Discounting of Letter of Credit (LC) is a short-term credit facility provided by the bank.
In the Letter of Credit discounting process, the bank purchases the documents or bills of the exporter and in return make him the payment for a security or a fee.
What is LC mean?
A letter of credit (LC), also known as a documentary credit or bankers commercial credit, or letter of undertaking (LoU), is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods.
What is Bill Discounting with example?
Bill Discounting is a discount/fee which a bank takes from a seller to release funds before the credit period ends. This bill is then presented to seller’s customer and full amount is collected.
How is LC interest calculated?
Divide the annual interest rate by 365 and multiply by the number of days in the billing period. For example, if the annual rate is 7.3 percent and there are 30 days in the billing period, you have 7.3 percent divided by 365 and then multiplied by 30, so the interest rate equals 0.6 percent.
Can a bank discount its own LC?
My answer is yes. However, the issuing bank is not obligated to discount unless it is willing to do so as its obligation under an acceptance LC or under a deferred payment LC is to honour a bill of exchange or a deferred payment undertaking accepted or incurred by itself.