls within the Med risk group. The Med risk group is configured to check the customers ‘credit management group’ scoring group. The credit management group is a newly introduced field on the customer record. If the credit management group is set to A, the customer’s credit limit is set to 10,000. The combination of the customers score and the conditional score group have determined the credit limit. Users can use any of the scoring groups as conditions to set the credit limit.
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Update and view risk score
The Automatic credit limits, Risk Group / Risk classification and Scoring groups must have been configured before the risk score can be calculated. More information about these components can be found below.
Updating risk scores can be run periodically as a batch job.
Credit and collections > Periodic tasks > Credit management > Update risk score
This process will not update the credit limit but will only update the risk score. Once the update risk score operation has completed, you can view the risk score on the customer account.
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On the risk score page, you will find the breakdown of the risk score and the assigned risk group.
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This form is also used to update the input values for ‘user defined’ scoring groups.
Update credit limit
When using automatic credit limit updates it is recommended to disable the ‘Allow manual editing of credit limits’ parameters on the credit and collections parameters page. This will prevent users from updating the credit limit without using a credit limit adjustment journal.
Update the credit limit based on the automatic credit limit configuration:
Credit and Collections > Credit limit adjustments > Credit limit adjustments
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Create a new Journal and click Lines to open the credit limit adjustment journal.
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Click Generate > Automatic credit limits, enter the expiry date and click Ok.
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Review the adjustments if necessary and click post when done. Credit limit adjustment journals can also be configured to require workflow approval.
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The credit limit on the customer record has now been updated.
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Unfortunately, this process cannot be run as a periodic batch job.
Configuration elements
Enable feature
Enable feature ‘Credit management’ before you can use it.
Scoring groups
Scoring groups are the risk drivers. The customers risk score is determined based on the values against each scoring group. The following scoring group types can be used:
User defined Manually updated on the customer’s risk score overview Average payment days The average payment days of the customer Customer since New field on the customer record In Business since New field on the customer record DSO (12 months) The average 12 month Days Sales Outstanding Avg balance (12 months) The average balance on the customer account Credit management group New field on the customer record Country Retrieved from primary customer address
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Risk classification
The risk classification determines which risk score belong to which risk group.
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Automatic credit limits
Automatic credit limits are setup per risk group and currency code. Within each risk group the scoring group or groups will determine the credit limit. Dynamics 365 for Finance will evaluate the scoring groups based on the set sequence. If it finds a match, the credit limit will be allocated. Use the Up and Down button to prioritize scoring groups if necessary. Users can use different scoring groups within the same Risk group, however no combination of scoring groups can be used. As soon as a conditional match is found the credit limit is selected. If a complex scenario arises that requires a credit limit allocation based on a combination of scoring groups you may have to be creative when setting up the risk classifications.
Users can define conditions using the following comparison operators: Is, Is not, Greater than, Less than, Greater than or equal to and Less than or equal to.
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Temporary credit limits
The temporary credit limits exist alongside the standard credit limit and overwrite the main credit limit on the customer account. Temporary credit limits are created via credit limit adjustment journal with type temporary credit limit. Temporary credit limits can only be updated via a credit limit journal (posted as above credit limit adjustment journal).
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Only one temporary credit limit can exist during a specific date range, however the customer can have multiple temporary credit limits setup.
The temporary credit limit field is not displayed on the customer record unless a temporary credit limit has been created for that customer.
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All temporary credit limits can be found on the customer account via credit management > temporary credit limits.
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Exclude customer from automatic credit limits
Customer accounts don’t have to be setup using automatic credit limits, they can be excluded from the automatic credit limit calculation. This can either be achieved using the ‘unlimited credit limit’ or ‘exclude from credit management’ options on the customer record.
Multi-currency credit limits
Automatic credit limits can be configured per currency; however the automatic credit limit can also be left blank. If the currency field is left blank, Dynamics 365 for Finance will determine the customer credit limit based on the default exchange rate.
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The credit limits are defined in the company’s accounting currency. On the customer record the credit limit is presented in both accounting currency (USD) and the customers default currency (CAD).
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Use customer credit groups
You can define groups of customers who have a shared credit limit. The individual credit limit that is defined on the customer invoice account is also considered. Customer groups do not allow you to use automatic credit limits instead users have to define the credit limit themselves.
The customer groups credit limit is an additional validation on top of the customer specific credit limit. If the customer group credit is valid the customer’s individual credit limit will still be checked. If this is not desired the customer’s credit limit can be set to an unlimited credit limit using the unlimited credit parameter on the customer record.
Members of a customer credit group can be selected from different legal entities. When you add a customer to the list of customers in the customer credit group, the expiration date of the credit limit for each customer is changed to the expiration date that is assigned to the group.
Credit management > Customer credit groups > Customer credit groups
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After you've finished setting up a customer credit group, you can add customers to it by specifying their legal entity and customer account ID. When you add a new customer to a customer credit group, the system searches for the same customer account across all legal entities and prompts you to add it to the customer credit group.
Create insurance policies and guarantees
Insurance policies and guarantees increase the current credit limit and temporarily credit limit of the customer account. Before insurances and guarantees can be added, insurance/Guarantee types must defined and setup.
The effective dates determine when the increase credit limit should be applicable. The credit limit can be increased by a value or and by a percentage.
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