Fees paid by exporter to the bank to avail service of Foreign Bill Discounting is known as LC discounting charges. These charges are usually mentioned in LIBOR+ BPs . Typically this interest cost will vary between 6-10% Per annum.
What are discounting charges?
The discount, or charge, is the difference between the original amount owed in the present and the amount that has to be paid in the future to settle the debt. The discount is usually associated with a discount rate, which is also called the discount yield.
What are the charges for letter of credit?
The cost of a letter of credit usually ranges from 0.25 to 2 % depending on the type of letter of credit margin, customer credit rating, tenure and other such factors. Being usually used for large international exports and transactions, often loans can be taken to procure such letter of credit from the concerned bank.
Can a bank discount its own LC?
Draft when accepted shall become a negotiable financial instrument that is independent of the LC and can be forfaited or sold on the market. Therefore, any banks including the issuing bank can discount (purchase at a discount) such a draft if they wish to do so.
How are LC Discounting charges calculated?
To calculate the discount charge use the following formula (remember to adjust for any minimum base rate): Discount charge = ((FIU x (DM + BR)) / 365) x number of days.
How are discounting charges calculated?
Discounting Charges = Amount of Bill Discounted ×Rate +Unexpired Period. Amount of Bill Discounted ×Rate /Unexpired Period.
What is LC discounting in India?
Discounting of Letter of Credit is a short-term credit facility 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 opening bank.
How is LC opening charges calculated?
Opening Commission – This is charged for setting up/issuing the LC – The rate could be 0.125% calculated on the monetary value of the LC and the fee period starts from the date of issuance and ending on the expiry date of the LC or the maturity date for payment. … Payment of the fee – On the day the LC is issued.
What does LC negotiation mean?
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.
Can usance LC be discounted?
Letter of Credit Discounting is a product offered to the exporter for Usance LCs . In trade usually Buyer wants to have credit period and sellers want to have quick payment, to address this issue, bank supports exporter with LC discounting.
Can LC issuing bank be negotiating bank?
Negotiating bank is one of the main parties involved under Letter of Credit. Negotiating Bank,is the one who negotiates documents delivered to bank by beneficiary of LC. Negotiating bank is the bank that verifies documents and confirms the terms and conditions under LC on behalf of beneficiary to avoid discrepancies.
What is the difference between negotiation and discounting?
In simple terms, export bill discounting with banks takes place under the shipments where in no Letter of credit is involved. The term export bill negotiation arises when the shipments under Letter of credit basis. … After preparing such shipping documents, exporter submits all documents with his authorized dealer bank.
Can I get loan against letter of credit?
From a banker’s perspective, letters of credit are very strong collateral as the recovery rate is almost 100%. Therefore banks lend generously against a letter of credit. One can get a bank loan of up to 80% of the value of the letter of credit. The bank would check your credit score, payment history, etc.