Trade Finance Configuration – SAP Treasury Management
Through a variety of products that assist clients in managing international payments and the risks associated with them, as well as by providing the necessary working capital, global and local banks support international trade. Most of the time, banking products that are specifically connected to the underlying international trade transaction (export or import) are referred to as “trade finance”. This definition generally excludes working capital loans that are not specifically related to trading. Instruments for trade finance typically involve capital but typically have short maturities.
A letter of credit (L/C) is one of the most typical and standardized forms of trade finance that is facilitated by banks. By providing a framework under which a bank makes (or guarantees) the payment to an exporter on behalf of an importer once the delivery of goods has been confirmed through the presentation of the appropriate documents, L/Cs reduce payment.
There are two product type given by SAP for trade finance :
- 850 – Letter of Credit
- 860 – Bank Guarantee
Here we will see configuration process of Letter of Credit. The configuration is same for both product Bank guarantee and Letter of credit
Defining Product type
First step is by Defining product type by giving entering name and unique product type to recognize which it belongs to.
SPRO- Financial Supply chain management- Treasury and risk management – Transaction management – product type – Define product type
After clicking on define product type click on new entries. to create product type.
Enter Product category 850 for letter of credit and 860 for bank guarantee. Enter long and short text.
Defining Transaction Types
Define type of transaction as issue or receive in product type as per client requirement.
SPRO- Financial Supply chain management- Treasury and risk management – Transaction management – product type – Transaction type
First step create number range for each transaction type
- Create Number Range
After creating number range, define transaction type in each product type.
- Transaction types
Enter Product type and transaction type. Assign number range to each transaction type.
Define flow type
Payment flows like principal increase, final repayment, and nominal interest are all defined by flow types .For the purpose of analysis, flow types are integrated with FI and cash management.
Along with the Product type, flow types must be assigned to specific transaction types.
SPRO- Financial Supply chain management- Treasury and risk management – Transaction management – product type – Flow Types – Define Flow types – Trade Finance Transaction
Create below flow type :
Defining below Flow types for transaction in Trade Finance area:
|85||Trade Finance payment|
|86||Remaining credit amount|
|90||Other flow condition|
Assign flow type
In previous steps we created Product type and transaction type. now assign the created flow type to product type and transaction type.
SPRO- Financial Supply chain management- Treasury and risk management – Transaction management – product type – Flow Types – Assign flow type to transaction type -Trade Finance Transaction
Define update type and assign usage
We need to create as many update type as flow type created with +/- sign
SPRO – Financial Supply chain management – Treasury and risk management – Transaction management – product type – Flow Types – Define Flow types – Define update type and Assign Usage
Create update type for every flow type previously created.
Now Assign Update Type to Usage.
Assign Flow type to Update type
Now , we assign all flow type previously created to respective update type.
SPRO – Financial Supply chain management- Treasury and risk management – Transaction management – product type – Update type – Assign flow type to update type
Assign Flow type inflow (+) and outflow (-) in flow type.
Assign General valuation
You can create valuation class as per client requirement as per product type.
SPRO- Financial Supply chain management- Treasury and risk management – Transaction management – product type – Assign General Valuation
Now we will configure payment condition. There are two condition Presentation period and payment. Presentation condition is based on shipping date and Payment condition is based on own enter date by user.
SPRO- Financial Supply chain management- Treasury and risk management – Transaction management – Define condition for payment and presentation period
Enter both condition by clicking on new entries.
Now we need to specify which update type is virtual and which will post accounting entry. It depends on business requirement it differ to every case scenario.
SPRO – financial supply chain management – Treasury and Risk management – General Settings – Accounting – Link to Other Accounting component – Indicate update type as relevant to posting
Only click on update type which are relevant to posting.
In next step ,we will assign Posting Specs to update type and Account Determination to those who are relevant to posting.
Enter Relevant General Ledger account to posting specs.
SAP provided special feature for both letter of credit and bank guarantee product type and the transaction are fully automated.