The objective of LC Management is to provide the functionality / process development made to monitor the Letter of Credit process, as per the functional specifications given by architecture. Based on the working capital needs, the company will file an application / request, with business projections to a bank. The company’s bank or group of banks together will sanction working capital support to the company.
A letter of credit is a promise to pay. Bank will issue the letter of credit as a way to ensure sellers that they will get paid as long as they do what they have agreed to do, i.e. Service or Supply of Goods. This is also known as Documentary Credit.
Letters of credit are common in international trade because the bank acts as an uninterested party between buyer and seller. For example, importers and exporters might use letters of credit to protect themselves. In addition, communication can be difficult across thousands of miles and different time zones. A letter of credit spells out the details so that everybody’s on the same page. All the necessary mandatory terms are being specified in the LC. The seller has to full fill the conditions.
There are many functions involved in the documentary credit process that include identification of non-fund based limit, assignment of non-fund based limit type to bank and limits sanctioned by the bank among others – some of these are part of a SAP standard process while others need to be customized to customer requirements. The custom development process has been developed and comprises the following functions:
- Master Data
- Letter of Credit Process