Trade Finance Overview
The Trade Finance Management process generally covers the creation of ﬁnancial transactions and executes payments for fees and cash collateral for bank guarantee issuing. For further processing, the roll over and termination of transactions is possible.
SAP has introduced new products to cover the trade finance in SAP S/4HANA Treasury.
- Letter of Credit
- Bank Guarantee
- Standby Letter of Credit
SAP Treasury Management Solution Map
SAP Trade Finance Powered by SAP Treasury and Risk Management offers a complete E2E solution to integrate trade finance process into treasury to oversee high volume transaction and mitigate the risk related to it.
The SAP Trade Finance solution supports you with the function functions:
- Integration of the most important global trade payment methods, Letter of Credit, Bank Guarantee in Treasury as a product category
- Master data management for Trade Finance
- Manage related cash flow position
- Manage related credit line and margin
- Automated and integrated within trade financing activities
- Manage the related counterparty risk
- Extend the Role of treasurer for trade finance
Trade Finance Framework
The front office area contains functions for entering trade finance transactions. It also enables you to also call up information on transactions or make changes at a later date. Collective processing functions are available to help you manage your transactions efficiently.
The following product types and transaction types are now available in the trade finance transactions: 86A
Once you have entered financial transactions in the Front Office area, you settle them in the Back Office area. The Back Office area also contains functions for checking and changing the transactions. Transaction postprocessing primarily involves:
- Adding any missing transaction data that is needed to process the transaction further
- Preparing for posting and payment (for example, by checking the accounts used)
The collective processing functions are also available in the back office.
Once you have entered the transactions in the Front Office area and checked them and added any missing details in the Back Office area, you then need to process them for accounting purposes. The Accounting area includes functions for transferring data to Financial Accounting, such as posting reports or position management postings. It also includes functions for parallel valuation.
Check the interactive graphic to learn about the initial data that is required for all trade finance processes.
Initial Data for Trade Finance
To map transactions in the system efficiently, you first have to enter the initial data.
- Company Code
When you enter the company code, you determine which division within your group is acting as the contracting party for the transaction.
- Product Type
The product type indicates which specialization of the product category is involved in the current transaction.
Product types are predefined by SAP.
- Transaction Type
Transaction types define which specialization of the transaction category - issuing or receiving letters of credit or bank guarantees - is involved in the current transaction.
Transaction types are predefined by SAP.
You specify a third party as a partner in the system that issues the letters of credit or bank guarantees at your request or notifies you about a letter of credit or bank guarantee issued with you as the beneficiary.
The partner charges a certain amount of fees for a letter of credit or bank guarantee in the issuing or receiving process. An additional fee is also charged based on the total amount of the letter of credit or bank guarantee and including certain conditions, such as the payment rate.
If you have specified external number assignment, you enter the key that uniquely identifies a financial transaction within a company code in the Transaction field in the External Number Assignment area.
Otherwise, the system assigns a number automatically.
Trade finance transactions are used for special financial transactions provided by banks and financial institutions that facilitate trade transactions. The Trade Finance area is a subcomponent of the Transaction Manager and is closely integrated with other components. It offers the following business values:
- Represented as new financial instruments in Treasury and Risk Management for Letter of Credit, Bank Guarantee and Standby Letter of Credit
- Support financial instrument management for both applicant and beneficiary
- Capture master data for the financial instrument contract
- Comprehensive and flexible Document Management for Letter of Credit
- Financial instrument contract based facility can be consumed or released automatically
- Support the combined usage of facility and cash collateral for applicant
- Integrate with Credit Risk Analyzer to optimize risk control
- Status Management with different steps: Contract - Settlement - Rollover- Termination
- Customer-specific workflow can be configured
- Full support of Presentation and Payment process for Letter of Credit
- Full support of loan generation out of the Letter of Credit directly
- Integration with Accounting Management
- Integration with Cash Management
- Provide comprehensive BAPIs for Transaction Management
- Integrated in the Correspondence Framework
- MT798 - SWIFT message with respective sub messages