Customer Submitted Case Studies

Case Study: How we handle Letter of Credit in Payables Module

Author: Tarakeswara Rao Janapareddy, Consultant, Satyam Computer Services Ltd

Skill Level Rating for this Case Study: Intermediate

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Case Study Abstract

This Case study is intended to explain how we handle Letter of Credit in Payables
Module.

Case History
The requirement is in our Client organization after they open LC (Letter of Credit) with
the bank against a Supplier they want to track it in the System. Once the goods shipped
by the Supplier they provide documents to its bank and bank transfers the amount to the
Supplier bank and goods will be released from shipping warehouse. At this instance
client wants to track this payment and when Finance Department creates an invoice then
adjust this invoice by the payment made through Letter of Credit.
 Business Scenario:

• Supplier sends the Proforma Invoice upon receipt of the requisition from Client.

• Client Finance Department then applies for opening of a Letter of Credit (LC) and
upon receipt of LC from the bank the copy of the same is sent to the Supplier.

• Supplier ships the goods and submits the shipping documents as per the condition
of the LC to their bank.

• Supplier bank forwards the documents to the client bank and bank sends advice to
Client Finance Department and they authorize the advice to debit their bank
account and pay the supplier.

• Upon receipt of this approval from client’s Finance Department bank releases the
shipping documents to the client and payment to the Supplier bank.

Analysis
This Feature is achieved by using Prepayment Functionality, Value Sets and enabling
Descriptive Flex fields in Oracle Payables.

The Following setups were done to achieve the above Functionality

• Defined an Independent Value set for LC Tracking

• Enabled Context Sensitive DFF at “LC Tracking Value Set” values definition

• Defined DFF at Invoice Entry Header Level with one segment “LC Number” with
the table validated value set attached. This value set is created with the
validations of Supplier and Invoice Currency Code and user can select the LC
Numbers available against the Supplier and the currency while entering
Prepayment invoice

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Step1: Defined an Independent Value Set for LC Tracking
Navigation> Payables> Setup> Flexfields>Validation>Sets

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Step2: Enabled Context Sensitive DFF at “LC Tracking - Value Set” values
definition and define segments
Navigation> Payables> Setup> Flexfields>Descriptive>Segments

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Step3: Entered LC Details in Flexfield Segment Values
Navigation> Payables> Setup> Flexfields>Descriptive>Values

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Step4: Enabled DFF at Invoice Entry Header Level and define segments

Navigation> Payables> Setup> Flexfields>Descriptive>Segments

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Step4A: Defined Table Validated Value Set for “LC NUMBER”

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With the above validations put in place for this value set, we could able to select LC
Numbers available against the specific supplier and currency to whom against we entered
the invoice.

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Step5: Prepayment Entry with LC Details at DFF enabled:

Navigation> Payables> Invoices>Entry>Invoices

The above steps up to 4A are for one time. Step 5 is during the creation of
Prepayment when Bank Pays amount to the Supplier and at the time of creation of
Invoice when Client Finance Department creates actual Invoice received from the
Supplier

Transaction Flow:

• When we setup LC (Letter of Credit) with the Bank, we created

Prepayment Invoice with the selection of LC Number (which is already
created in LC TRACKING Value set) from the List of Values available in
the DFF – LC Details at Invoice Header Entry Level and we had kept this
prepayment in unpaid status.
• When Bank paid the amount to the Supplier, we paid this prepayment
invoice so that it has been available for application against the actual
invoice.
• When Client Finance Department created actual invoice it has been
applied against to this prepayment invoice.

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 Results, Conclusion and Learning’s

1. By using the above we can track the Letter of Credit from the initiation to the
fulfillment by paying the invoice amount to the Supplier.

References

Oracle Payables User Guide

Oracle Sys Admin User Guide

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