What is Export LC Discounting?

LC Bill Discounting is an export credit facility that eliminates hurdles like trust between parties, unstable economic environment, nature of transactions, etc. and guarantees the recovery of money to the exporter. After the goods have been shipped, the exporter submits the export bills to the bank and the bank extends a post-shipment credit by either discounting or purchasing the export bills under a Usance Letter of Credit It facilitates the exporter to avail funds before the expiry of the term of the LC which he can use to finance working capital expenses. The fees charged by the bank depends upon the time left till maturity of LC and the amount of the LC. It also depends upon the risk assumed and exporter’s credibility.

How does export LC discounting work?

• Before getting the Letter of Credit, the Exporter shares basic details of trade with an export finance consultant like Myforexeye to get quotes for Export LC Bill Discounting.
• If the Export LC discounting rate is acceptable by the client then basic credit information, KYC details of counterparties, LC issuing banks and export business background and any other additional information that may be required from an exporter is asked for one time approval.
• For every transaction, the financing bank's details (and clauses if any) need to be incorporated into the LC.
• After the LC is received by the discounting bank, Exporter will ship the goods and submit the documents required under LC.
• Discounting Bank will forward the documents to the LC issuing bank as per the terms of LC
• The buyer/importer will give acceptance to LC issuing bank once trade documents are received by them and considered satisfactory.
• The Discounting bank discounts the LC and credits the account of the exporter after charging fees according to the time to maturity and the amount of LC

Advantages and Disadvantages of LC discounting

Following are the benefits of LC discounting:

• It speeds up the cash flow movement as the exporter receives an advance payment before the maturity of the LC which he can use for his working capital requirements.
• LC Discounting is a safe and secure mode of getting funds, as the banks carry out the export bill discounting only after verifying the authenticity of both the parties.
• It allows the exporter to strengthen his relationship with the importer by giving a credit period for making the payment. This also puts the exporter in a better position to negotiate the trading terms.
• It is a win-win situation as the buyer receives the goods as well as a credit period to pay.

Myforexeye's Export Finance & LC Discounting Services

Myforexeye provides two kinds of Export Finance consulting services –

1. Export Factoring
2. Export LC Bill discounting