LC Confirmation & Discounting

In the current Competitive Environment, it is becoming difficult by the day to be extremely competitive because of thin margins in the trade.

When an Importer places an order to his supplier (Exporter) for the purchase of goods against issuance of a Credit / Usance LC of say 90 / 180 / 360 Days, the supplier always tries to get the LC discounted from a third bank who has credit lines with the LC Issuing Bank of the Buyer / Importer.

In such cases, since the facility of credit is a desire of the buyer hence the charges with respect to the discounting and negotiations are debited to the buyers account only.

In most cases where the buyer is banking with a bank which doesnt have direct credit lines with the suppliers bank, We facilitate the transactions on behalf of the buyer and the supplier to make sure that both parties have their focus on increasing the business rather than spending their precious time on arrangement of finance.

Our role begins after the price and business negotiations between the buyer and the seller have been finalised and a draft LC is being issued by the buyer to the supplier so that the supplier can verify if everything is in order as per the agreed business terms.

At this stage, we facilitate and arrange for a financial partner ( an X Bank) who has credit lines and business associations with both the Buyer and the Suppliers Bank. The Bank “X” shows his interest and offers a pricing for the Confirmation and Discounting of the LC and making payment on sight basis to the Supplier.

If both parties agrees to this arrangement and pricing being offered, the terms are made a part of the LC and the appropriate clauses of the LC are updated to ensure all the three banks (Importers Bank, Exporters Bank and Financing Bank “X”) are aware of the transaction being undertaken.

Once the shipment under the LC has been done by the supplier and the documents are submitted by the Supplier through his bank to Bank “X”, the bank “X” will scrutinize the documents at his counter.

If the documents are in order and strictly as per the terms of the LC, the bank “X” will make a payment to the supplier as Bank “X” is a confirming bank.

If documents are discrepant, then the documents are sent to the importer / buyers bank for an acceptance. Once the Bank “X” receives as acceptance, the payment is immediately made to the supplier.

Hence in such a case, Importer is bound to repay the Bank “X” through his bank on due date i.e. after the expiry of the LC along with Interest.

The supplier got his payment on sight basis and he can use the money for further business.

The importer got credit / usance which he desired.

Bank “X” earned money in the shape of Interest and bank charges which is paid to Bank “X” through the buyers bank at the completion of the transaction.