Letters of credit (LCs) are a widely used form of payment when dealing with imported goods. They provide importers with a secure method to pay for merchandise and vendors as well as a secure method to receive payment for merchandise. Letters of credit can be created and applied to purchase orders. Activities against the letter of credit can also be tracked.
The following types of letters of credit can be created:
Normal: The letter of credit is applied to one purchase order.
Master: The letter of credit is applied to multiple purchase orders.
Revolving: Purchase orders may be added until the agreed upon term of the LC is reached. The term is typically one to two years, at which point the letter of credit is closed. Revolving LC is used to support multiple shipments and payments/drawdowns over a period of time, either from a single PO or multiple POs. Adding a PO to a letter of credit after confirmation is a change in the ”terms” of the letter of credit, which will result in an amendment to the letter of credit.
Open: An open account is a way to pay a vendor without restrictions. When the goods are shipped, payment will be drawn out of the buyer's account. Technically this is not a letter of credit, but the function is facilitated through the letter of credit dialog within Trade Management. This method of payment is not as secure as letters of credit. No details are added to this type of letter of credit in Trade Management, the amount to be paid is entered directly.
You can choose from two letter of credit formats.
Long: The long form includes details at the purchase order and item level.
Short: The short form includes details at the purchase order level.
Completed applications and amendments can be transmitted to bank partners. Confirmations, drawdowns, and charges can also be received from bank partners.