Domestic LC discounting
Domestic / Inland Letter of Credit Discounting is actually a short-term post shipment credit facility offered by the banks to the clients. In this process, the banks or NBFCs purchases all the documents or bills produced by the client and which are backed by LCs and pay the money to the client against discounting interest for the usance period as per the terms of LC.
Two ways of Domestic LC Bill Discounting
- Beneficiary basis- KYC of Supplier needed to get validated for discounting.
- Applicant basis- This is also called as Reverse LC discounting. In this Buyer KYC is only needed by Bank/NBFC for approval , no need of separate kyc of all the different suppliers on which LC will be issued by the Buyer.
How it Works
- Before getting LC, Buyer/ Supplier ( as the case may be) shares basic details of trade with www.lcbiding.com to get quote for LCBD (LC Backed Bill discounting).
- Selection and acceptance of LC discounting rate and bank by the Client.
- Basic credit information, KYC, details of counterparties, LC issuing banks and client business background and any additional information that might be specifically required from client.
- One-time approvals are generally needed from LC discounting Bank. For each transaction, the financing bank's details (and clauses if any) will need to be incorporated into the LC. It is strongly advised to pre-discuss each transaction to avoid issues later.
- Once LC is received by discounting bank , Supplier will ship the goods and submit the trade & other related documents required under LC. In some cases as per the terms of LC dispatch of goods being done prior to LC opening is also allowed.
- Discounting Bank will forward the document to LC issuing Bank /NBFC.
- Buyer will give acceptance to LC issuing bank once trade documents are received by them and considered proper.
- Discounting bank will discount the LC and credit the account of supplier after deducting interest and other charges for usance period of the LC.
- On due date ,discounting bank will get LC amount from LC issuing bank .
What is Letter of Credit (LC)?
A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. Due to the nature of inland and international dealings, including factors such as distance, differing laws in each country, and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international and national trade.
What is LC Discounting (LCBD)?
Improve your cashflow and receive payments promptly by paying discounting rate of interest at very low rates once documents accepted under the LC are confirmed as compliant. With guaranteed security by LC opening bank, LC Discounting can act as a benefit to all parties involved – buyer, seller and guaranteeing bank.
What is Lcbidding.com
LC Bidding.com provides a marketplace/platform for business owners to sell and Banks/NBFC to Fund invoices raised and backed by LC. It provides the best in class technology to Business-owners looking for discounting their LC and can use this platform to discount the LC at attractive rates. Register yourself with us on our website as a business and we will help you discount your LC at very competitive rates. Bankers looking to Fund for short term (1 to 365 days ) can earn attractive discounting interest. Register yourself with us on our website as a Banker and we will help you park your Funds in this asset class with varying maturity periods.
Who is behind LCBidding?
LCBidding.com is backed by a set of passionate founders, financial & technology experts and industry stalwarts. For details about our team Click Here.
What is the criteria for domestic LC Discounting?
- The bills should be drawn under irrevocable Letter of Credits issued by a Commercial Bank India.
- The Bills drawn are in strict conformity with the terms of the LC.
- LC must have Usance period. (At sight LC cannot get discounted).
- Bills of exchange should have arose out of bonafide commercial or trade transactions.
Documents required for domestic LC discounting?
Letter of credit, Bill of exchange, Receipted Challan being proof of delivery of goods/ Documents of title to goods evidencing dispatch of goods (RR/ LR/ E way bill, shipping documents), Any other relevant documents as per the terms of LC,the bills should get accepted by the drawee through their bankers, Interest and brokerage for the usance period, actual postage and handling charges will also be collected.
What is the tenure required for LC Discounting?
Domestic LCs are usually upto 180 days.
What is the expected interest/ discounting rates?
LCBidding.com plays a big role in getting the cheapest discount rates for LCs from various banks across the industry. Discounting interest rates corresponding to deals will be made available to borrowers after confirmation with banker/NBFC before any funding, this ensures that borrower know their interest cost before initiating the discounting.
Does LCBidding guarantees payment to bank?
LCBidding.com provides a platform to connect Borrowers seeking to discount LC and bankers/NBFC and execute transactions between them.LCBidding.com does not guarantee to its bankers and the funding would be subject to the traditional market risk associated with invoice discounting. Please refer to the Risk factors for details.
Who can fund on LCBidding?
Any Bank / NBFC
To whom financials information will be shared?
What is the risk involved?
Funding comes with its own associated risk . Since it is LC backed funding, applicant bank guarantees the payment to the funding done by negotiating bank . However, we have taken several steps to mitigate the risk – both strategically and operationally. LCBidding .com is a tech platform and it does not assume any credit risk on behalf of the lenders.