Letter of Credit

[Former Member]

Hi SAP Gurus,

Configuration settings for Letter of Credit. Please explain in detail.

[Former Member]

For configuration settings of Letter of credit, you have to go through the documentary Payments - Cockpit, where step by step procedure is given on how to configure documentary payments. The link is given below.

http://help.sap.com/saphelp_470/helpdata/en/75/14e208133a11d3952d0000e83dcfd4/frameset.htm

Brief description of LOC:

Letter of Credit: A letter issued by a bank to obtain payment for goods. When a letter of credit is confirmed, the advising bank guarantees payment only if all stipulations in the letter of credit are conformed to exactly.

1.The importer first request a quote for merchandise. This may or may not include transportation and insurance costs.

2.The importer prepares a purchase order based on the offer received from the exporter.

3.The exporter creates a proforma invoice and sends it to importer.

4.The importer opens a letter of credit with the opening bank in the country of import.

5.The opening bank sends the letter of credit to the advising bank in the exporters country.

6.The advising bank advises the exporter that a letter of credit has been opened in his favor.

7.The exporter ships the merchandise in accordance with the terms stipulated in the LOC.

8.The exporter gives the documents proving that the shipment was made in conformance with the LOC to the advising bank.

9.The advising bank pays the exporter based on the documents received.

10.The advising bank transfers the documents to the opening bank and receives payment.

11.The opening bank gives the document to the importer.

12.The importer calculates the duty rates, file the declaration with customs and pays the customs duties within the time frame required by law.

Reward Points if helpful

Regards

AK

[Former Member]

hi!! Perraju,

The LETTER OF CREDIT can also be the source of payment for a transaction, meaning that an exporter will get paid by redeeming the letter of credit. Letters of credit are used nowadays primarily in international trade transactions of significant value, for deals between a supplier in one country and a wholesale customer in another. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, stormwater ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Since nowadays almost all letters of credit are irrevocable, (i.e. cannot be amended or cancelled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any). However, the applicant is not a party to the letter of credit. In executing a transaction, letters of credit incorporate functions common to giros and Traveler's cheques. Typically, the documents a beneficiary has to present in order to avail himself of the credit, are commercial invoice, bill of lading, insurance documents. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped.

• REWARD IS HELPFUL..

Regards

AKASH