#LC #credit #seller #buyer #discounting #letterofcredit #billdiscounting #IssuingBank #ConfirmationBank #bankline #business #inland The following information provides a fair idea of how an LC rebate works – sellers may require a buyer to receive a credit from a financial institution before shipping goods. This is done to protect the seller from non-payment of the goods. This letter states that the bank pays the seller if the buyer is late in payment. The process of handing over the letter of credit begins when the buyer receives, at the seller`s request, a Lcvon from a financial institution before the goods are delivered to the buyer. LC acts as a guarantee for the seller. In the event of a default by the buyer, the bank will clear the seller`s fees. The exporter now forwards the export documents to the Bank. The bank sends these documents to the issuing bank or the confirmation bank. The bank or confirmation bank verifies the authenticity of the submitted document by checking all documents containing the originals. Once the documents are verified, they notify the Bank of their acceptance of the invoice in accordance with LC. Now, if the seller wants an immediate payment and the buyer is willing to have a longer credit term, the bank will pay the seller the full amount of the bill after deducting the rebate. Now, go back to Letter of Credit`s discount; Often a seller is willing to receive a quick payment.
While the buyer doesn`t want to pay right away. To solve this problem, the bank offers the seller to get the immediate payment or to say the advance, even if the buyer wants a longer credit term for the payment. The Lc discount is useful for all parties in the trade. Through this understanding of LC rebates and its alternative financing options, individuals can make informed decisions when they use financing for their export/import operations. The discounting of the accreditor is a short-term credit facility that the Bank makes available to the recipient. The bank purchases documents or invoices from the exporter (beneficiary) after meeting certain compliance requirements. When this compliance is completed, the bank makes the payment. The exporter is required to pay the bank a commission or discount fee called letter with credit remission fees, it`s like interest.
As a result, these fees vary from bank to bank, depending on the amount, period, creditworthiness of the client, a client`s financial institution and other such matters. The discount rate for letters of credit is generally between 6 and 15% of the total book value. At some point, it may be higher or lower, depending on the quantum, the limit, the size of the company that seeks the investment and comfort of the bank with its financial discipline.