With a sharply falling Rupee, the importer community has been hit solid recently. To access the overseas funding, market has reverted to Supplier’s Credit in big way. Yes, supplier’s credit is the most trending thing now.
The conception of imports and exports serves the need of fulfilling the domestic demands by reciprocally sharing the resources and commodities between international borders. In order to create easy trade finance to the importers of India the government had structured buyers credit funding process. On the 13thMarch, 2018, a circular from RBI banning the usage of Letters of Undertaking (LOUs) to provide buyer’s credit, hit the huge market of more than $85billion in India leaving the Indian importers to a halt. India’s annual import is around $450+Billion and RBI’s decision invited strong reaction from the traders and high-volume importers. Earlier where an importer could get funding at as low as L+20-30bps (excluding hedging premium), just after the ban the importers were strained to raise money in domestic markets from banks at a much higher interest rate. Later everyone found a solution to the problem by falling back on good old Suppliers Credit.
What is Suppliers Credit?
Suppliers Credit is a good method of financing imports into India. Importers are given funds at LIBOR connected rates by overseas banks and financial institutions (known as the funding bank) these are much more economical as compared to locally available funding. Funds can be issued underusance letter of credit.
The maximum credit period limit here is same as buyer’s credit being one year from shipment date for tradable commodities and three years for capital goods. Supplier’s credit permits timely payment to the exporter or the seller of goods, on the other hand provides time to the importer or buyer of goodsfor arrangingfunds for re-payment.
There are a range of costs involved in case of supplier’s credit being: Foreign bank interest cost, Foreign Bank LC Confirmation Cost (Case to Case basis), LC advising and or Amendment cost, Negotiation cost (normally in range of 0.10%), Postage and Swift Charges, Reimbursement Charges, Cost for the usance (credit) tenure. (Indian Bank Cost)
Even though supplier’s credit may seem to be a little costlier compared to buyer’s credit it has extremely low possibilities of scams and stripped down loopholes, therefore guaranteeing safety for the transaction. With LOU backed buyer’s credit not operational, supplier’s credit is glittering as the best form of availing trade credit on LIBOR linked rates.Thus, supplier’s credit has become the most trendingthing now.
At Myforexeye, we are pleased to offer our clients supplier’s credit service, using LCsand price discovery on our digital platform. Put a full stop to long negotiations haggling with multiple brokers and banks. Get going with smooth foreign exchange and focus on your business.