Issue Bank Guarantee – Trade Finance – Treasury - TRM

[mezeshan]

Hi colleagues,

A bank guarantee is a pledge on the part of a bank to make good someone's debt in the event that he or she cannot pay it. This type of guarantee is essentially an agreement to stand as a cosigner on a transaction. In the event that the original party cannot follow through, the bank can be called upon to provide the payment.

Perquisite

• Organizational Configuration e.g. Company code additional data, Valuating area, Valuations Class, Account code, Position management procedure. (applicable for all Products types) (will explain in separate Blog)


• Business Partner as Counter Party


• Bank Guarantee Configuration under Trade Finance. (will explain in separate Blog)

Key focus of this blog is frontend process of Bank Guarantee in SAP

A-Create Contract/Order – Issue Bank Guarantee

A bank guarantee is a written promise from a bank or financial institution to take responsibility for the applicant's financial obligation if that applicant cannot meet its obligation. To issue a Bank Guarantee, you need to contact a bank or financial institution to start the application process.

If you request a commercial bank to issue a Bank Guarantee for your company, normally the commercial bank will require your company to either provide cash collateral or consume your company's credit line facility in the bank. And the commercial bank will also charge a small percentage of the entire guaranteed amount.

In this step, create a transaction for issued Bank Guarantee.

Fiori App: Open Create Bank Guarantee (FTRTBG01)

Company Code: Enter Company code

Product Type: 86A (SAP provided or we may create our own)

Transaction Type: 100 (Issue)

Counter Party: Counter Party (Bank/Financial institute)

Currency: USD or nay other

Activity: Order/Contract (We may create as Contract or first create as Order and then convert into Contract)

Amount: 1M (1M = 1000000.)

Start Date: 01.01.2024

End Date: 30.06.2024

Bank Guar Type: ADVP (Choose from list)

Beneficiary: Create vendor/Supplier Business Partner and then add here (recommended) or add manually

Underlying Transaction: We may add manual underlying document or attach Purchase Order created in MM module

Collateral Tab

Facility Assignment: Click on create button in front of Facility and add facility transaction number. Before adding here first we need to create facility with product type 56A or 56B. Facility are Revolving credit facility or credit line issues by bank to corporate. Mostly credit facility used in Bank Guarantee and Letter of Credit are Non-funded facilities issues by the bank.

Cash Collateral: Add Cash Collateral details if applicable.

Administration Tab

Portfolio: Add here

Gen Valuation class: Add general Valuation Class here or we may assign in customization and it will be auto pick

Other Flow Tab

Here we can add any kind of charges, Taxes, Fee applicable on BG and payable towards Counterparty

Payment Details Tab

Here we assign House Bank and Account ID for inflows and out flows. Normally this information is auto filled from Counter party master data or we may add it manually.

Click on Fee condition Button

Here we can add fee condition if applicable

Cash Flow Tab

Here we can review generated cash flows based on added information on previous. We may double click on any line to check their detail or change information like applicable exchange rate

Click on save button. Transaction will be saved and number will be assign to it.

B-Convert Order into Contract – Issue Bank Guarantee

Fiori App: Open Process Trade Finance Transactions - Collective Processing (FTRTLC00).

Transaction: 15 (Created before)

Click on Execute Button

Here we have two options Execute Order (click on this button) or Order Expiration (if we will choose this option then no further processing, we use this option when BG is not required further)

This App also work as report, we may get details of BGs and LCs.

Add Missing information which was not available before and click on save button. It will be converted to Contract.

BG Number: issued by the bank

External Reference: Any document reference

C-Settle Contract – Issue Bank Guarantee

Fiori App: Open Process Trade Finance Transactions - Collective Processing (FTRTLC00).

Transaction: 15 (Created before)

Click on Execute Button

Click on Settle Button

This App also work as report, we may get details of BGs and LCs.

Transaction is settled (Validated) after settlement there are fewer options to change. Activity number changes for each Process

Order = 1 Activity

Contract = 2 Activity

Settled = 3 Activity

D-Display Payment Schedule – Issue Bank Guarantee

Fiori App: Open Display Payment Schedules (TJ04).

Enter company code, Payment Period same as Transaction start and end date and Transaction number and then execute report

Outgoing Payment Flows will be displayed

E-Generate Payment Request – Issue Bank Guarantee

Fiori App: Open Post Flows (TBB1).

Enter company code, Transaction, Payment Date and choose Pay only

First execute in Test mode

If we will not click on Pay only option then Financial Document and Payment request will be generated.

Payment Request will be generated.

After success, run same without Test run check

F-Process Payment Request – Issue Bank Guarantee

Fiori App: Open Automatic Payment Transactions for Payment Requests (F111).

Enter run Date and Identification and then click on parameter button

Enter company code, Payment Method, Origin and then click on save button

Click on Proposal button and start proposal run

Once proposal Run is completed, we may display proposal log.

Click on Payment Run to post payment documents and print payments

G-Post to General Ledger – Issue Bank Guarantee

Fiori App: Open Post Flows (TBB1).

Enter company code, Transaction ID, Date and execute in Test mode

Update Type TF1100+ are normally not posted to GL account or off-Balance sheet account/Contingent Liability will be assigned to it

Update Type TF1990- represent collateral money so DR Asset GL CR Payment request/Bank GL

Update Type TF1901- represent Bank charges so DR Expense GL CR Payment request/Bank GL

If all is fine go back and execute again without Test run

H-Rollover Contract – Issue Bank Guarantee

Fiori App: Open Process Trade Finance Transactions - Collective Processing (FTRTLC00).

Transaction: 15 (Created before)

Click on Execute Button

Click on Roll Over Button

Here we need to extend end date of Contract.

Further we can increase collateral amount or charges. If these will be added then same payment and GL posting Apps will be used as showed above.

I-Claim Payment– Issue Bank Guarantee

Fiori App: Open Process Trade Finance Transactions - Collective Processing (FTRTLC00).

Transaction: 15 (Created before)

Click on Execute Button

Click on Change button

Add Flow details for Claim Payment. Save transaction.

Follow same steps as we earlier discussed for posting to Financial Accounting and Payment.

I-Terminate Contract– Issue Bank Guarantee

Fiori App: Open Process Trade Finance Transactions - Collective Processing (FTRTLC00).

Transaction: 15 (Created before)

Click on Execute Button

Click on Terminate button

Enter Termination Date and click on Save Button

After Termination settle again as we did earlier

After settlement off-balance sheet transaction or confinement liability transaction will be reversed and bank fee will be paid. Use same app as we used for Financial accounting posting and executed payment run.

 

Cheers.