Discounting of Letter of Credit is a short-term credit facility provided by the bank to the beneficiary. Bank purchases the documents or bills of the exporter (beneficiary) after he fulfills certain compliances. On meeting these compliances, the bank makes him the payment.
It is discounting of export bills / invoices under a usance Letter of credit. This discounting is done on a post acceptance basis (in other words, after acceptance to pay on due date has been received from the LC issuing bank). Given the risk assumption is on the LC issuing bank, financier needs to have some credit appetite on the issuing bank. Funds are made available to exporters bank via banking channels.
Export LCBD refers to discounting of export documents (bills or invoices) under a Letter of Credit wherein the discounting bank assumes the risk of the LC issuing bank. Factoring, on the other hand, refers to discounting of export documents that are not under a Letter of Credit. In other words, Factoring is done for documents against acceptance or where documents have been sent directly to the buyer and the financier takes risk on the buyer.
Yes, pre-shipment finance can be availed as LC is treated as a proof of an order. However, pre-shipment finance is dependent on the borrower's credit and therefore the financier's risk is on the borrower (and not on LC issuing bank thus the borrower will need to be a client of the bank). Pre-shipment finance may be extended by the exporter's bank only.
One-time approvals are generally needed to on-board a client with the financier which requires basic credit information, KYC, details of counterparties, LC issuing banks and business background and any additional information that might be specifically required for a customer. For each transaction, the financing bank's details (and clauses if any) will need to be incorporated into the LC. It is strongly advised to pre-discuss each transaction to avoid issues later.