The information provided here is part of Guide on howtoexport and import
What is export bill discounting?
‘Export bill discounting’ is commonly used term in international trade.
As you know, finance plays a major role in Business. Especially in exports, the volume of finance requirement is higher than domestic sales because of its volume of business.
Let the business contract with overseas buyer be on credit basis, the exporter needs finance immediately up on shipment of his exported goods. Here he approaches his banker to finance against his exported goods by producing documentary proof of export, and avail finance. Export bill discounting is common in International trade.
How does export bill discounting work?
Once your goods moved out of your factory, the Customs House Agents appointed by you complete customs formalities on behalf of you and delivers you necessary customs documents. Once customs formalities completed and obtained ‘let export order’ shipping bill, you hand over cargo to shipping carrier to carry your goods to final destination at buyer’s place. Once after handing over cargo to shipping carrier, they issue Bill of Lading under sea shipments or Airway bill under air shipments.
The necessary export documents like Bill of Lading/airway bill, commercial invoice, packing list, certificate of origin, bill of exchange, export order copy are submitted with bank with a request of discounting export bills. You can discount your export documents similar to discounting of cheques, promissory notes etc. with bank.
Bank verifies all documents and arranges to discount your bills and transfer your money to your account. If your export order is in any foreign currency, you can either convert amount in your currency or you can open a dollar account and transfer amount accordingly.
As per the guidelines of government of each country, almost all banks extends export bill discounting facility to exporters with a low interest rate.
How to repay the amount financed by bank under export bill discounting?
Once after bill discounted by bank against exports, the amount of discounted bills is collected from the buyer as per the agreed terms and conditions of buyer and seller. For example, if exporter extended a credit period of 60 days to buyer, the bank adjusts the amount of bill discounted received from buyer on maturity date on 60th day. The necessary bank interest till the date of receipt of amount from overseas buyer and other bank charges are debited to exporter’s account.
What happens if discounted export bills not paid by buyer?
If bank does not receive amount against export bills discounted, the whole amount of discounted bills with interest is debited to exporter’s account.
Does bank discount bills against exports of all exporters without collecting their credit worthiness?
Normally bank discounts all export bills of their account holders without collecting exporter’s credit worthiness. However, most of banks demand collateral security from exporters to finance.
Most of the banks also obtain insurance against exporters to cover default of payments against discount of export bills from credit guarantee agencies.
I hope, I could explain about export bill discounting procedures and formalities in simple language.
Would you like to share your experience in export bill discounting?
The above information is a part of Online export import training guide
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