What is meant by LC discounting?
Discounting of Letter of Credit is a short-term credit facility provided by the bank to the beneficiary. Bank purchases the documents or bills of the Seller (beneficiary) after he fulfills certain compliances and provides the required documents to be dispatched to LC opening bank.
Can we discount LC?
To discount an LC, the seller submits required export documents to his/her bank. LC advice is issued to the exporter by his/her bank. The money availed is used to process the order and deliver goods or services as per the terms. The collected export documents are forwarded to the LC issuing bank.
What is discounting in banking?
Discounting is the process of determining the present value of a payment or a stream of payments that is to be received in the future. Given the time value of money, a dollar is worth more today than it would be worth tomorrow. Discounting is the primary factor used in pricing a stream of tomorrow’s cash flows.
What is the process of discounting?
Discounting is the process of converting a value received in a future time period to an equivalent value received immediately. For example, a dollar received 50 years from now may be valued less than a dollar received today—discounting measures this relative value.
What is LC confirmation and discounting?
LC discounting is a short- term credit facility provided by the bank to the seller. In this case, LC issuing bank confirms all the original documents and provide acceptance to the confirming bank. After the due diligence from the bank, the seller will get the credit amount after deducting the discount.
How are LC discounting charges calculated?
Discounting Charges =
- A. Amount of Bill Discounted × Rate +Unexpired Period.
- B. Amount of Bill Discounted +Rate × Unexpired Period.
- C. Amount of Bill Discounted × Rate × Unexpired Period.
- D. None of these.
Why discounting is done?
Discount rates can be used to account for risk associated with a potential investment and the time value of money. The rate also represents a company’s opportunity cost and can act as a hurdle rate used for decision making.
Why do we need discounting?
Discounting makes current costs and benefits worth more than those occurring in the future because there is an opportunity cost to spending money now and there is desire to enjoy benefits now rather than in the future.
What is the difference between negotiation and discounting?
If not, what is the difference between Export Bill Negotiation and Export Bill Discounting? In simple terms, export bill discounting with banks takes place under the shipments where in no Letter of credit is involved. The term export bill negotiation arises when the shipments under Letter of credit basis.
What is difference between bill purchase and bill discounting?
Bill discounting is like a loan. The financier offers a percentage of the unpaid invoices, which are paid once the business receives money from the customer. In bill purchase, funds are exchanged only once between the company and the financial body.
What are the types of bill discounting?
Bills are classified into four categories as LCBD (Bill Discounting backed with LC), CBD (Clean Bill Discounting), DBD (Drawee bill discounting) and IBD (Invoice bills discounting).
What is the difference between bill purchase and bill discounting?
What is the difference between LC discounting and LC negotiation?
What is bill discounting with example?
Suppose, a business man sold goods to Mr. X worth Rs 10,000 on credit but Mr. X does not have the money to pay today, but he is certain to pay on a later date, afer two months, so the bill is raised stating Mr. X to pay Rs 10,000 afer two months.
What is commerce discount?
In simple terms, Discount is an allowance or concession in price. Discount is given so that the buyer is induced (lured) to place an order and later to make payment in time. Discount can be also referred to as a deduction in price.
What is pre acceptance LC discounting?
Letter of credit discounting process initiates when the buyer, on the request of the seller, obtains an LC from a financial institution before the goods are shipped to him. LC acts as a guarantee to the seller.
Why is bill discounting done?
In bill discounting, the business discount the outstanding invoices to gain access to short-term financial assistance and maintain the working capital. This process is also called “Invoice Discounting”. This process is governed by the negotiable instrument act, 2010.