How Can I Process Billing and Apply Cash by Letter of Credit

Some grantors allow grant recipients to request cash for groups of awards from the agency using the letter of credit process. Draws can be requested as frequently as necessary and generally result in an ACH payment within 24 to 48 hours.

You can assign a letter of credit to the grant on the Grant (GM15.1), Billing tab. The same letter of credit can be assigned to any grant. Also, multiple grants from multiple grantors can be on the same letter of credit. Depending on how customers are set up in Accounts Receivable, it might be necessary to apply cash received on the letter of credit for more than one customer.

To calculate amounts for letters of credit, Grant Request for Reimbursement (GM121) includes an optional letter of credit summary report. The report totals contract billing amounts by letter of credit. This allows the grants administrator to identify and request the appropriate amount for each letter of credit draw.

You can use Accounts Receivable cash application programs (AR30.x) to apply cash received on the letter of credit to the appropriate invoices.

For the best efficiency during cash receipts processing, the ACH payment received for a given letter of credit should be processed and updated in Accounts Receivable before the next billing cycle is run for contracts involving that same letter of credit. If cash receipts are not processed, more work is required during cash receipts entry. For example, on May 15, a billing cycle is processed and results in $150,000 drawn on a letter of credit involving several grant activities (contracts). The ACH payment is received, and all open invoices are automatically selected during cash receipts. On May 22, the billing cycle is processed and $200,000 is drawn on the same letter of credit but the receipt is not processed and updated in Accounts Receivable. On May 29, the billing cycle is processed again and $90,000 is drawn. When the $200,000 receipt is processed, all open invoices from May 22 and May 29 will be presented, and you will have to manually select which invoices were paid by the $200,000 draw

Note: For more detailed information on cash application, see Accounts Receivable User Guide.