Exporter's Understanding on Bill Discounting and Bill Negotiation

Most of the times, we would hear our working capital bankers discussing Bill Discounting or Bill Negotiation on our export bills, although, the outcome of both the products are one and the same. It ensures the realization of export bills along with proceeds of the exports into your account. As an exporter, you get money for the completed exports irrespective of it being bill discounting or bill negotiation.Export Bill Discounting: Bill Discounting takes place generally for DA bills where there is an USANCE period. Upon shipment, Exporter(Seller) generally prepares all the required documents which are required as per the trade commercial contract which includes Invoice,Packing List,Bill of Lading (BL) or Airway Bill, Bill of Exchange and other documents if any called for and will be routed through Exporters bank to the Importer(Buyer) which allows Importer to retire the documents basis acceptance and release the goods.Export Bill Discounting is generally a post-shipment facility and is not backed by LC’s. This limit generally forms a part of CAT 1 limits and it is needless to mention it as a product with recourse.For exporters who got Bill Discounting facility, all the required documents as a part of the trade contract will be submitted to the bank counters and the bank typically discounts 80%-90% of invoice value and credits your account to ease the working capital. Upon receipt of this payment from the Importer, the outstanding will be knocked off along with interest portion and the remaining bill value will be credited back to the Exporter’s account.Bill Negotiation:Bill Negotiation is a term used when the documents of the exporters are negotiated at the counters of banks and a facility is drawn out of it, post shipment. This particular product is availed for shipments done under the documentary credit.As an exporter, one needs to exercise caution while preparing documents under the documentary credit, to ensure it's a clean bill and not a discrepant document. Clean Bill Negotiation is where the client limits are not used and discounted under bank lines depending on the availability of limits/lines between the Exporters and Importers bank.Clean Bills are negotiated and credited to exporters account upon receiving acceptance from the bank who issued the LC.This forms a part of CAT 2 limits when it is offered to exporters without recourse and limits drawn on bank lines. This is an off-balance sheet product.From a banker’s perspective, Bill Negotiation is a low-risk trade product as it is backed by LC compared to Bill Discounting.If you need any further clarification, please write to us Bhaskar@savedesk.coTo Read about Foreign letter of credit discounting click here
Saravana Bhaskar
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Exporter's Understanding on Bill Discounting and Bill Negotiation

Saravana Bhaskar
Blog
13th Oct, 2017
Exporter's Understanding on Bill Discounting and Bill Negotiation

Most of the times, we would hear our working capital bankers discussing Bill Discounting or Bill Negotiation on our export bills, although, the outcome of both the products are one and the same. It ensures the realization of export bills along with proceeds of the exports into your account. As an exporter, you get money for the completed exports irrespective of it being bill discounting or bill negotiation.

Export Bill Discounting: 

Bill Discounting takes place generally for DA bills where there is an USANCE period. Upon shipment, Exporter(Seller) generally prepares all the required documents which are required as per the trade commercial contract which includes Invoice,Packing List,Bill of Lading (BL) or Airway Bill, Bill of Exchange and other documents if any called for and will be routed through Exporters bank to the Importer(Buyer) which allows Importer to retire the documents basis acceptance and release the goods.

Export Bill Discounting is generally a post-shipment facility and is not backed by LC’s. This limit generally forms a part of CAT 1 limits and it is needless to mention it as a product with recourse.

For exporters who got Bill Discounting facility, all the required documents as a part of the trade contract will be submitted to the bank counters and the bank typically discounts 80%-90% of invoice value and credits your account to ease the working capital. Upon receipt of this payment from the Importer, the outstanding will be knocked off along with interest portion and the remaining bill value will be credited back to the Exporter’s account.

Bill Negotiation:

Bill Negotiation is a term used when the documents of the exporters are negotiated at the counters of banks and a facility is drawn out of it, post shipment. This particular product is availed for shipments done under the documentary credit.

As an exporter, one needs to exercise caution while preparing documents under the documentary credit, to ensure it's a clean bill and not a discrepant document. Clean Bill Negotiation is where the client limits are not used and discounted under bank lines depending on the availability of limits/lines between the Exporters and Importers bank.

Clean Bills are negotiated and credited to exporters account upon receiving acceptance from the bank who issued the LC.

This forms a part of CAT 2 limits when it is offered to exporters without recourse and limits drawn on bank lines. This is an off-balance sheet product.

From a banker’s perspective, Bill Negotiation is a low-risk trade product as it is backed by LC compared to Bill Discounting.

If you need any further clarification, please write to us Bhaskar@savedesk.co

To Read about Foreign letter of credit discounting click here

Saravana
Blog Author

Saravana Bhaskar is the Brain Child behind incubation of White Matter. With over a decade of rich banking experience, he has handled many eminent positions in bank from Global Gateway Coordinator to Portfolio Head -South India. He is catalyst in steering White Matters’ association globally, with his proven abilities of leadership; his vision is to achieve transformational changes at White Matter. Bhaskar is true Car enthusiast, who has an insatiable interest in cars. He is an avid reader, and has ear for Music.

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