There are two types of Bank letters module which are:
Letter of credit
Letter of guarantee.
Letter of credit:
Letter of Credit is a binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller.
Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the shipment of goods within a given time frame. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability.
Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another; there are four types of letter of credit which are:
Letter of credit import (LC’s import)
Cash against documents Import (CAD import)
Letter of credit export (LC’s export)
Cash against documents export (CAD export)
Letter of Guarantee:
Letter of guarantee is a type of contract issued by a bank on behalf of a customer who has entered a contract to purchase goods from a supplier and promises to meet any financial obligations to the supplier in the event of default.
A bank guarantee and a letter of credit are similar in many ways but they’re two different things. Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn’t go as planned.
A letter of credit is an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. This ensures the payment will be made as long as the services are performed.
A bank guarantee, like a line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract.
Letter of credit module:
There are main features in Letter of credit which help you to reach the ultimate purpose of generating the product’s final cost & P&L such as:
The ability to import or export Inventory control items & fixed assets.
The ability to create more than one shipment in the same LC.
The ability to setup & record of several tax & expenses types.
The ability to allocate custom tax on items & decide if it affect item cost or not.
Reports of total LC and custom costs.
Ability to preview summary report of the LC items in transit.
The ability to add overhead from LC & it will affect directly the cost sheet.
It suggests to the user the best distribute & retail price after adding the profit percentage.
Full coverage of import transactions whether direct import or through letter of credit and handles its expenses, documents, conditions, defining its items and shipments.
Handles all the procedures of requests, approvals, issuing, adjusting, voiding and closing of LC’s.
Handles the shipments from LC’s and receiving it in warehouses (fixed assets – finished product – raw material – etc…) with the LC’s cost and the distributed expenses on the shipments
LC’s costs through cash & banks movements while calculating the effect percentage of taxes on the items cost
Handles LC’s payment schedule with its basic and subsidiary contents
Reviewing each LC with its content, received shipments, its expenses & item expenses.
The ability to close the shipment at specific date (entering by the user) instead of taking the server date.
Letter of Guarantee Module:
Covers letter of guarantees (request – approval – issuing – editing – renewing – liquidation – close)
Review the outgoing LG with the Ability to issue a journal entry on it
Reviewing LG’s report
There are many types of shipment concept such as:
FOB: the cost of fright & insurance from shipment port to arrival port paid by the importer.
C&F: only cost of fright from shipment port to arrival port paid by the exporter.
CIF: the cost of fright & insurance from shipment port to arrival port paid by the exporter.
All these processes occur through a fully integrated financial system (KASH):
Supplier module: the module by which the company manages its relation with its suppliers & issues an invoice to verify the items reception in same time.
The Company suppliers can provide the LC with any services they need to also be added to the item’s cost sheet.
Cash & bank module: the module by which the company can handle expenses over each LC & manage the cash payment /receipt as expenses on the LC like; Transportation, Bank Charges, custom tax…etc and this also will be added to the item’s cost sheet.
Inventory control: the modules by which the company receives or packs its items to/from its warehouse to the LC like; clothes, materials…etc & these items or materials cost will be automatically calculated after closing the LC.
Fixed assets: the module in which the company can import or export assets through LC Like; cars…etc & these assets cost will be automatically calculated after closing the LC.
General Ledger module— all the above modules have a link with the general ledger module; so that, The journal entry of each transaction is posted to cover & manages the accounting part of the LC through previewing the company’s income statement, trial balances & compare it with the LC reports.