What is 'on-balance-sheet netting' in SAP FS-BA-PM-CR - Credit Risk?

on-balance-sheet netting - Overview

• Component: FS-BA-PM-CR

• Component Name: Credit Risk

• Description: The netting of balance sheet items in accordance with the requirements set out in the Basel II Accord.

on-balance-sheet netting - Details

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  Key Concepts: 
  On-balance-sheet netting is a feature of the Credit Risk Management component of SAP's Financial Services Business Application (FS-BA-PM-CR). It allows companies to reduce their credit risk exposure by netting out the value of their receivables and payables. This means that if a company has a receivable and a payable with the same counterparty, they can offset the two amounts and only have to pay or receive the difference. 
  
  How to use it: 
  On-balance-sheet netting can be used in SAP FS-BA-PM-CR Credit Risk Management by setting up a netting agreement between two counterparties. This agreement will specify the terms of the netting, such as which receivables and payables will be included in the netting, and how often the netting will be performed. Once the agreement is set up, SAP will automatically calculate the net amount due between the two counterparties and update their accounts accordingly. 
  
  Tips & Tricks: 
  When setting up an on-balance-sheet netting agreement, it is important to ensure that all relevant receivables and payables are included in the agreement. This will ensure that all potential risks are accounted for and that no unexpected losses occur due to missed payments or other issues. Additionally, it is important to review the agreement regularly to ensure that it is still valid and up to date. 
  
  Related Information: 
  On-balance-sheet netting is just one of many features