While working on 15 SAP GRC Global Trade Services projects, I have encountered doubts, questions, and confusion from the Financial Accounting (FI) community about what GRC Global Trade Services can and can’t do. Some people mistakenly believe that it automatically solves many of their inter-company, drop-ship, and cross-company reporting issues.

I’ll explain how GRC Global Trade Services integrates with FI in three main components: Compliance Management, Customs Management, and Risk Management. I’ll start by going over some of the ways GRC Global Trade Services affects financial activities via communication and strategy. This article is intended for business analysts and project teams with companies who are implementing GRC Global Trade Services, or considering doing so.

GRC Global Trade Services and FI

The impact of SAP GRC Global Trade Services on daily financial activities should be indirect, yet significant. GRC Global Trade Services provides reporting features, especially for audits, that enable you to handle changing import and export requirements and controls. These audits, which are specific to import and export requirements, can use values from ERP logistics and finance systems.

Communication

Communication from GRC Global Trade Services is two-way in some cases, but specific to financial information it is one-way from SAP ERP to GRC Global Trade Services. The key interface points from FI are the pricing conditions, and this information is carried over to GRC Global Trade Services through transactions. Let’s say you create a sales order that you configure to send to GRC Global Trade Services. Based on the response on the order screening, if it finds any compliance issue, it might block the order and produce a legal control error. The system runs compliance checks against the transaction used for outbound (e.g., sales orders, delivery notes) and inbound (e.g., purchase orders) deliveries with the business partner (e.g., sold to, ship to), country of destination or departure, and license requirement for the material being shipped.

Another key communication from ECC is the condition record, which you use as a basis for license value decrement, duty calculation, and valuation. You use condition values of the products in the transaction (e.g., sales order, purchase order), for determining the license value decrement from the approved license you have created in the system. You also use the condition value for the product brought into the transaction for duty calculation for that particular shipment and valuation.

The system assesses and calculates valuation and duty when the product is shipped out or received. The valuation and the duty are based on the value, which is captured in the condition value of the product being transactions. GRC Global Trade Services generates customs declaration based on the billing document creation in ECC. Billing documents are a trigger for customs shipments, which in turn generate trade documents and declarations.

FI Strategy

GRC Global Trade Services might also affect FI strategically in a few ways. You can make more informed decisions to buy from duty- free shops or countries with preferential treatment. It also helps with planning for product duty costs. For example, condition records are an indicator to GRC Global Trade Services for duty calculation and valuation. Billing documents are a trigger for customs shipments, which in turn generate trade documents and declarations.

In some cases, GRC Global Trade Services’ impact on FI is less visible, but still vital. For example, your customer or vendor could be blocked for trade reasons beyond creditworthiness, such as denied or boycotted party, missing license, or embargo. Dealing with this type of a denied party has a more significant financial risk in terms of penalties, fines, or losing your trade license. In terms of logistics, the system may block transactions (e.g., sales order, purchase orders, delivery) from processing because of trade blocks. You need to be able to distinguish customers who are blocked for trade reasons from those who are blocked for credit reasons so that their larger financial risk is apparent.

If the sales order contains those blocked customers, the system can stop the further processing based on your configuration in ECC. For example, you might see a legal control error while processing a post goods issue. This means that the transaction is blocked due to a legal issue, such as a missing license, improper classification, customer block, or an embargo issue. In all the cases, you need to route the situation to the trade department to resolve this issue.

While creating a delivery note, for example, the feeder system checks the status in GRC Global Trade Services. If the transaction is blocked because of any trade reason, you can use the copy control to put a block code in the incompletion log to block the delivery note creation. The post goods issue, a goods issue transaction for an outbound movement of goods, enables you to credit the inventory and debit AR, and then invoice the customer. If you have a trade block, the system produces an error while attempting to post goods issue — in other words, with trade block you will not be able to post goods issue, which in turn affects your account posting. From a trade standpoint, the pro forma billing document in ECC could trigger the communication to GRC Global Trade Services for trade document generation.

GRC Global Trade Services Functions

GRC Global Trade Services integrates with FI via a number of components. I’ll give a high-level explanation of three of these — SAP Compliance Management, SAP Customs Management, and SAP Risk Management — including what elements of trade they affect and how they relate to financial processes.

Compliance Management

Compliance Management is a component of GRC Global Trade Services that supports international trade compliance issues in three primary areas:

• Sanctioned party list screening
• Import/export legal controlling
• Embargo checking

Sanctioned party list screening. The sanctioned party list screening checks your business partners against the government-provided denied party list (Figure 1). It is illegal to perform business transactions with listed parties — your company could face fines or severe penalties. By streamlining the extended supply chain, Compliance Management automates the complicated regulatory compliance process, which minimizes the risk of penalties and fines.

Figure 1

Compliance Management: Sanctioned Party List Screening

Import/export legal controlling. The system checks import and export legal controls against your product shipment from departure and destination country regulations. Based on these regulations, the product might need a license to export or import into a country. This functionality checks the license requirement or exemption based on the classification of the product. Some of the licenses might be value- and quantity-based, so the system uses the transaction value for the dollar value consumption.

Embargo checking. Embargoes are based on the country of destination and departure. These are countries listed by the United Nations for embargo. You can configure to stop doing any business with these countries. You can screen a customer before you register it into your database.

When you click on Sanctioned Party List Screening under SAP Compliance Management, it brings up the default Logist. (logistics) screen (Figure 1). Here you can view the results of your business partner screening and place them in a positive or negative list. The Fin. Accntg (Financial Accounting) tab brings up the similar functions and features as the logistics, except that here you can screen financial institutions. Similarly, you can screen employees and view the results within the Human Res. (human resources) tab. The Mast. Data (master data) tab allows you to upload the denied party list screening content and set up the sanctioned party list control settings.

Customs Management

Customs Management is a GRC Global Trade Services component that supports cooperation with the customs authorities in the following primary areas:

• Customs communication service
• Duty calculation
• Product classification
• Trade document service

Customs communication service. With the main focus on the implementation of electronic shipping and customs procedures, Customs Management facilitates imports and exports as well as communication and printing. The customs communication service enables you to connect to customs offices and access customs IT procedures such as the New Computerized Transit System (NCTS) in Europe and the Automated Export System (AES) in North America. Online communication with the customs agency involves payment of duty as part of the clearance. The clearance of the importing or exporting goods triggers the feeder system to determine if funds are available to transfer money for duty payments. Because duty calculation is based on the pricing condition of the transactions, you should ensure that the calculated duty is captured in the original document for finance account purposes. Currently the communication of the calculated duty in the GRC Global Trade Services customs document back to the finance document is not available.

Duty calculation. Duty calculation supports complicated calculations of duties. The system derives the values of duty calculations from the transaction values (e.g., material cost, product cost, document pricing). You can use a statistical value for passing this information for duty calculation if you don’t want this value to post to accounting. You can use statistical conditions (GRWR) in ECC to pass it to the GRC Global Trade Services customs document.

Product classification. Product numbers are unique to companies. For international trade to recognize these parts or materials, you have to classify them for export and import purposes. From an export regulation point of view, you classify the materials to represent the control in terms of a shipment to a different destination. Legal control and license requirements are based on the export and import classification.

Trade document service. You can trigger the trade document service in GRC Global Trade Services with a billing document in your SAP ERP system. The billing document could be a pro forma invoice (billing document type – F8 or F5) or a final invoice to a customer. The pro forma invoice is a billing document type in R/3 or ECC, not to be confused with the trade document pro forma invoice used for shipment within the EU.

After you trigger the GRC Global Trade Services trade document service, you can generate different trade documents, such as a commercial invoice, pro forma invoice, shippers export declaration, or entry submission. The pro forma document that you create in ECC triggers a GRC Global Trade Services customs shipment document. These have all the relevant trade information and you can also configure them to have messages. These messages represent the different trade documents or electronic communication that you want to generate.

Click on the Customs Processing – Import/Export button in Figure 1 to bring up the Operative Cockpit screen shown in Figure 2. Here you can view all the customs shipments created with reference to the pro forma document that have been transferred to GRC Global Trade Services for trade document generation. You maintain the authorization for release of trade transactions under the Authorizations tab. When you import goods, in some countries, you are required to produce the securities customs authorities for release of goods.

Figure 2

Customs processing — Import/export

Under Customs Value Calculation, you can click on the Simulate Calculation of Customs Duties (Figure 3). Figure 4 displays a typical customs value for customs shipment line items. You could use the value of goods, transportation costs, insurance, and customs value for duty calculation.

Figure 3

Customs shipment document line item customs value for declaration

Risk Management

Risk Management within GRC Global Trade Services is specific to the risk of doing business internationally from a trade point of view. It addresses the three main financial aspects of trade:

• Cost of doing business in a different country
• Duty drawback. This is the process when companies pay the duty while getting the goods clearance. They can follow with the specific product classification and if the duty is exempted, then they can provide the appropriate documentation to get back the duty paid.
• Financial collateral, as an assurance companies need to have in the form of a letter of credit

Restitution addresses the duty drawback, specific to the agricultural industry, in terms of subsidies. A letter of credit provides the assurance of payment for the goods or services being delivered.

Preference Processing is functionality within Risk Management that supports exporters in indicating goods for preferential tariff treatment (Figure 4). This functionality assists exporters in determining whether you meet all the prerequisites for preferential customs duty rates. Exporters can search for goods with preferential origin, meaning that they have reduced or zero customs duty rates.

Figure 4

Preferential Processing within GRC Global Trade Services Risk Management

Sourcing from a foreign country has a financial element to it, not only from the logistics point of view but also from the import duties. Risk Management allows you to determine the costs of importing goods from various countries. Although the supplier’s price quote — the exporter’s ex-works price — may be higher than a competitor’s ex-works price, you can determine the overall price of goods for customers and find the lowest rate.

Preference Processing supports exporters in the following primary areas:

• Managing vendor declarations, including requesting and sending reminders to vendors about vendor declarations and maintaining the declarations in the system
• Taking vendor declarations back from the customer if, for example, the exporter uses a different vendor as an exception and the eligibility for preferential tariff treatment is affected
• Calculating threshold values for goods based on vendor declarations for materials
• Printing customs declaration document based on the billing documents created in the transactional system in addition to preferential documents such as certificates of origin and vendor declarations

You can use GRC Global Trade Services to get preferential treatment. If you have paid duty initially to clear customs, now you can produce all the relevant documents to get back the duty you paid to the government agency. The result is that customers pay less import tax for goods that are indicated for preferential tariff treatment. This has impact in terms of the cost of doing business, when you can get a material at a lesser cost, as you are paying less duty and import tax. Financially, you need to account these amounts as well.

The Restitution component of Risk Management enables exporters to map the restitution process simply and efficiently to the standard export process while mitigating financial (due to international trading) and legal risks. Monitoring and controlling functions enable exporters to keep track of all their business transactions and cooperate with the customs and legal authorities.

GRC Global Trade Services helps track consumption and report to government agencies by managing and accounting for licenses and the quantity and value of shipped goods. Customs agencies or governments might ask for a bank guarantee or security for clearance of imported goods. You then report these financial transactions (e.g., deposits) to the government agencies as securities.

The transaction value is the value of the imported commodity based on which customs duty rates are applied. The transactional value consists of the net value of the imported commodity, any value-adds or rebates, transportation costs (freight), and insurance costs. The transactional system passes these values through pricing procedures in the billing document and stores them in the customs document in GRC Global Trade Services.

Restitution allows exporters to manage export licenses, securities, manufacturer’s recipes, and restitution calculations based on the normal export process. All these management services required for the restitution process are part of the standard export process.

Currently SAP provides functionality for agreements within EU preferential treatment and NAFTA. These programs use complex logic to determine the country of origin for the product and the preferential treatment the companies can receive for trade based on the agreements between the trading countries. When deciding on sourcing the goods for low cost, the duty rates might be a key factor in strategic decision making and financial saving in the long run.

Rajen Iyer

Rajen Iyer is the cofounder and CTO at Krypt, Inc. Rajen has written several in-depth, best practice articles, white papers, patents, and best-selling books on SAP Logistics and SAP Global Trade Services, including Effective SAP SD and Implementing SAP BusinessObjects Global Trade Services. He is also an invited speaker at industry conferences.

You may contact the author at Rajen@kryptinc.com.

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