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LC Negotiation Vs Discounting
Posted: Tue Oct 14, 2014 10:13 pm
by schang515
Hi, what's the difference between NEGOTIATING and DISCOUNTING a letter of credit? Seems that in both cases the negotiating/discounting bank is advancing funds (whilst charging interest) for the buyer, upon acceptance of the LC issuer. Is my understanding correct? If not please could someone explain?
Cheers,
Sean
discounting and negotiating
Posted: Thu Nov 06, 2014 1:35 am
by gokce
Dear Schang515,
Yes, discounting and negotiating are both the same thing.
and the below definition does not differentiate between confirmed and unconfirmed LCs
[*]UCP 600 Article 2 defines "Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank."[*]
By the way, Letter of credit discounting is related to the letters of credit which are available with deferred payment, acceptance or negotiation. On the other hand, At sight letters of credit should not require any discount mechanism as issuing banks or confirming banks must honor at sight credits as soon as they determine that beneficiary’s presentation is complying with the terms and conditions of the L/C.