![]() Hence, these charges vary from bank to bank, it depends upon the amount, period, credit worthiness of the client, financial statement of a client, and other such matters. The exporter shall be required to pay a fee or discounting charges to the bank, which is termed as a Letter of credit discounting charges, it is like interest. On meeting these compliances, the bank makes him the payment. Bank purchases the documents or bills of the exporter (beneficiary) after he fulfills certain compliances. How Does the Letter of Credit Discounting Work?ĭiscounting of Letter of Credit is a short-term credit facility provided by the bank to the beneficiary. The bills of exchange need to be related to bonafide trade transactions.Bills drawn should strictly conform to the terms mentioned in the Letter of Credit.(Generally, bills backed by revocable LCs are not discounted) the bank receives a premium from the buyer when he makes the payment to the bank.īasic Documents Required for LC Discounting (or LC Bill Discounting).the buyer receives the goods along with the credit period to pay.the seller gets immediate payment for his sale.So, LC discounting is helpful to all the parties in the trade. So, to resolve this difficulty, the bank offers the seller to get the immediate payment or say advance payment, even if the buyer wants a longer credit period for payment. Whereas the buyer does not want to pay immediately. Now, Coming back to Discounting of Letter of Credit it often happens that a seller is willing to get quick payment. In simple words, the bank promises to pay for the goods which the buyer has purchased from the seller. ![]() A letter of credit is a guarantee given by the bank to pay to the seller for the buyer’s obligation, in case a buyer fails to make the payment. To understand the meaning of Letter of Credit Discounting, we need to understand the meaning of Letter of Credit in short. Advantages and Disadvantages of LC Discounting.LC Discounting Limit / Credit Facility Approval.How Does the Letter of Credit Discounting Work?.Basic Documents Required for LC Discounting (or LC Bill Discounting).Letter of Credit Discounting Definition.Introduction of Letter of Credit Discounting.
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