LC Discounting Charges
LC Discounting Charges
Discounting of Letter of Credit is a short-term credit facility that is provided by the bank to the beneficiary. Bank purchases the documents or bills of the Seller (beneficiary) after he fulfills certain compliances and provides the required documents to be dispatched to LC discounting charges opening bank. Factors like the relation between a buyer and a seller, economic conditions, nature of transactions, national and international trade, etc. often decide the fate of trading. If there is discord among any of these factors, traders are likely to incur a loss unless they have financial security like a Letter of Credit or LC discounting to fall back on.
Types Of Letters of Credit:
In a broader sense, there are 5 types of Letters of Credit
Revocable:
It is an uncommon Letter of Credit as it can be changed or cancelled by a banking institution at any time and for any reason. It cannot be transferred to a third party.
Irrevocable:
This Letter of Credit can only be changed or cancelled if all concerned parties agree to it. Typically, an irrevocable Letter of Credit is more secure than revocable ones.
Transferable:
A transferable Letter of Credit can be transferred from one beneficiary to another. Such an LC is used when intermediaries partake in a transaction.
Confirmed:
When an advising financial institution trusted by the seller guarantees payment from the buyer, a Letter of Credit is confirmed. A confirmed irrevocable Letter of Credit is more secure than an unconfirmed one as it is backed and guaranteed by both the issuing and confirming bank.
Unconfirmed:
In the case when a letter of credit discounting reaches the beneficiary with only the issuing bank's payment undertaking, without any confirmation added by another financial institution it is known as an unconfirmed letter of credit.
Besides these, other Letters of Credit include – standby Letter of Credit, revolving Letter of Credit, and back-to-back Letter of Credit.
