Letter of Credit Bill Discounting (LCBD) is a short-term trade finance facility that allows exporters or sellers to receive funds immediately against bills drawn under a Letter of Credit (LC). Once the shipment is made and the documents are accepted by the buyer’s bank, the seller’s bank discounts the bill and provides upfront payment — improving cash flow and ensuring timely liquidity in export and domestic trade.
How It Works
The buyer’s bank issues a Letter of Credit in favor of the exporter/seller.
The seller ships the goods and submits the shipping and LC documents to their bank.
The seller’s bank discounts the bill (provides immediate funds) after verifying documents.
The buyer’s bank makes payment to the seller’s bank on the LC due date.
Key Features
Immediate Finance: Get paid instantly upon shipment without waiting for LC maturity.
Applicable for Domestic & Export LCs: Available for both local and international transactions.
Short-Term Funding: Typically ranges from 30 to 180 days, depending on LC terms.
Lower Risk: Payment is secured by the LC issued by the buyer’s bank.
Competitive Interest Rates: Linked to interbank rates (LIBOR/SOFR) or domestic lending benchmarks.
Benefits
Enhances cash flow and working capital management.
Reduces payment risk through bank-backed LC assurance.
Improves liquidity for exporters and suppliers.
Enables faster business growth with reliable trade funding.
Streamlines documentation and ensures smooth financial transactions.
LCBD is a trade finance facility that allows exporters or sellers to receive immediate payment from their bank against bills drawn under a Letter of Credit (LC), instead of waiting for the LC to mature.
Exporters, traders, and manufacturers involved in domestic or international trade who receive payments through Letters of Credit issued by reputable banks can avail of LCBD.
The buyer’s bank issues an LC in favor of the seller.
The seller ships the goods and submits all required documents to their bank.
The seller’s bank discounts the bill (releasing funds immediately).
The buyer’s bank pays the seller’s bank on the LC due date.
The tenure generally ranges from 30 to 180 days, depending on the Letter of Credit’s payment terms and shipment date.
Typically required documents include:
The Letter of Credit (LC).
Shipping documents (invoice, bill of lading, packing list).
Accepted bills of exchange.
Bank forms as per LC terms and RBI guidelines.