TRANSACTION DYNAMICS FOR INVOICE DISCOUNTING (LETTER OF CREDIT)
1. Exporter signs the contract and sends it to the buyer.
2. The buyer instructs its Bank to issue a letter of credit in favour of the exporter
3. The buyer’s bank issues a letter of credit and sends it to exporter’s bank
4. The exporter’s bank advises the letter of credit to the exporter (beneficiary)
5. The exporter approaches the bank for post-export financing facility with the pre-export documentation, a copy of the signed contract and letter of credit received from the buyer’s bank.
6. The bank approves the facility and communicates this to the exporter (the bank might need collateral or export credit guarantee if the LC is not confirmed).
7. Exporter conclude the export operations and submits all the document required in the letter of credit (like Bill of lading, Inspection report, Invoice, packing list) to the Bank which verifies the authenticity of the inspection report and also confirms if it is in line with the quality specifications and other terms and conditions of the letter of credit.
8. The exporter’s bank discount the invoice by pre-paying the exporter 60-80% of the total invoice value in the currency of transaction stated on the invoice.
9. The exporter’s bank forwards the documents to the buyer’s bank with a cover note on payment instructions.
10. Buyer’s bank reviews documents for discrepancies and if none, it transfers export proceeds to the exporter’s bank.
11. The buyer’s bank then delivers documents to the Buyer.
12. The exporter’s bank liquidates the post-shipment finance facility and credit the account of the exporter with the balance.