Scenario - Import Involving a Letter of Credit (SAP Library

Scenario - Import Involving a Letter of Credit

Purpose

This scenario describes the process of importing goods into your country using a letter of credit for payment.

This graphic is explained in the accompanying text

Import Process Involving a Letter of Credit

You (the importer) first request a quote for the merchandise. This may or may not include transportation and insurance costs.

You prepare a purchase order based on the offer received from the exporter.

The exporter creates a pro forma invoice and sends it to you.

You open a letter of credit with the opening bank in the country of import.

This involves advising the bank of the documents required from the exporter. As an importer, you not only need the documents required by customs, but also the documents that are required by any other agency regulating your commodity. These may include

Bills of lading
Commercial invoice
Export packing list
Shipper's Export Declaration (SED) (Required in the USA for goods valued at $2501 or more)
Shipper's Letter of Instructions (SLI) (applies only to the USA)
Single Administrative Document (SAD) (applies only to the EU)
Certificate of Origin
Insurance certificates
Licenses (when necessary)

Note

Using the SAP FT application, you can create the letter of credit yourself before contacting the opening bank. Other than insurance certificates, you can also create the documents listed above using FT.

The opening bank sends the letter of credit to the advising bank in the exporter's country.
The advising bank advises the exporter that a letter of credit has been opened in his favor.
The exporter ships the merchandise in accordance with the terms stipulated in the letter of credit.
The exporter gives the documents proving that the shipment was made in conformance with the letter of credit to the advising bank.
The advising bank pays the exporter based on the documents received.
The advising bank transfers the documents to the opening bank and receives payment.
The opening bank gives the documents to you (the importer).
You calculate the duty rates, file the declaration with customs and pay the customs duties within the time frame required by law.

Note

You can calculate the duty rates and create the customs declaration using FT.

See also:

For a detailed description of how letters of credit are processed in the SAP's Foreign Trade system, see Documentary Payments .