A letter of credit discount occurs when a bank offers to advance to the exporter the letter of credit payment before the LC beneficiary has completed the steps needed to present the sales and shipping documents. It is called a discounted letter of credit because because the exporter do not receive the full payment amount as he pays a discounting fee..
Letters of credit discounting is an option for the exporter to receive money immediately from an LC. The bank purchases the documents or bills of exchange of the exporter (beneficiary) after he has fulfilled the LC obligations.
Letters of credit discounting has an important advantage for the seller as it can take several months to ship goods and receive the money.By discounting a letter of credit, the exporetr get his cash during the production process.
Letter of credit discounting doesn't apply for at sight LCs 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.
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