Export LC Discounting

Export LC discounting refers to a financial transaction where an exporter (seller) of goods receives immediate payment for their goods by presenting the Letter of Credit (LC) to a bank or financial institution for discounting. The bank pays the exporter the discounted value of the LC, which is less than the face value of the LC, and assumes the risk of non-payment by the importer (buyer).

The discount rate is usually determined by the bank based on factors such as the creditworthiness of the importer, the tenor of the LC, and prevailing market conditions. The exporter receives immediate payment, which can help improve their cash flow and reduce their exposure to credit risk.

However, the exporter must consider the cost of discounting, which is the difference between the face value of the LC and the discounted value received. The cost of discounting can vary depending on the discount rate charged by the bank, and the length of time it takes for the importer to make payment.

Overall, export LC discounting can be a useful tool for exporters to manage their cash flow and reduce their credit risk.