Finance and Accounting · Daily operations · 10 min read

Credit control and expected credit loss

Watch exposure against limits, approve time-limited credit overrides, group related customers, and work out and post the loss allowance.

Before you begin

• Customers have credit limits set on their records.
• Permissions: partner.view to read credit screens; document.confirm to request an override; credit.release to approve or refuse overrides, release reservations and apply the overdue rule; credit.limit.reveal to see credit groups; ecl.manage to build matrices and prepare runs; ecl.approve to approve matrices and post runs.

See exposure

Open Finance > Credit control > Credit position. The tiles count customers with credit, total limit, customers over the limit, on hold or blocked, with overdue balances, orders holding credit and overrides waiting. Each customer row shows Limit, Exposure (open invoices plus confirmed orders not yet invoiced), Available and Overdue.

When a sales order would take exposure over a hard-block limit, confirming it is refused with a credit-check message and a hint to ask for an override. Nothing is confirmed and no reservation is written.

Stop orders for overdue customers

1. On Credit position, enter the number of days (1 or more) in Hold customers overdue more than.
2. Press Apply the overdue rule. Customers with an item overdue longer are put on hold and the result lists who was held.

Request and approve an override

1. Open Finance > Credit control > Overrides and press Request an override.
2. Choose the Customer (blocked or blacklisted customers cannot be given one), May exceed the limit by, Works until (today to 90 days ahead), the Why and the Evidence.
3. A different user with credit.release presses Approve, or Refuse with a reason. The requester can Cancel their own request.
4. The salesperson then confirms the order.

Worked example. The limit is AED 100,000.00 and exposure is AED 85,000.00. An order of AED 30,000.00 would bring exposure to AED 115,000.00. An approved override of AED 15,000.00 lets it through; the excess used is the smaller of 30,000 and 115,000 - 100,000, which is AED 15,000.00. The override shows Used 15,000.00 and a reservation records exposure before 85,000.00 and after 115,000.00.

An override is bounded by amount and date. A second order that needs more than the room left, or one confirmed after the end date, is refused.

Reservations and credit groups

• Finance > Credit control > Reservations is the trail left by every order that took credit. States are Held, Consumed (fully invoiced) and Released (order cancelled, which also returns any override drawn). A standing order cannot be released by hand.
• Finance > Credit control > Credit groups: press New group with a Code, Name, Total limit and Policy (Block the order or Warn only), and add customers. A customer belongs to one group. Combined exposure of all members is held against the shared limit.

Expected credit loss

Build and approve a matrix

1. Open Finance > Configuration > Provision matrices and press New matrix. Enter code, name, the Allowance account, Expense account, optional Release credited to and up to eight aging buckets such as 30, 60, 90.
2. Enter rates per portfolio, risk and bucket: Loss rate % (0 to 100) and Overlay %. A blank portfolio or risk means any. Press Save rates.
3. A different user with ecl.approve presses Approve. An approved matrix is never edited; press New version instead. Approving the new version retires the old one.

Work out and post the provision

1. Open Finance > Credit control > Expected credit loss and press Work out the provision, choosing the As at date (today or earlier, after the last posted run).
2. Review exposure by bucket and the largest provisions.
3. A different user with ecl.approve presses Post.

Worked example. Bucket 0-30 has exposure AED 200,000.00 at 1%, giving 2,000.00. Bucket 31-60 has AED 80,000.00 at 5% with a +10% overlay, giving 80,000 x 5% x 1.10 = 4,400.00. The required allowance is 6,400.00. With 3,000.00 already in the ledger the adjustment is +3,400.00: debit ECL expense and credit the allowance by 3,400.00. If the need falls, the adjustment is negative and the allowance is released.

Unapplied receipts and credit notes are first taken off the oldest items.

Good to know

• A run goes stale if the allowance changes after it was prepared; cancel it and prepare it again.
• Exposure that matches no rate blocks posting. Add a rate row with no portfolio and no risk to cover everything.
• To undo, use Reverse this provision with a reason; a later run must be reversed first.