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difference between credit limit and commitied limit

Former Member
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difference between credit limit and commitied limit

Accepted Solutions (0)

Answers (3)

Answers (3)

jitin_chawla
Active Contributor
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Hi,

You can check Note No. : 898665 regarding the detailed explanation on the Credit Limit and the Commitment limit.

Various threads on the SAP Business One Forum are available were you can find the discussion of the same as well.

Kind regards,

Jitin
SAP Business One Forum Team

KennedyT21
Active Contributor
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Hi Meghanath Sunkara...

Credit and commitment limits determine the credit line that can be extended to the customer. They are used as thresholds to control customer's Account Balance. Essentially, it is a way of ensuring that customers pay for their goods before more goods are sold to them. 

The Credit Limit determines the actual balance of the Accounts Receivable from the customer.  The credit limit is defined for the customer in the Business Partner Master Data - Payment Terms tab. To calculate a customer's remaining credit limit, the following formula is used:

Remaining Credit = Credit Limit - Account Balance

The Commitment Limit is similar to the Credit Limit. The only difference is that the Commitment Limit takes un-deposited cheques and postdated cheque deposits into consideration. The customer's commitment limit is defined in the Business Partner Master Data - Payment Terms tab. As the commitment limit takes un-deposited cheques and postdated cheque deposits into consideration, it is a recommended to set the commitment limit higher than the credit limit. To calculate a customer's remaining commitment limit, the following formula is used:

Remaining Commitment = Commitment Limit - (Account Balance + Un-deposited Cheques + Postdated Cheque Deposits)

898665  - Credit limit and Commitment limit....

Symptom

What is the difference between 'Credit Limit' and 'Commitment Limit'? How are the remaining credit and commitment amounts calculated?

 

Cause

Consulting

 

Solution

CREDIT LIMIT
This is the amount of credit allowed/extended to the Business Partner.

The remaining credit is calculated as:
Remaining Credit = Credit Limit - Account Balance

COMMITMENT LIMIT:
This is similar to the 'Credit Limit' but with the inclusion of  undeposited cheques and postdated cheques which have already been deposited, but their payment date has not yet been reached.

The remaining commitment is calculated as:
Remaining Commitment = Commitment Limit - [Account Balance + Undeposited Collections + Deposited (Postdated) Cheques]

The 'Account Balance' is typically based on the invoiced transactions  from the 'Account Balance' field of the Business Partner Master Data. To include the delivered transactions in the 'Account Balance' computation, tick the 'Consider Deliveries Balance' option in the General Settings -> BP tab of the Administration module.

Cheques and cash from 'Incoming Payment' are 'deposited' in the system using the 'Deposit' function of the Banking module.

Note:
When posting deposits for pre-dated cheques, the system considers them  as cash cheques. Accordingly, they are no longer considered in the calculation of the remaining commitment limit.

When posting deposits for post-dated cheques prior to the cheques' due  dates, the status of these cheques will be updated to 'Postdated'. Once  they are deposited on their due dates, they will be considered as 'Cash'. Hence, they are not considered in the commitment limit  calculation.

 

Hope helpful

Regards

Kennedy

kothandaraman_nagarajan
Active Contributor
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Hi,

The term can apply to pending sales and invoices only (Maximum Credit) or to the balance of the customer account (Commitment Limit). The values you specify here are proposed automatically when you create a customer master record

Thanks & Regards,

Nagarajan