For running the day-to-day operations working capital of the business is most important. Thus, for that, the company needs to take help from either short-term or long-term loans. Initially, all the loans were secured but now we have multiple secured as well as unsecured options available. So let us Focus on one of such working capital instruments i.e. Letter of Credit discounting.
1. Can a letter of credit be transferred?
Yes, a letter of credit can be transferred. There is a special kind of LC which is called a transferable letter of credit. It includes a transferrable provision. Transferable LC additionally allows the first beneficiary to transfer some or all of the credit to another party, which creates a secondary beneficiary.
2. Is a letter of credit discounting safe?
A Letter of credit is one of the safest options and is most commonly used in domestic and international business transactions. In fact, the exporter or importer, who are unknown to each other from different locations at such times the buyer’s creditworthiness can be checked through LC. So, it is a safe and widely used working capital instrument.
3. Can a letter of credit be canceled?
As there are various types of LC, depending upon which can or cannot be canceled.
- A revocable letter of credit is one that can be canceled or amended by the issuing bank at any time and without prior notice to or consent of the beneficiary.
- An Irrevocable Letter of Credit is one that cannot be canceled or amended without the consent of all parties concerned.
4. How does a letter of credit discounting work?
A letter of credit is a letter issued by a bank guaranteeing that the seller will receive the payment from the buyer on time with a given amount and in case the buyer fails to make the payment, the bank will be paying the amount to the seller. So, it works like a trust factor between importer and exporter.
Learn more about the process of the letter of credit discounting from the case study.
5. Who can issue a letter of credit?
Issuing bank (importer’s bank) which issues the LC when an applicant (importer) requests the bank to issue the LC. Generally, LC with a well-rated bank is accepted.
6. What is the expiry date of the letter of credit?
The last date to submit the exported documents with the bank for negotiation of documents is called LC expiry. Here, the exporter needs to submit all required documents with the bank after export as per the guidelines mentioned in the letter of credit. This means if shipped goods before the date mentioned in LC for shipment, the Letter of Credit is void, but not submitted documents for negotiation within the validity period of the Letter of Credit.
7. When is the requirement of LC?
The main requirement of LC is when the parties are unknown. And have to take risks in transacting with each other. So, LC discounting is used mostly in international transactions.
8. Who can avail LC Discounting facility?
All the eligible businesses who are engaged in manufacturing or service industries can apply for such a facility. It can include selling or shipping goods, trading businesses, or other related businesses.
9. How much is the interest charged for discounting?
The interest/fees depend upon the amount of the transaction, the Credit score of the buyer, the history of the debtor, etc. It varies according to the clients.
10. What are the documents required for discounting LC?
The documents include shipment and insurance bills and Bank issued original LC.
Terkar Capital for Letter of credit Discounting
We at Terkar Capital understand the requirements of the client and explain the entire procedure involved in getting the funding before starting the process. Terkar capital is one of the most trusted trade finance syndication firms that provide letters of Credit across India. We understand all the strengths and weaknesses of your business before giving you suggestions regarding financial solutions. So whenever it is raising funds for corporations, Terkar Capital will always be ready to serve you at your best!