International trade in goods is complex - different customs regulations, legal requirements and economic risks make cross-border business relationships challenging. Letters of credit are a tried-and-tested instrument for securing payments and deliveries. In the modern SAP S/4HANA environment, this process is efficiently mapped and managed by the Trade Finance module.
The overview of SAP S/4HANA and SAP GTS already explains how companies can effectively implement customs and foreign trade law requirements with SAP. A central element of these trade processes is the letter of credit, which we would like to take a closer look at here.
What is a letter of credit and why is it necessary?
A letter of credit is a promise of payment made by a bank on behalf of the buyer. It ensures that the seller receives payment as soon as the conditions defined in the letter of credit have been fulfilled and proven - for example, by presenting certain documents such as bills of lading or proof of origin.
For companies with international business relationships, the letter of credit offers a high degree of payment security - especially in countries with increased economic or political uncertainty. It protects both contracting parties: The seller gets planning security for the receipt of payment, the buyer ensures that payment is only made if the conditions are met.
How is the letter of credit mapped in SAP S/4HANA?
With the Trade Finance module, SAP S/4HANA offers an integrated solution for managing letters of credit and bank guarantees. The central Fiori app "Manage Letters of Credit" allows letters of credit to be recorded, tracked and checked - including all relevant details such as amount, term, banks involved and document requirements.
The solution is closely integrated with other processes, e.g. sales, purchasing, finance and customs clearance. This ensures that compliance with the letter of credit conditions is supported by the system and that only valid transactions can be processed in the system.
Necessary steps: a rough overview
The processing of a letter of credit in SAP S/4HANA essentially comprises the following steps:
- creation of the letter of credit in the Trade Finance module, including all key data and parties involved.
- linking to the sales or purchasing document to monitor the transaction
- monitoring of the drawdown (e.g. on delivery or invoicing) and comparison with the available letter of credit amount
- status tracking and reporting to keep all parties informed of the current status.
- closing and archiving once conditions have been met and payments have been processed.
CONSILIO - Your partner for the introduction of letters of credit under S/4HANA
The introduction and integration of the letter of credit process in SAP S/4HANA requires not only technical system know-how, but also a deep understanding of international business processes and risks. CONSILIO provides companies with comprehensive support - from process analysis and technical implementation to user training.
We combine many years of experience in customs and foreign trade processes with in-depth SAP expertise to implement secure and efficient trade finance solutions for our customers.
Are you planning to use letters of credit under SAP S/4HANA or would you like to optimize existing processes? Talk to us - we will be happy to advise you.
