Order-to-cash controls: Customer credit-granting and credit checks should be embedded primarily in which application subsystem so that risky orders are held before fulfillment?

Introduction / Context:
Effective credit control prevents shipping to delinquent or over-limit customers. The best control point is early in the order-to-cash (O2C) process so that downstream costs (picking, packing, shipping) are not incurred for unapproved credit risk. This question asks where that control belongs.

Given Data / Assumptions:

• Orders enter the system through the sales order entry (SOE) function.
• Credit policies and risk limits are defined centrally (often in A/R or credit management).
• The goal is to block or review risky orders before fulfillment.

Concept / Approach:
Embed credit checks in the sales order entry subsystem: when an order is captured, the system validates the customer’s status, exposure, and credit terms. If limits are exceeded or accounts are on hold, the order is routed for approval or put on credit hold, preventing fulfillment activities from starting unnecessarily.

Step-by-Step Solution:

Verification / Alternative check:
ERP systems (for example, SAP SD, Oracle Order Management) execute automatic credit checks during order entry and block orders exceeding exposure or past-due thresholds.

Why Other Options Are Wrong:

• Inventory control: Manages stock, not credit exposure.
• Accounts receivable: Owns policy and balances but the check must occur at order entry to be preventive.
• Sales analysis: Reporting, not transactional control.
• None: Incorrect because credit checks belong in SOE.

Common Pitfalls:
Performing credit checks only at invoicing, which is too late; or bypassing holds via manual overrides without authorization.

Final Answer:
sales order entry system