In today’s business the trade is not restricted to national boundaries, global trading is not simple as it hear it brings a lot of difficulties like overseas distances, trust between the parties, unstable economic environment, nature of transactions, different trade laws of each country, etc. So to reduce such difficulties and to assure the seller about the recovery of his money, Letter of Credit Discounting came into existence. It acts as a financial security in international trade. Trade finance includes such activities as lending, issuing letters of credit, factoring, export credit and insurance. Trade finance consultancy is very useful for a customer who regularly uses trade finance facilities for his importation of goods. Using this service, an importer can get huge benefits like advice on cost effective solution for their importation and drafting of instruments on their behalf saves time and money.
Discounting of Letter of credit:
Discounting of Letter of Credit (LC) is a short-term credit facility provided by the bank. In the Letter of Credit discounting process, the bank purchases the documents or bills of the exporter and in return make him the payment for a security or a fee. LC discounting is actually a term used for ease in place of ‘LC Bill Discounting’, which means discounting of a bill backed by LC. This helps both the exporter and the importer to fulfil their agreed needs.
Discounting / Lending against SBLC:
The SBLC can be discounted or the funds can be lent against the guarantee issued by the bank in the form of SBLC to the concerned party for the specified tenure as described on the SBLC.
LC discounting is helpful to all the parties in the trade.
- the seller gets immediate payment for his sale;
- the buyer receives the goods along with the credit period to pay
- the bank receives a premium from the buyer when he makes the payment to the bank.