LC Discounting is from the prime banks
or a financial institution is considered as a complete security. A borrower can
offer the LC to the lender and get the loan sanctioned. The loan amount may be
up to 100% of the LC value. Once the LC is executed the amount against LC is
settled by the lender against the loan disbursed to the borrower. LC Discounting helps the
businesspersons to raise finance quickly for a shorter period of time.
Mean
to Discount a LC
The
financial option to LC Discounting
is a strategy that businesses will sometime use as a means of generating cash
today for a letter of credit that is slated to be honored at some point in the
future. Essentially, this approach is similar to factoring an invoice, in that
the seller who is awaiting payment for goods that have been shipped and
received by the buyer can approach his or her bank to receive an advance of
funds that is near the total worth of that LC. This allows the
seller to enjoy the proceeds from the purchase now rather than later, using the
money for whatever purpose is needed.
Procedure of Issuing LC Discounting
In
order to LC Discounting, the seller’s bank will contact the bank
issuing the letter of credit provided by the buyer. The financial institution can then
present the seller with a percentage of the total value of that anticipated
payment. While the action to LC Discounting can be used in a number of business scenarios, the setting will
normally involve an exporter who is selling goods to a buyer or importer
located in another country. When this is the case, the trade laws relevant to
both countries involved will dictate how the LC Discounting is written, and what provisions are included to
protect the rights and responsibilities of all parties involved. As with any
type of business transaction, it is important to read and understand all the
terms found in the contract governing the LC Discounting, making sure there is no opportunity for miscommunication that
could lead to problems later on.
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