Hi,
Determining the Form of Payment Guarantee
Use
As more than one form of payment guarantee can be activated, you need a priority list to determine which form of guarantee should be used at a certain time.
This list is contained in the payment guarantee procedure which you can define in Customizing for Sales and Distribution. It contains all the forms of payment guarantee permitted for the payer and document type, and controls the sequence in which the system assigns the sales document items to the forms of payment guarantee.
The system cannot assign a form of payment guarantee to a document if it has not been defined in the payment guarantee procedure.
The payment guarantee procedure is dependent on the customer and a document payment guarantee procedure. These can be determined in Customizing for Sales and Distribution.
Customer payment guarantee procedure
If you enter a sales document for a certain customer, the system uses the customer payment guarantee procedure to determine which payment guarantee procedure to use.
Document payment guarantee procedure
If you specify a certain type of sales document, the system uses a document payment guarantee procedure to determine which payment guarantee procedure to use.
The system combines the key for the document payment guarantee procedure in the sales document header and the key for the customer payment guarantee procedure in the customer master record to determine the payment guarantee procedure.
The system accesses the form of payment guarantee using the payment guarantee category and the following rules:
Payment cards are activated first if a payment card has been entered in the document.
Financial documentary payments are immediately active.
External export credit insurance is activated, if a valid contract exists.
Requirements
You can also use requirements in Customizing (under Sales and Distribution ® Basic Functions ® Credit Management/Risk Management ® Receivables Risk Management ® Define forms of payment guarantee) to determine when the system should not use a payment guarantee for the payment guarantee procedure you have entered. (For example, you might not require guarantees for the payment of item values of less than 10 USD or for a certain product group).
Forms of Payment Guarantee
Definition
The form of payment guarantee controls how the payment of a sales document item is guaranteed.
In Risk Management for Receivables you can use both credit management as well as the following forms of payment guarantee:
Financial documentary payments (for example, letters of credits or documentary collection).
In payment transactions for foreign trade, the letter of credit contains the payeru2019s order to the bank, instructing them to pay a sum to the recipient of the letter of credit by a certain time, or that this sum should be paid by the bank of the payee. The letter of credit is therefore a reliable guarantee for both exporter and importer. The exporter has the assurance that the bank is liable for payment and the importer can expect the delivery to take place as normal.
Export credit insurance (external link)
This can be used to ensure against a customer who might fail to pay. You can link to external export credit insurance via an interface.
Payment cards
Authorized payment cards also provide a guarantee that payment will be made.
Use
The form of payment guarantee that you will choose to use, depends on the type of business transaction that is being processed. In foreign trade, letters of credit are the most common form of payment guarantee whereas payment cards are increasingly useful in the retail sector.
If neither of these two forms of payment guarantee come into play, you can then turn to credit management in order to minimize your risks. In a credit limit check, the guaranteed value is taken from the credit exposure.
The payment of an order has been guaranteed for up to 50,000 USD in the form of a payment card but the total value of the order is 70,000 USD. You have defined a credit limit of 30,000 USD for the customer but the remaining 20,000 USD that have not been guaranteed with a payment guarantee are covered by Credit Management.
In Customizing, you can use the requirements for each credit check to control that a credit check is not run, even if all the items have been guaranteed.
You can find more information on financial documents in the SD Foreign Trade documentation for documentary payments.
Comparing Different Forms of Payment Guarantee
The forms of payment guarantee detailed here, provide all the possible ways to guarantee against the risk in receivables. The differences between them are listed in the master data and the following table provides a comparison of these differences:
Regards,
Murthy
You must be a registered user to add a comment. If you've already registered, sign in. Otherwise, register and sign in.