Import L/C

Business Sector (‘LI’)

Introduction:

An 'Import Letter of Credit' is a financial instrument issued by a bank that represents the commitment of the bank, on behalf of an importer that guarantees payment will be made to the exporter provided the terms and conditions specified in the Letter of Credit have been met. Conditions specified in Import Letters of Credit are typically evidenced by the presentation of documents. Since they are credit instruments, issuing banks rely on the creditworthiness of importers when issuing Import Letters of Credit.

The importer pays the issuing bank a fee to render this service. Import Letters of Credit are useful when there is insufficient credit information about a foreign buyer or the foreign buyer’s credit is unacceptable to the exporter, but the exporter is comfortable with the creditworthiness of the issuing financial institution. Import Letters of Credit are the most common method of trade finance because they also provide protection for the importer since the documents required to trigger payment provide evidence that the goods being purchased have been shipped as agreed.

In DOKA SaaS, the “Import L/C” business sector (LI) covers all transactions directly connected to the processing of Import L/Cs (like Opening L/Cs, Amendments, etc.). This includes the generation of subordinate contracts such as document sets (BR), etc.

For each document presentation under an Import L/C, a subordinate contract is created under that letter of credit. It is created through the transactions “Receiving Documents” (LITDCK), “Advising Documents” (LITDAV) or “Release of Goods” (LITROG).

Transactions for processing document sets are handled under the subordinate sector “Document Sets under an Import L/C” ('BR').

Financing is possible related to letters of credit or document sets under L/C which will create a subcontract under the “Loan” (TR) and “Advance” (BP) sectors. However, these are not part of the “Import L/C” business sector but are separate business sectors and need to be purchased and installed separately.

To know more details on Financing, please refer the Financing article.

Documents Received

For documents submitted as part of the Import L/C, the transaction establishes a sub-contract for each document record. This sub-contract has its own reference number (made up of the reference number for the import L/C together with a counter).

All transactions affecting a document set are processed as part of the relevant sub-contract. In a document set, transactions can only then be carried out when the corresponding document set (BR) has automatically been added by the Documents Received procedure.

The import L/C first must be accessed before working on transactions affecting the import L/C. If the Documents Received procedure has already been run and if relevant document sets are already available, the selection list of these document sets is displayed.

Amendments

Amendments are edited in “Amending” (LITAME).If an amendment request is to be sent to one of the parties in advance, this is sent using the “Request of Amendment” (LITRAM) transaction. Amendments captured here are saved in an auto-registration for the amendment. If the amendment is to be finalized, the auto registration is retrieved and the “Amending” transaction is saved. If a limit check is to be performed before the change, this is done using the “Liability Approval for Amendment” (LITAMR).

If an incoming message containing an amendment request (e.g., SWIFT MT707) is picked up, the corresponding free text contained in the transaction is copied to the CONTAG79 field. The text is not changed and remains the same as the text in the incoming message.

Flowchart Business Sector Import L/C

System Outgoing Messages (Swift/Letter):