LC Discounting (Letter of Credit Discounting) is a financing method used in international trade. It allows exporters to get early payment against a Letter of Credit (LC) issued by the buyer’s bank, even before the payment due date. This helps the exporter maintain cash flow while ensuring that the buyer pays as per agreed terms.
When an exporter has fulfilled the conditions of the LC and submitted the required documents, they may not want to wait for the payment, especially if the payment is due in 30, 60, 90, 180 or 360 days. Here, LC discounting helps.
The exporter’s bank or a financial institution pays the exporter upfront (after deducting a fee/discount) and collects the payment from the buyer’s bank when it’s due.
1. The discount rate varies depending on the bank and market conditions.
2. The documents must comply with the LC terms to avoid rejection.
3. LC discounting is typically done without recourse, meaning the bank cannot demand
repayment from the exporter if the buyer’s bank fails to pay.
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