Key tasks: Letter of credit or import collection for the import of items
Important
This content is archived and is not being updated. For the latest documentation, see Microsoft Dynamics 365 product documentation. For the latest release plans, see Dynamics 365 and Microsoft Power Platform release plans.
Applies To: Microsoft Dynamics AX 2012 R3, Microsoft Dynamics AX 2012 R2, Microsoft Dynamics AX 2012 Feature Pack, Microsoft Dynamics AX 2012
You can use the letter of credit parameters in the General ledger, Accounts payable, Accounts receivable, and Cash and bank management modules to set up and transact business functions, such as guaranteeing payments between a vendor and a buyer through a bank.
A letter of credit allows you to:
Generate a report of the bank facilities and their uses.
Generate the entries for the letter of credit.
Print the letter of credit application form.
Enter the letter of credit details.
Amend the letter of credit.
Record letter of credit margin payments.
Allocate a margin amount to shipments.
Associate a packing slip in a purchase order with the letter of credit shipment details.
Process a payment for the invoice.
View the cash flow forecast according to the letter of credit.
Print various reports and inquiries related to the letter of credit.
Generate a vendor statement.
This key task topic describes how to work with letters of credit, from the required setup to posting the invoice to make a payment.
Before you use the General ledger parameters form to activate the letter of credit, select the Bank document check box in the Configuration form. After you activate the letter of credit parameters, you must create the facility types, the facility groups, and the facility agreement.
After you create an agreement, you can create a purchase order for a letter of credit. In the purchase order, you can specify the letter of credit details. After you receive the shipment, you can allocate the margin amount to a particular shipment or to all the shipments related to the letter of credit. The last step for the letter of credit is to post the invoice and process the payment for the invoice.
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Activate the letter of credit as a bank document
Set up the bank facilities and posting profiles
Create a bank facility agreement
Set up vendor bank accounts
Create a purchase order and enter the letter of credit details
Amend the letter of credit details
Post a margin payment for a letter of credit
Allocate the margin amount to the shipment
Post a packing slip and an invoice for the purchase order
Make a payment for the invoice
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About letters of credit and import collections
Activate the letter of credit as a bank document
You must activate the letter of credit as a bank document before you initiate transactions that involve letters of credit.
Click Cash and bank management > Setup > Cash and bank management parameters.
On the General link, click the Bank document FastTab.
Select the Enable import letter of credit check box to activate the letter of credit.
Close the form to save your changes.
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Set up the bank facilities and posting profiles
You can set up bank facility types and bank facility groups in the Bank facilities form. After the bank posting profile is set up, you can create facility agreements.
Click Cash and bank management > Setup > Bank documents > Bank facilities.
On the Facility groups link, click New to create a new bank facility group.
In the Facility group and Description fields, enter the bank facility group name and description.
Click the Facility types link, and then click New to create a new facility type.
Enter a unique code in the Facility type field, and then in the Facility group and Facility nature fields, select the group and nature of the bank facility.
Close the form to save your changes.
Click Cash and bank management > Setup > Bank documents > Bank documents posting profile.
In the Settle account field, select the main account for settlement. This account is used when calculating the cash flow forecast.
In the Charges account field, select the account for expense transactions.
In the Margin account field, select the account for the margin transaction. This account is debited when the opening margin is posted and credited when the payment is posted.
Note
A margin is an advance payment to the bank that is adjusted by the bank when the final settlement is made by the buyer.
Close the form to save your changes.
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Create a bank facility agreement
You must create bank facility agreements that record various facilities provided by the bank. Bank documents can be used in transactions only after facility agreements are created. The bank assigns a limit for the letter of credit, which is recalculated every time a letter of credit transaction is recorded.
When a facility agreement ends, you can create a new version of the agreement, with new starting and ending dates, by extending the old agreement.
Click Cash and bank management > Setup > Bank documents > Bank facility agreements.
Press CTRL+N to create a new line.
In the Agreement number, Bank account, Start date, and End date fields, enter the agreement number according to the agreement with the bank, the account number at the issuing bank, and the validity period of the agreement.
On the General FastTab, click Add line.
Note
Facility agreements cannot have overlapping dates. For example, if an agreement extends from January 01, 2011 to August 31, 2011, you cannot create another facility agreement that begins or ends within that period.
In the Facility type and Limit fields, select the facility type, and then enter the facility amount that was negotiated with the bank. The Amount used field displays the amount that is currently used for the letter of credit.
Close the form to save your changes.
In the Bank facility agreements form, select the facility agreement that is no longer active, and then click Extend to extend the term of the agreement.
In the New agreement number and End date fields, enter the new agreement number as assigned by the bank and the desired ending date of the agreement, and then click Extend.
Note
The value in the Start date field of the extended agreement is the day after the selected agreement’s end date. The Amount used field is set to zero because this is a newly created agreement.
Close the form to save your changes.
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Set up vendor bank accounts
Vendor bank accounts must be specified for the letter of credit transactions to be recorded appropriately.
Click Accounts payable > Common > Vendors > All vendors. Select a vendor, and then on the Vendor tab, in the Setup group, click Bank accounts.
In the Vendor bank accounts form, enter the Bank account and Bank account number information, along with any other details.
Close the form to save your changes.
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Create a purchase order and enter the letter of credit details
A letter of credit is associated with a purchase order to process vendor transactions with minimal manual intervention. The involved parties are the buyer (applicant), the seller (beneficiary), the issuing bank (buyer’s bank), and the advising bank (beneficiary’s bank). When a company is both the buyer and applicant for the letter of credit, the letter of credit is called an import letter of credit. Purchase orders that are associated with letters of credit are not considered for summary invoicing.
Click Procurement and sourcing > Common > Purchase orders > All purchase orders.
Click Purchase order to create a new purchase order.
In the Create purchase order form, select the vendor account in the Vendor account field.
In the Bank document type field, select Letter of credit, and then click OK.
Note
When the Bank document type field is set as Letter of credit, the purchase order is displayed in the list of letters of credit in the Cash and bank management module. Because the letter of credit details have not yet been added, the Require update check box on the Cash and bank management > Common > Letters of credit > Import letter of credit/import collection list page is selected.
Click Cash and bank management > Common > Letters of credit > Import letter of credit/import collection. Double-click the order number associated with the letter of credit to be updated.
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In the Purchase order form, click the Manage tab, and then click Letter of credit / import collection. For more information, see Letter of credit / import collection (form).
Click the General FastTab, and in the Bank account field, select the bank that assigns the letter of credit. In the Bank document number field, enter the document number specified by the bank.
Click the Lines FastTab, and then click Add line to add shipment details. Enter the necessary values in the Amount, Expected maturity date, Actual maturity date, and Document status fields.
Note
Click Fetch purchase order shipments to view the shipment details that are already specified in the purchase order lines or delivery schedule. Click Shipment margin transactions to open the Shipment margin form to view the shipment margin transactions for the selected shipment.
Optional: Click the Bank document FastTab, and then specify details in the Documentary credit type, Documentary credit nature, and Expiration date fields. A letter of credit can be either Irrevocable or Revocable. It can be Non transferable, Transferable, or Revolving in nature.
Optional: Click the Bank details FastTab, and then enter the advising bank details in the Advising bank and Date of issue fields.
Optional: Click the Terms FastTab, and then specify the shipment terms and payment terms for the letter of credit.
Optional: Click the Insurance FastTab to specify details of the insurance request submitted by the vendor in the Insurance status, Insurance vendor number, and Insurance number fields.
Click Confirm to confirm the letter of credit. The Facility balance field is updated based on the value in the LC / IC Amount field. The Amount used field in the Bank facility agreement details form is updated with the letter of credit amount.
The letter of credit details are confirmed only if the line amounts total equals the LC / IC Amount and it does not exceed the amount available for the particular facility type.
Click Print application to print the letter of credit application form to be submitted to the bank.
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Amend the letter of credit details
If the purchase order details change, you must update the letter of credit details before you invoice the purchase order completely. You can modify a confirmed letter of credit only when the letter of credit has a Confirmed status. The bank may charge a fee for amending an existing letter of credit.
Click Cash and bank management > Common > Letters of credit > Import letter of credit/import collection. Double-click the import letter of credit or import collection to be amended.
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Click Procurement and sourcing > Common > Purchase orders > All purchase orders. Select a purchase order, and then on the Manage tab, click Letter of credit / import collection.
Click Amend, and then amend the letter of credit details. You can change the letter of credit amount or number of shipments, if required.
Note
You can edit the shipment details only if the packing slip or invoice is not posted. If you delete a shipment line detail for which the margin was already allocated, the allocated amount is reversed to an unallocated amount in the Letter of credit margin transactions form.
Click Confirm to confirm the changes made to the letter of credit. Changes must be confirmed to be saved as amendments. Each confirmed amendment results in a new version of the letter of credit. This helps to track the revision history of the letter of credit. If shipment line details are changed, the letter of credit details are confirmed only if the total shipment amount does not exceed the letter of credit amount.
Click Inquiries to open the Letter of credit/import collection history form, and then view the amendment history of the letter of credit.
Close the forms to save your changes.
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Post a margin payment for a letter of credit
When you receive letter of credit advice from the bank, you can check the margin collected by the bank and post it in a General journal of the type Daily. To post the transaction against the appropriate posting profile, the Transaction type field must be selected as Margin.
Click General ledger > Journals > General journal.
Press CTRL+N to create a new journal.
In the Name field, select a daily journal, and then click Lines to open the Journal voucher form.
In the Debit field, enter the margin amount collected by the bank.
Click the Payment tab, and then in the Transaction type field, select Margin. The values in the Account type, Account, Offset account type, and Offset account fields are displayed according to the posting profile.
In the Letter of credit / import collection field, select the bank document number associated with the letter of credit.
Click Post > Post to post the journal.
Close the form to save your changes. The margin amount for the letter of credit is recorded in the Letter of credit margin transactions form.
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Allocate the margin amount to the shipment
To adjust the margin amount at the time of invoicing (partially or completely), the margin amount must be allocated to each shipment. You can use the Letter of credit margin transactions form to allocate the margin amount across shipments for a letter of credit.
Click Cash and bank management > Common > Letters of credit > Import letter of credit/import collection. Double-click the import letter of credit or import collection for which the margin amount must be allocated to the shipment.
Click Bank document margin to open the Letter of credit margin transactions form.
Select the margin amount line to be allocated, and then click Allocate to shipment to open the Allocate on drop dialog.
In the Allocation type field, select Dedicated to allocate the margin amount to a particular shipment or select Distributed to allocate the margin amount proportionally among all shipments that are not invoiced. Select the shipment number in the Shipment number field.
Note
You can allocate margin amounts only if the value in the Balance field is greater than zero and the shipment that you are allocating to is not already invoiced. If you select Distributed in the Allocation type field, the shipment share of the margin amount is calculated as following:
Shipment Share = Margin amount multiplied by (Shipment amount/Letter of credit amount).
Click OK to return to the Letter of credit margin transactions form. The Allocated field is updated with the margin amount that was allocated, and the status is updated as Posted.
Close the form to save your changes.
In the Letter of credit / import collection form, click the Lines FastTab, and then click Shipment margin transactions to open the Shipment margin form and view the margin amount allocated to a shipment.
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Post a packing slip and an invoice for the purchase order
After the margin is allocated to the shipment, you can post a packing slip and register an invoice for the purchase order. When you post a packing slip, you can specify the shipment number to map the shipment with the delivery. You cannot post the invoice or update a packing slip unless the letter of credit shipment line amount either equals the invoice amount or the shipment variation is within the tolerance limit specified in the Tolerance percentage field in the Letter of credit / import collection form.
Click Procurement and sourcing > Common > Purchase orders > All purchase orders.
Select the purchase order for the letter of credit that must be invoiced, and then double-click the purchase line to open the Purchase order form.
Click the Receive tab, and then click Product receipt to open the Posting product receipt form. Select the shipment number in the Shipment number field, and then click OK to post the packing slip.
Click the Invoice tab, and then click Invoice to open the Vendor invoice form. Select the shipment number in the Shipment number field, and then click OK to post the invoice. The invoice amount must be equal to the shipment amount. The shipment status is set as Invoiced.
Close the forms to save your changes.
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Make a payment for the invoice
After the purchase order is invoiced, you can make the payment and settle the accounts. The payment for the letter of credit must be equal to the amount due minus the margin amount because the margin amount is already collected by the bank. The payment must be within the tolerance limit for the letter of credit.
Click General ledger > Journals > General journal.
Press CTRL+N to create a new journal.
In the Name field, select a daily journal, and then click Lines to open the Journal voucher form.
Enter the required information.
Click Functions > Settlement and select the invoice. Click the Payment tab and select the letter of credit.
In the Letter of credit / import collection and Shipment number fields, select the bank document number associated with the letter of credit and the shipment number.
Click Post > Post to post the journal. After the settlement invoice is posted, the letter of credit status is set as Closed.
Note
The bank account is credited with the amount. The shipment status is set as Paid. You can close a letter of credit only after all the lines are settled against payments.
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