What is Export Bill Discounting?
Export bill discounting is considered as a kind of financing where a customer sells the drafts under a Usance LC (Deferred LC) which is accepted by the issuing bank prior to the maturity of such drafts where banks pays to the customers the amount of face value of the bills minus the discount charges and related expenses.
When bill discounts, the Bank buys the bill before the due date and credited to customers A/c after charging applicable discount amount. Bill discounts is known as advance against the security of the bill and the discount represents the interest on advance payment from the date of purchase of the bill until it is due for the payment.
Export Bill discounting commonly using in International Trade. This is one type of financing where customers sell the drafts under a usance L/C accepted by the issuing bank or documentary collection drafts prior to the maturity of such drafts while Bank pays customers the amount of the face value of the bills less the discount charges and related fees.
The main reason for discounting the bills is customers are able to receive the proceeds at the earliest time, speed up the funds turnover and be relieved from the shortage of funds.
Procedures of Bill Discounting
After goods moved out of your factory, the Customs House Agent appointed by you to complete customs formalities on behalf of you and delivers you the necessary customs documents. The necessary export documents like Bill of Lading/airway bill, Commercial Invoice, Packing list, Certificate of origin, Bill of Exchange, Export Order Copy to be submitted with the bank with a request of discounting export bills. Bill discounting procedures as like as discounting of Cheques, Promissory notes etc. with the bank.
After receiving all documents, Bank verifies this documents and arranges to discount your bills and transfer money to your bank account. If your export is in any foreign currency, you can convert the amount in your currency or you can open a dollar account and transfer amount accordingly.
According to the guidelines of the government of each country, almost all banks extends export bill discounting facility to exporters with a low-interest rate.
Adjustment of Discounted Bills
Bill discounted amount will be collected from the buyer as per the agreed terms and conditions of buyer and seller. For Example, If exporter credit period is 90 days, the bank adjusts the amount of bill discounted received from the buyer on maturity date on the 90th day. Applicable Bank interest till the date of receipt of the amount from the overseas buyer and other bank charges are debited to exporter’s account.
If Buyer not paid discounted export bills
If discounted export bills not paid by the buyer, the whole amount of the discounted bills with interest will be debited exporter’s account. Normally bank discounts all export bills of their account holders without collecting exporter’s creditworthiness. However, most the banks demand collateral security from exporters to finance. Sometimes Banks also obtain insurance against exporters to cover default of payments against export bill discounts from credit guarantee agencies.