LC Discounting India
LC discounting is a credit facility offered by various banks and financial institutions. In this process, the financial institution purchases bills or documents from exporters and provides a loan after discounting the bill amount. For example, reducing the applicable charges.
What is LC Discounting India?
LC discounting is a main method of financing in international trade that is also known as documentary credit.
Generally, it is a guarantee provided by a financial institution to pay sellers on behalf of buyers in case of default on their part. Letter of Credit discounting acts as financial security for businesses involved in export and import or both in some cases.
LC discounting is a typical funding option as lending institutions follow a necessary verification process to confirm the authenticity of both the parties. Also, the chance of manipulating the discounting rate is minimal as only the prevailing rates apply to a Letter of Credit.
Types of LC Discounting India
The following are the 5 types of letter of credit available in India:
- Revocable: It can be changed or cancelled by a banking institution at any time and for any reason. It cannot be transferred to a third party.
- Irrevocable: This type of LC can only be changed or cancelled if all concerned parties agree to it.
- Transferable: A transferable LC can be transferred from one beneficiary to another.
- Confirmed: A confirmed irrevocable LC Discounting India is more secure as it is backed by guarantee
- Unconfirmed: Letter of credit reaches the beneficiary with only the issuing bank's payment undertaking, without any confirmation added by another lender.