A bank guarantee is a guarantee from a lending institution ensuring the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank covers it. A bank guarantee enables the customer, or debtor, to acquire goods, buy equipment or draw down loans, and thereby expand business activity.

Please refer below link to have detail explanation.

http://www.investopedia.com/terms/b/bankguarantee.asp

IN EHP-8 Version SAP has provided standard function for Bank Guarantee/Letter of credit under customization of trade finance, however if the client is in lower version of SAP we can use the sample below example to meet the client requirement. Please note this is just an example of how I met the expectation of client.

Configuration

1     Define Product Types

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > Money Market > Transaction Management > Product Types > Define Product Types

 

Configuration Rational

Product types help to differentiate between different financial instruments.

2     Define Number Range

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > Money Market > Transaction Management > Transaction Types > Define Number Range

Configuration

The financial transactions generated in the application receive a number comparable with the document number from Financial Accounting. The number assignment can either be transferred internally by the system or you can specify the number externally.                                                                                                                                                            Screenshots 

3     Define Transaction Types

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > Money Market > Transaction Management > Transaction Types > Define Transaction Types

Configuration

 Screenshots

 

4     Define Flow Types

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > Money Market > Transaction Management > Flow Types > Define Flow Types

 

Configuration

Flows describe various payment flows arising from transaction conclusion,valuation and accrual/deferral functions as well as transfer postings. They are classified through flow types that you define in Customizing.

 

Screenshots

5      Assign Flow Types to Transaction Type

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > Money Market > Transaction Management > Flow Types > Assign Flow Types to Transaction Type

 

Configuration

In this step, you assign flow types to each product type at the transaction type level that are necessary in order to completely portray a financial product.

 

Screenshots

6     Define Condition Types

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > Money Market > Transaction Management > Condition Type > Define Condition Types

 

Configuration

Condition types automatically generate flows which are the basis for further processing in FI and Cash management as well as for analysis in Market risk management.

Screenshots

7     Assign Condition Types to Transaction Type

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > Money Market > Transaction Management > Condition Type > Assign Condition Types to Transaction Type

 

Configuration

Necessary condition types are assigned to each product type at transaction type level to be able to represent a financial product completely in the system.

 Screenshots

 

8         Define Update Types

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > Money Market > Transaction Management > Update Types > Define Update Types and Assign Usages

Configuration

Update types are used to carry information about flows to accounting and the securities and futures account management of the Transaction Manager.

 Screenshots

9     Assign Flow Types to Update Types

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > Money Market > Transaction Management > Update Types > Assign Flow Types to Update Types
Configuration

In this IMG activity, you assign the corresponding update types to the flow types in the Money Market, Foreign Exchange, Securities and Derivatives areas for updating the transaction data to the parallel valuation areas.

Screenshots

10  Indicate Update Types as Relevant to Posting

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > General Settings > Accounting > Link to Other Accounting Components > Indicate Update Types as Relevant to Posting

Configuration

In this IMG activity you specify whether or not the update type is relevant for posting. If you flag an update type as not relevant for posting it is not posted even if an account determination was specified in Define Account Determination.

Screenshots

 11 Assign Position Management Procedure

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > General Settings > Accounting > Settings for Position Management > Assign Position Management Procedure

Configuration

  

12  Define Account Assignment Reference

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > General Settings > Accounting > Link to Other Accounting Components > Define Account Assignment References

 

Configuration

In this menu option you define the account assignment references for each product type.

Account assignment references are required for each sub-ledger position.

You can use the account assignment references to determine the G/L account in FI in which the relevant position is to be managed. You can use the account assignment references to control the posting of the sub-ledger positions in the general ledger.

Screenshots

13  Define Account Assignment Reference Determination (OTC Transactions)

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > General Settings > Accounting > Link to Other Accounting Components > Define Account Assignment Reference Determination (OTC Transactions)

 

Configuration

In this IMG activity you can define rules for automatic determination of account assignment references for the parallel valuation areas.

Screenshots

14  Define Account Determination

Menu Path: SPRO > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > General Settings > Accounting > Link to Other Accounting Components > Define Account Determination

 

Configuration

In this IMG activity you define the account determination settings for the flows in the parallel valuation areas. The account determination settings define the accounts to be used when the flows are posted to Financial Accounting.

Screenshots

Definition of Posting Spec

 

 

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