The form of payment guarantee controls how the payment of a sales document item is guaranteed.

In Risk Management for Receivables you can use both credit management as well as the following forms of payment guarantee:

• Financial documentary payments (for example, letters of credits or documentary collection).
  In payment transactions for foreign trade, the letter of credit contains the payer’s order to the bank, instructing them to pay a sum to the recipient of the letter of credit by a certain time, or that this sum should be paid by the bank of the payee. The letter of credit is therefore a reliable guarantee for both exporter and importer. The exporter has the assurance that the bank is liable for payment and the importer can expect the delivery to take place as normal.
• Export credit insurance (external link)
  This can be used to ensure against a customer who might fail to pay. You can link to external export credit insurance via an interface.
• Payment cards
  Authorized payment cards also provide a guarantee that payment will be made.

The form of payment guarantee that you will choose to use, depends on the type of business transaction that is being processed. In foreign trade, letters of credit are the most common form of payment guarantee whereas payment cards are increasingly useful in the retail sector.

If neither of these two forms of payment guarantee come into play, you can then turn to credit management in order to minimize your risks. In a credit limit check, the guaranteed value is taken from the credit exposure.

In Customizing, you can use the requirements for each credit check to control that a credit check is not run, even if all the items have been guaranteed.

The forms of payment guarantee detailed here, provide all the possible ways to guarantee against the risk in receivables. The differences between them are listed in the master data and the following table provides a comparison of these differences: