Export Factoring

It is discounting of export bills / invoices under a Usance Letter of credit. This discounting is done on a post acceptance basis (in other words, after acceptance to pay on due date has been received from the LC issuing bank). Given the risk assumption is on the LC issuing bank, financier needs to have some credit appetite on the issuing bank. Funds are made available to exporter’s bank via banking channels. Discounting can be done for Sight Bills also. For pre acceptance discounting, Client should have the LC discounting limits with the bank.

Some basic credit check including KYC will be done by the bank. However, as the risk assumption is on the LC issuing bank, generally speaking, credit limits are not required to be in place. Some banks may put in place some credit limits to protect themselves against commercial disputes etc. Therefore, it would depend from financing institutions to financing institution.

No, however KYC and basic credit check and internal approvals are required to be done with the discounting bank. The discounted proceeds will be remitted to the existing working capital banks.

One-time approvals are generally needed to on-board a client with the financier which requires basic credit information, KYC, details of counterparties, LC issuing banks and business background and any additional information that might be specifically required for a customer. For each transaction, the financing bank's details (and clauses if any) will need to be incorporated into the LC. It is strongly advised to pre-discuss each transaction to avoid issues later.

Yes, pre-shipment finance can be availed as LC is treated as a proof of an order. However, pre-shipment finance is dependent on the borrower's credit and therefore the financier's risk is on the borrower (and not on LC issuing bank thus the borrower will need to be a client of the bank). Pre-shipment finance may be extended by the exporter's bank only.