LC Discounting Charges
LC Discounting Charges
Letter of Credit (LC) Discounting is a short-term credit facility offered by the bank to an exporter. Seller/exporter bank purchases the invoice and discounts 85% - 90% of amount upon due diligence.LC Discounting Charges comes with a lower cost that must be borne by exporter/importer depending upon the terms and conditions agreed upon in LC.
Letter of Credit Discounting: -
Letter of credit discounting is a unique product provided to the exporter for usance LC. In trade usually, buyers want to have a credit period and sellers want to have quick payment, to address this issue, the bank supports the exporter with LC discounting.
Below are the advantages of LC Discounting:
- Exporter gets immediate payment;
- Importer obtains the goods along with the credit period to pay
LC Discounting Charges:
Fees paid by the exporter to the bank to avail of the service of Foreign Bill Discounting are known as LC Discounting charges. These charges are usually mentioned in LIBOR+ BPs. Typically, this interest cost will vary between 6-10% Per annum. The cost may even go up to 14% Pa if LC Confirmation is added.
Basic Documents Required for LC Discounting
- Bills, drawn under irrevocable LC. (Revocable LCs are not discounted)
- Beneficiary Bank to submit all the docs as per LC clause.
- The bills of exchange documents certifying bonafide trade transactions.
