Letter of Credit in Payables Module

Customer Submitted Case Studies Case Study: How we handle Letter of Credit in Payables Module

Author: Tarakeswara Rao Janapareddy, Consultant, Satyam Computer Services Ltd Skill Level Rating for this Case Study: Intermediate

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Case Study Abstract This Case study is intended to explain how we handle Letter of Credit in Payables Module.

Case History The requirement is in our Client organization after they open LC (Letter of Credit) with the bank against a Supplier they want to track it in the System. Once the goods shipped by the Supplier they provide documents to its bank and bank transfers the amount to the Supplier bank and goods will be released from shipping warehouse. At this instance client wants to track this payment and when Finance Department creates an invoice then adjust this invoice by the payment made through Letter of Credit.

Business Scenario: •

Supplier sends the Proforma Invoice upon receipt of the requisition from Client.

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Client Finance Department then applies for opening of a Letter of Credit (LC) and upon receipt of LC from the bank the copy of the same is sent to the Supplier.

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Supplier ships the goods and submits the shipping documents as per the condition of the LC to their bank.

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Supplier bank forwards the documents to the client bank and bank sends advice to Client Finance Department and they authorize the advice to debit their bank account and pay the supplier.

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Upon receipt of this approval from client’s Finance Department bank releases the shipping documents to the client and payment to the Supplier bank.

Analysis This Feature is achieved by using Prepayment Functionality, Value Sets and enabling Descriptive Flex fields in Oracle Payables. The Following setups were done to achieve the above Functionality •

Defined an Independent Value set for LC Tracking

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Enabled Context Sensitive DFF at “LC Tracking Value Set” values definition

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Defined DFF at Invoice Entry Header Level with one segment “LC Number” with the table validated value set attached. This value set is created with the validations of Supplier and Invoice Currency Code and user can select the LC Numbers available against the Supplier and the currency while entering Prepayment invoice

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Step1: Defined an Independent Value Set for LC Tracking Navigation> Payables> Setup> Flexfields>Validation>Sets

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Step2: Enabled Context Sensitive DFF at “LC Tracking - Value Set” values definition and define segments Navigation> Payables> Setup> Flexfields>Descriptive>Segments

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Step3: Entered LC Details in Flexfield Segment Values Navigation> Payables> Setup> Flexfields>Descriptive>Values

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Step4: Enabled DFF at Invoice Entry Header Level and define segments Navigation> Payables> Setup> Flexfields>Descriptive>Segments

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Step4A: Defined Table Validated Value Set for “LC NUMBER”

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With the above validations put in place for this value set, we could able to select LC Numbers available against the specific supplier and currency to whom against we entered the invoice.

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Step5: Prepayment Entry with LC Details at DFF enabled: Navigation> Payables> Invoices>Entry>Invoices

The above steps up to 4A are for one time. Step 5 is during the creation of Prepayment when Bank Pays amount to the Supplier and at the time of creation of Invoice when Client Finance Department creates actual Invoice received from the Supplier Transaction Flow: •

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When we setup LC (Letter of Credit) with the Bank, we created Prepayment Invoice with the selection of LC Number (which is already created in LC TRACKING Value set) from the List of Values available in the DFF – LC Details at Invoice Header Entry Level and we had kept this prepayment in unpaid status. When Bank paid the amount to the Supplier, we paid this prepayment invoice so that it has been available for application against the actual invoice. When Client Finance Department created actual invoice it has been applied against to this prepayment invoice.

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Results, Conclusion and Learning’s

1. By using the above we can track the Letter of Credit from the initiation to the fulfillment by paying the invoice amount to the Supplier. References Oracle Payables User Guide Oracle Sys Admin User Guide

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