Letters of Credit

Letters of credit are commonly used in international trade as one of the safest means for establishing payment terms. It is an agreement issued by a bank at the request of its client and adds the bank's promise of payment to the client's promise. The letter of credit frequently requires congruity with a number of terms, conditions, or events before the supplier can collect payment.

Because most invoices are sent directly to your bank and the bank handles approval and electronic fund transfers directly to the supplier's bank, your bank often pays invoices before you receive them. When you select the letter of credit payment method, the letter of credit identification number is added to the L/C ID (letter of credit ID) field on the Payments page in the Voucher component (VCHR_EXPRESS). The letter of credit ID can also be copied from a purchase order at voucher entry. If the letter of credit ID appears on a purchase order, it is carried over to the Invoice Information page in the Voucher component when you select the worksheet copy option PO Receipt.

Because you might sometimes remit vouchers to multiple suppliers, the letter of credit identification number is validated when you change the Remit to field on the Payments page. During voucher entry, PeopleSoft Payables validates the letter of credit ID against the PeopleSoft Treasury table (LC_HDR) to make sure that the identification number exists and that the status is open. After you select a payment scheduled for the Pay Cycle process, you cannot edit the letter of credit identification number on the Payments page in the Voucher component.

Note:

All details pertaining to the letter of credit terms, agreements, expiration date, and related bank documents are maintained in PeopleSoft Treasury documentation.

This diagram shows the process flow for letters of credit.

Letter of Credit Payment process flow

Letter of Credit Details

Letters of credit can contain multiple vouchers; therefore, you might need to view the specific details regarding a particular voucher to which a letter of credit pertains. You view these details by clicking the related links button next to the L/C ID field on the Payments page in the Voucher component and clicking the Letter of Credit Doc (letter of credit document) link or the Letter of Credit Details link.

Letter of Credit Advice

During the Pay Cycle process, all vouchers that have the same letter of credit ID are grouped, and a single payment is issued. A printed letter of credit advice is created for payments for which you have selected the L/C Advice option on the Payment Selection Criteria - Preference page. The letter of credit advice shows vouchers paid under a specific letter of credit identification number.

Letter of Credit Inquiry

Because letters of credit can comprise many vouchers, you may need to review the details for individual vouchers paid by one letter of credit. You use the L/C Inquiry page to verify payment entries, payment totals, and the payment status of vouchers associated with a letter of credit. You can obtain more information about vouchers and payments from the L/C Inquiry page by clicking the related links button and selecting the Voucher Inquiry option or the Payment Inquiry option.

Letter of Credit Accounting Entries

At payment posting, only letter of credit payments that have a valid letter of credit ID and status are posted. During payment posting, the following accounting entries are generated:

  • DR AP Liability (APA)

  • CR L/C Payable (LCP)

When the letter of credit payment is made, you must manually enter the following journal entries in PeopleSoft General Ledger:

  • DR L/C Payable (LCP)

  • CR Cash (CAS)

Note:

PeopleSoft Treasury Management does not perform any accounting calculations for PeopleSoft Payables letter of credit payments, regardless of whether you have or have not installed PeopleSoft Treasury Management. The PeopleSoft Treasury Management system only retains PeopleSoft Payables letter of credit entry definitions as data items for inquiries.

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