In Oracle Credit Management, credit recommendations are made in two ways:
Automatic:
Oracle Workflow can create a credit application and case folder, calculate a score using the assigned scoring model, and use the scoring model's automation rules to arrive at a final credit recommendation, all without user intervention.
Manual:
A credit analyst can make a credit recommendation at the conclusion of a manual credit analysis.
But how are those credit recommendations actually approved and implemented?
During setup, you decide which recommendations require approval. For example, certain risky credit recommendations might require approval by a defined list of approvers.
On the other hand, you might want less risky credit recommendations to be immediately implemented without approval.
This decision about whether to approve credit recommendations is another dimension of credit policy management:
For credit recommendations that do not require approval, you implement this type of policy using the Skip Approval check box during scoring model definition. See: Bypassing the Approval Hierarchy.
For credit recommendations that require approval, Credit Management works with Oracle Approvals Management (AME) to manage the list of required approvers.
When a credit review is submitted for approval, Credit Management passes the credit analyst ID to Approvals Management.
Note: If no credit analyst is assigned to a credit review, then the credit review must be routed to the Credit Scheduler first, before Credit Management can initiate the approval process with Approvals Management.
Approvals Management uses the HR hierarchy to determine the appropriate approver for that particular credit review, and returns the approver ID to Credit Management. Credit Management uses Workflow to send a notification to the identified approver. Upon approval, Credit Management passes the approver's ID back to Approvals Management.
If an additional approver is required, then Approvals Management returns the next approver's ID. The cycle repeats until Approvals Management returns a null value; this tells Credit Management that the approval sequence has concluded. At this point, Credit Management implements the recommendation, assigns a status of Approved to the recommendation, and closes the case folder with a status of Closed.
See: Oracle Approvals Management Implementation Guide.
Depending on the associated risk, a credit recommendation typically requires approval from one or more persons in your enterprise. As described above, Approvals Management derives the list of approvers based on approval rules set up in that application.
If the associated risk is minimal, however, then you might decide an approval flow via Approvals Management is unnecessary.
To accomplish this, select the Skip Approval check box on the Create Automation Rule Details page for each recommendation that does not require approval. If a recommendation has Skip Approval enabled and the recommendation is selected according to the calculated credit score, then Credit Management automatically implements the recommendation without calling Approvals Management for a list of approvers.
This Skip Approval option lets you automatically implement credit recommendations without the defined approval hierarchy in all but the riskiest of cases.
Suggestion: Typically, all scoring models will have automation rules. For a set of automation rules, you might enable the Skip Approval option on:
the lowest credit score range, to automatically implement the rejection recommendation due to high risk
the highest credit score range, to automatically implement the approval recommendation due to low risk
You might require approval, however, for the mid-range credit score.
Consider Company ABC:
Credit classification is Medium Risk
Existing credit limit is $100,000
Pending orders and outstanding invoices equal $95,000
Also consider the following credit policy that your enterprise defines for Company ABC, should ABC surpass its existing credit limit:
During a credit review, if the customer scores 71 or higher, then the credit limit is automatically increased to $200,000.
Implementation: For this credit score range, the Skip Approval check box is selected.
If the customer scores 50 or higher, but below 71, then the credit limit is increased to $150,000, but approval by the sales department is required.
Implementation: For this credit score range, the Skip Approval check box is not selected.
If the customer scores less than 50, then the workflow fails and the credit review is automatically passed to a credit analyst for manual processing.
Implementation: This credit score range does not exist on the scoring model's automation rules.
What actually happens?
When ABC places an order in the amount of $10,000, the order is automatically placed on hold and a request for a credit review is automatically generated.
The scoring model calculates a credit score using the included data points, with a higher credit score indicating less of a credit risk. Below are examples of outcomes based on the calculated credit score:
A credit score is calculated between 71 and 100:
A recommendation to change the credit limit to $200,000 is added to the case folder, and is assigned a status of Approved.
Credit Management initiates the process to change the credit limit.
The case folder is assigned a status of Closed.
A credit score is calculated between 51 and 70:
A recommendation to change the credit limit to $150,000 is added to the case folder.
Credit Management works with Approvals Management to notify the appropriate people in the sales department for approval.
Once approval has been granted, the recommendation is assigned a status of Approved, Credit Management initiates the process to change the credit limit, and the case folder is assigned a status of Closed.
A credit score is calculated between 0 and 50:
The automatic process stops and a notification is sent to the assigned credit analyst or credit manager for further action.
Approvals Management is set up with Credit Management to use the HR hierarchy to determine the approval chain.
However, you can leverage Approvals Management to accomplish other, more complex approval list functions. For example, you can set up a list of approvers based on:
Credit request amount
Job role or level, as defined in Oracle HRMS
You also have the flexibility to define a list of either parallel or sequential approvers.
For example, for orders placed on hold, perhaps your enterprise defined the following credit policy:
For orders $500 or less, the approval list should be Jane, a credit analyst, and Bob, her credit manager.
For orders over $500, the approval list should be Bob, the credit manager, and Mary, the vice-president of Finance.
You can define the above approval lists in Approvals Management.
In Credit Management, you might also define the following exception to the above Approvals Management rules:
If the customer credit classification is Low Risk, the credit review type is a periodic credit review, the credit score is above 80, and the order on hold is less than $500, then no approval is required to implement a credit recommendation. In other words, the Skip Approval check box would be enabled for this particular combination.