Letter of credit discounting occurs when your bank offers to advance you the letter of credit payment before you have completed the steps needed to present the sales and shipping documents. It is called a discount because you do not receive the full payment amount.
What is discounting of LC or bill?
LC discounting is a credit facility extended by banks. In this process, the financial institution purchases bills or documents from exporters and provides a loan after discounting the bill amount, i.e., reducing the applicable charges.
Can a bank discount its own LC?
Draft when accepted shall become a negotiable financial instrument that is independent of the LC and can be forfaited or sold on the market. Therefore, any banks including the issuing bank can discount (purchase at a discount) such a draft if they wish to do so.
What is the difference between LC discounting and LC negotiation?
In simple terms, export bill discounting with banks takes place under the shipments where in no Letter of credit is involved. The term export bill negotiation arises when the shipments under Letter of credit basis. … After preparing such shipping documents, exporter submits all documents with his authorized dealer bank.
Can LC issuing bank be negotiating bank?
Negotiating bank: Upon shipment of goods, the exporter prepares the documents as per the terms of the LC and submits these to his bank for payment. This bank is the negotiating bank. … If so, then this bank will make the payment to the beneficiary and will forward the documents to the issuing bank to get the payment.
How can I get usance LC discount?
Letter of Credit Discounting is a product offered to the exporter for Usance LCs . In trade usually Buyer wants to have credit period and sellers want to have quick payment, to address this issue, bank supports exporter with LC discounting.
Can sight LC be discounted?
Can sight LC be discounted? Sight letters of credit should not require any discount mechanism as issuing banks or confirming banks must honor at sight credits as soon as they determine that the beneficiary’s presentation is complying.
What are the types of LC?
Main types of LC
- Irrevocable LC. This LC cannot be cancelled or modified without consent of the beneficiary (Seller). …
- Revocable LC. …
- Stand-by LC. …
- Confirmed LC. …
- Unconfirmed LC. …
- Transferable LC. …
- Back-to-Back LC. …
- Payment at Sight LC.
What is Bill discounting in export?
Export bill discounting occurs when a business contracts with a buyer for their goods on credit. … This means early payment for the exporter issued by their financial intermediary, who then collects payment from the buyer’s bank at a later date based on the agreed upon payment terms.
What is the LC payment?
A letter of credit, or “credit letter” is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.
What is the LC process?
An LC contract is an instruction wherein a customer requests the bank to issue, advise or confirm a letter of credit, for a trade transaction. The bank thus undertakes to pay the seller/beneficiary even if the remitter fails to pay. …