Discounting the Letter of Credit
Payment under export letter of credit (L/C) prior to the agreed maturity (discounting) offers the opportunity to reduce business risks and receive financing. To this end, L/Cs with deferred payment are used for settlement purposes. Having received an export L/C with deferred payment, shipped the goods and presented L/C documents to the bank, the seller may ask the bank to pay under them before the maturity, i.e. discount the documents.
Benefits of discounting L/C:
- the buyer receives a trade credit from the seller
- the seller has the opportunity to:
- satisfy the working capital needs,
- increase the turnover of goods and enter into new transactions,
- reduce debts of buyers, thereby improving financial situation of the company.
Citadele bankas discounts L/C, if all of the following conditions have been met:
- the bank considers the risk of the issuing-bank acceptable,
- the customer presents to the bank documents that are in accordance with the terms and conditions of the L/C or the issuing-bank accepts the documents that do not comply with terms and conditions of the L/C on behalf of the buyer.