What is LEQ factor in SAP FS-BA-PM-CR - Credit Risk?

SAP Term: LEQ factor

• Component: FS-BA-PM-CR

• Component Name: Credit Risk

• Description: Loss equivalent factor Classifies the particular part of a free externally committed credit line that is expected to be utilized at the time the business partner defaults.

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• Key Concepts: 
  LEQ factor stands for Loss Expectancy Quotient factor and is a component of the Credit Risk Management module in SAP. It is used to calculate the expected loss of a customer based on their credit rating. The LEQ factor is calculated by taking into account the customer's credit rating, the amount of credit extended, and the probability of default. 
  
  How to use it: 
  The LEQ factor is used to determine the expected loss of a customer based on their credit rating. To calculate the LEQ factor, you must first determine the customer's credit rating. This can be done by using a credit scoring system or by manually assessing the customer's financial situation. Once you have determined the customer's credit rating, you can then calculate the LEQ factor by multiplying the amount of credit extended by the probability of default associated with that credit rating. 
  
  Tips & Tricks: 
  When calculating the LEQ factor, it is important to remember that it is only an estimate and should not be used as a definitive measure of risk. Additionally, it is important to consider other factors such as industry trends and economic conditions when assessing a customer's risk level. 
  
  Related Information: 
  The LEQ factor is just one component of Credit Risk Management in SAP. Other components include Credit Limit Monitoring, Credit Exposure Analysis, and Credit Risk Reporting. Additionally, there are various tools available in SAP that can help you manage your credit risk more effectively, such as Credit Risk Analytics and Credit Risk Dashboards.