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 exporters bank via banking channels.

Export LC Bill Discounting refers to discounting of export documents (bills or invoices) under a Letter of Credit wherein the discounting bank assumes the risk of the LC issuing bank. Factoring, on the other hand, refers to discounting of export documents that are not under a Letter of Credit. In other words, Factoring is done for documents against acceptance or where documents have been sent directly to the buyer and the financier takes risk on the buyer.

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.

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.

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.

There are a few factors that determine the acceptability and pricing of the transaction. These are :

• LC issuing bank: If it is a well-rated bank, interest rate will be better. If it is an unknown small bank, the financing bank may decline the transaction.
• Country of the LC issuing bank: The rating of the country plays a role in the overall pricing (especially if confirmation is to be added). Transactions involving sanctioned countries will be declined.
• Tenor of the post-shipment credit: LIBOR will change depending upon the tenor, as might the spread.

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, you must obtain a credit facility (Non-Fund - Based Credit Limits) with your bank before availing Supplier's credit

Following are the key steps involved in the process of supplier's credit:

• ♦ Prior to LC opening: Client shares details with FINOCRED.
• ♦ FINOCRED identifies and offers best rates: From offshore banks to client acceptance.
• ♦ Upon acceptance of rate by Client: FINOCRED notifies specific clauses to be incorporated in the LC.
• ♦ Client's LC issuing bank: Opens an LC.
• ♦ LC issuing bank opens and transmits the LC: To offshore bank which in turn sends LC to beneficiary bank.
• ♦ Exporter ships the goods: To the client on intimation that the LC has been received by their bank.
• ♦ Payment is made to the exporter: By disbursing supplier's credit post acceptance from LC issuing bank prior to funding.
• ♦ On due date: Principal plus interest recovered from client remitted by LC issuing bank to offshore bank.

• ♦ Interest cost: This is charged by overseas bank as a financing cost. Normally it is quoted as say "3M L + 50 bps p.a.", where 3M is 3 Month, L is LIBOR & bps is Basis Points (A unit that is equal to 1/100th of 1%). To put it simply: 3M L + 0.50%. One should also check on what tenure LIBOR is used, as depending on tenure LIBOR will change. For example, as on Jan 2019 end, 3 months LIBOR is 2.75% p.a. and 6 months LIBOR is 2.82% p.a.
• ♦ Letter of Credit: Importer's Bank will charge this cost for issuing Letter of Credit which ranges in (typically 0.25% - 1.0% p.a.)
• ♦ Negotiation Charges: This is charged by Funding Bank for Negotiation / Handling / Postages.

Following is the list of Documents Required

• ♦ Request Letter: Giving complete import details and along with Acceptance of negotiation charges.
• ♦ Offer Letter: From overseas Bank (If required).
• ♦ Letter of Credit: To contain clauses facilitating disbursement of Supplier's Credit + outlining the process/pricing etc.
• ♦ DNB/Credit/KYC reports: Of buyer and supplier.

• ♦ Maximum Maturity in case of import of non-capital goods: Up to 1 year from the date of shipment, however linked to trade cycle of the business.
• ♦ Maximum Maturity in case of import of capital goods: Up to 3 years from the date of shipment.
• ♦ Trade credit for import of non-capital and capital goods: Up to USD 50 million or equivalent per import transaction are permissible.

Import funding for capital goods is provided by the overseas Banks of Indian origin or foreign banks as well. Maximum tenor for the loan is 3 years which is provided on 6/12 Months Libor Reset basis. In this type of loan the importer needs to pay the amount of interest at regular reset intervals up to 3 years and Principal + Interest for the last reset at the end of 3 years.

For opening of an LC the importer needs to have Non- fund based limits with his bank. After the Non- fund based limits are sanctioned by the issuing bank, the issuing bank will open the LC by charging their commission. If funding is required, the LC tenor needs to be extended to allow for Supplier's Credit.

Yes, Supplier's Credit can only be availed where an LC exists. Suppliers credit is totally a LC Backed product for which the client should have Non-fund based limits with his bank.

"Buy Now, Pay later"

In Usance LC, Exporter need payment at sight which is paid by importer's bank and importer pays their bank on maturity. In Deferred payment mode the exporter gives some credit period, after maturity importer has to make payment to the exporter.

For Import of Machinery (which can also be categorized as Capital good), an importer can avail financing for upto 3 years under Supplier's credit Or Buyer's credit (against SBLC) Route. For import of Raw materials, financing is available for upto 1 year only under the same two routes (Supplier's Credit or Buyer's Credit).

We arrange financing against LCs. Only banks can issue LCs and you will need an intermediary party in between who will be the issuer of an LC which is backed by another LC.

Yes, LC can be discounted at sight or after a certain credit free period agreed by the concerned parties. The funds will be remitted to the beneficiary upon the agreed date.

In this case, the applicant can open a confirmed LC under which the funds will be remitted to the Supplier as soon as the documents are presented on the desk of the funding bank (that is, before the issuing bank receives the underlying documents).

Supplier's Credit can be availed for a minimum of 30 days upto maximum of 1 year in case of Raw material & 3 years in case of Capital goods.

To avail Supplier's Credit facility, the applicant should have non-fund-based limits with his bank so that his bank can open a LC in favour of his supplier. Banks usually don't sanction Non-fund based limits to New Businesses because of lack of financial feasibility unless sufficient collateral is pledged. For queries related to Non-fund based limits, please contact your banking branch. If you can manage to obtain LC limits; you can enjoy supplier's Credit facility.

LC is issued in MT700 SWIFT message.

It depends on the condition & clauses prescribed by the funding banks. LC can also be directly advised to the beneficiary bank in case there is no RMA arrangement between funding bank and beneficiary bank. The funding bank needs to agree to this arrangement.

In this case, the funding bank can re-direct the LC to the second advising bank who has RMA arrangement with the beneficiary bank. Alternatively, the funding bank can allow direct advising of the letter of credit with a copy to funding bank.

An amendment needs to be sent by the Issuing bank in favour of the LC stating the extension of LC date of expiry & latest date of shipment.

In this case, following needs to be sent by the Issuing Bank to the Funding Bank

• ♦ Scanned copies of import documents via official email ID.
• ♦ MT799 featuring all transaction details.
• ♦ Acceptance of payment via MT754/32.

After receiving the aforementioned documents, the funding bank will remit the funds to the beneficiary.

Under Supplier's Credit, the documents are routed through funding bank for due diligence of the transaction & record keeping. Once the documents are couriered by the funding bank, they share a tracking number. It is suggested to factor additional couple of days in the document handling process.

Depending on the various time zones of the funding banks, the arrangement is made at the earliest. For example, if the LC is to be opened by today evening, the arrangement can be done from a funding bank in Asia within an hour, but for arranging a US based Funding Bank the applicant has to arrange the Supplier's Credit at least a day before the LC is going to be issued.

It is your liability to pay on the due date. More importantly, it is the issuing bank's liability to honor their acceptance under the LC. In rare cases of delays, Funding bank charges Overdue Interest over and above Libor plus interest agreed at the time of opening of the LC.

In case of Sight payment, acceptance needs to be sent immediately after receiving the documents by the applicant. In case of credit free period given by the supplier, acceptance can be sent on or before the due date of the payment.

In case of unconfirmed LCs, it is necessary to send the acceptance from LC issuing Bank via MT754/32/99 to the funding bank on or before due date.

Yes, payments of partial shipments are permitted through suppliers credit route.

Yes, payments of transhipment are permitted through Supplier's Credit route.

Yes, Supplier's Credit can be availed in case the LC has been already issued by the Issuing bank. An amendment will be send in the LC via SWIFT enlisting all the necessary clauses of the funding bank.

No, Supplier's Credit is a LC backed facility.

No, you cannot avail Supplier's credit for such transactions.

No, Supplier's Credit cannot be availed for local bill discounting.

In this case, you need to guide the supplier to Field 41c of LC where it is clearly written that he will be paid on sight (or at the end of existing agreed credit period) regardless of the credit period you are availing from the funding bank. This is a fairly standard international way of obtaining financing in such transactions. The supplier can be requested to take an opinion from their relationship bank to clarify that their interests are being protected.

There is no limit for LC amount, however Supplier's credit can be extended for a maximum amount of USD 50 Million per shipment.

Under Supplier's Credit A bank can charge upto L + 250 basis points per annum for discounting of LC.

Yes, you can avail Supplier's Credit through foreign banks also. In this type of transaction, the applicant has to bear the With-holding Tax (WHT) on interest payment

No, Supplier's credit transactions are generally cheaper than borrowings in INR.

There is no prescribed minimum amount for availing Supplier's Credit, but overseas banks generally only entertain the transaction(s) which are above USD 25000.

The funding bank will share a copy of SWIFT MT202 with the issuing bank enlisting the payment confirmation, value date of the remittance along with Interest advice of the payment which is due to be paid on maturity by the applicant.

For Importers

• ♦ Availability of cheaper funds for import of raw materials and capital goods
• ♦ Ease in getting credit in short term.
• ♦ Able to meet the Suppliers requirement of payment at sight.
• ♦ Ability to negotiate better price with suppliers due to sight payment (to the exporter).

For Exporters

• ♦ Realize at-sight payment
• ♦ Avoid the risk of importer's credit by making settlement with letter of credit.

No, Supplier's credit transactions are generally cheaper than borrowings in INR.

• ♦ Maximum Amount Per transaction: USD 50 Million.
• ♦ Maximum Maturity in case of import of non-capital goods: Up to 1 year from the date of shipment, however linked to trade cycle of the business.
• ♦ Maximum Maturity in case of import of capital goods: Up to 3 years from the date of shipment.
• ♦ Maximum Maturity in case of import of capital goods for companies classified as Infrastructure sector: Up to 5 years from the date of shipment.
• ♦ No financing is allowed for advance imports.
• ♦ Financing is linked to the operating cycle of the trade transaction.
• ♦ All-in-cost ceilings: L + 250 bps p.a.

No, Foreign currency funding for services are not permissible under RBI guidelines

Banks outside India are known as overseas Bank. These banks can be branches of Indian banks and the foreign banks.

When the importer has Non-fund based limits in the bank along with good credit history.

Importer must have non fund based limit with the bank to be able to issue a guarantee. Banks that provide such facility would insist on the importer(s) to have a bank account with them (as this is a credit based facility).

Importer must have Current account with their Issuing bank.

Overseas banks are banks which provide funds to importer's bank against import documents and the importer bank transfers the funds to exporter's bank.

The customer has to pay with-holding tax (WHT) on the interest amount remitted to non-resident party overseas. It has to be deposited with the Indian tax authorities. The WHT is not applicable where Indian banks arrange for supplier’s credit through their offshore offices.

Flat charges are kept considering the monthly volume and ticket size of transactions which can vary for lower amount transactions.

• ♦ Interest in case of Supplier's Credit depends on the LIBOR and Spread.
• ♦ LIBOR depends upon the currency market which can have an impact on the interest rate.
• ♦ As the cost of borrowing will vary, the spread will also vary.
• ♦ Hence, changes in currency rates do impact the rate of interest.

Being specialized in Trade Finance business we pool transactions and take it to overseas bank and negotiate for better prices so it is rare to have better pricing. In case you get better rates than us, please inform us and we can further negotiate it on your behalf.

Overdue interest is to be paid that varies from bank to bank.

Supplier's Credit is usually cheaper than Cash Credit / Direct Payment.

No, you cannot borrow foreign funds if the import of goods is not related to your core business.

Supplier's credit is a cost effective procedure. Overseas funding banks enjoy lesser borrowing cost than our local banks, which enables them to lend funds at cheaper costs.

We are specialized in this service. We make pool of transactions and reach out to overseas bank, which allows us to obtain competitive rates. Additionally, by reaching out to many banks, we are able to secure the lowest funding quotation on your behalf.

Normally, two banks cannot extend funding for the same transaction based on different timelines. However, given that it is not double financing, and if the funding banks agree, it is possible in this case to get the LC discounted by the supplier by his bank on sight & discounted by the funding bank at the end of 120 days. For this arrangement field 41c available with will be amended by writing 'Any Bank'in place of the name of any specific Funding Bank.

RBI issued a notification on Dec 17, 2018 wherein it allowed a borrower operating in an SEZ to obtain Trade credits for purchases within the SEZ or from other SEZ entities. What this means is that any entity operating inside an Special Economic Zone (SEZ) can avail Supplier's Credit for the following

• ♦ Physical imports (goods crossing into India) of the SEZ entity
• ♦ Purchases from another entity operating within the same SEZ (goods are moving within the same SEZ)
• ♦ Purchases from another entity operating in another SEZ (goods are moving between two SEZs)

Keeping in mind the physical movement of goods is within the territory of India, documentary flow needs to be monitored to avoid unnecessary delays in funding and payment. While vanilla Supplier's Credit is still a viable option, in our opinion, the most preferred route for transaction is Reimbursement against Acceptance Financing under the LC. In this case, neither the LC needs to be advised through the negotiating bank, nor do documents be needed to be routed through the negotiating bank. The reimbursing bank extends financing under scanned copy of purchase documents along with authentic messages via SWIFT messaging system.

Following are the key differences between raising funds in INR & Foreign Currency.

• ♦ Rates: The INR cost of borrowing generally ranges around 9-12%, whereas the cost of borrowing in FCY ranges from 3.10% to 4.00%. Even after factoring in the forward premium, there is a benefit in borrowing in FCY.
• ♦ Documentation: Even though borrowing in INR comes with simpler documents, FCY borrowings are simple and convenient and are usually bundled together with the documentation on exports/imports as prescribed by RBI.

Yes, while supplier's credit (or RA financing) is not possible without LC, client can avail SBLC backed Buyer's credit facility if underlying import documents are routed through banking channel. For this, the client will need their bank to issue an SBLC to overseas funding bank for availing Buyer's Credit.

SBLC Backed Buyer's Credit refers to loans for payment of imports into India arranged on behalf of the importer through an overseas bank. The offshore branch credits the NOSTRO (in some cases funds are directly remitted to the beneficiary) of the bank in India and the Indian bank uses the funds and makes the payment to the exporter's bank as an import bill payment on due date. The importer reflects the SBLC Backed buyer's credit as a loan on the balance sheet.

No, you must obtain a credit facility (Non-Fund - Based Credit Limits) with your bank before availing Supplier's credit

Following are the key steps involved in the process of supplier's credit:

• Prior to LC opening client shares details with FINOCRED.
• FINOCRED identifies and offers best rates from offshore banks to client acceptance.
• Upon acceptance of rate by Client, FINOCRED notifies specific clauses to be incorporated in the LC.
• Client's LC issuing bank opens an LC.
• LC issuing bank opens and transmits the LC to offshore bank which in turn sends LC to beneficiary bank.
• Exporter ships the goods to the client on intimation that the LC has been received by their bank.
• Payment is made to the exporter by disbursing supplier's credit post acceptance from LC issuing bank prior to funding.
• On the due date, principal plus interest recovered from client remitted by LC issuing bank to offshore bank.

• Interest cost: Charged by overseas banks as a financing cost. Typically quoted as 3M L + 50 bps p.a., where 3M represents 3 Month, L denotes LIBOR, and bps stands for Basis Points (1 bps = 0.01%). For instance, as of January 2019, 3 months LIBOR is 2.75% p.a. and 6 months LIBOR is 2.82% p.a.
• Letter of Credit: Importer's Bank charges this cost for issuing the Letter of Credit. The range is typically between 0.25% to 1.0% p.a.
• Negotiation Charges: Charged by the Funding Bank for negotiation, handling, and postages.

• Request Letter: Provide a detailed import request letter that includes complete import details along with acceptance of negotiation charges.
• Offer Letter: Include an offer letter from the overseas bank, if required.
• Letter of Credit: The LC should contain clauses that facilitate the disbursement of Supplier's Credit and outline the process, pricing, and other relevant details.
• DNB/Credit/KYC Reports: Provide DNB, credit, and KYC reports for both the buyer and the supplier.

• Maximum Maturity in Case of Import of Non-Capital Goods: Up to 1 year from the date of shipment, however, linked to the trade cycle of the business.
• Maximum Maturity in Case of Import of Capital Goods: Up to 3 years from the date of shipment.
• Permissible Trade Credit: Trade credit for import of non-capital and capital goods up to USD 50 million or equivalent per import transaction is permissible.

Import funding for capital goods is provided by the overseas Banks of Indian origin or foreign banks as well. Maximum tenor for the loan is 3 years which is provided on 6/12 Months Libor Reset basis. In this type of loan the importer needs to pay the amount of interest at regular reset intervals up to 3 years and Principal + Interest for the last reset at the end of 3 years.

For opening of an LC the importer needs to have Non- fund based limits with his bank. After the Non- fund based limits are sanctioned by the issuing bank, the issuing bank will open the LC by charging their commission. If funding is required, the LC tenor needs to be extended to allow for Supplier's Credit.

Yes, Supplier's Credit can only be availed where an LC exists. Suppliers credit is totally a LC Backed product for which the client should have Non-fund based limits with his bank.

"Buy Now, Pay later"

In Usance LC, Exporter need payment at sight which is paid by importer's bank and importer pays their bank on maturity. In Deferred payment mode the exporter gives some credit period, after maturity importer has to make payment to the exporter.

"Buy Now, Pay later"

In Usance LC, Exporter need payment at sight which is paid by importer's bank and importer pays their bank on maturity. In Deferred payment mode the exporter gives some credit period, after maturity importer has to make payment to the exporter.

For Import of Machinery (which can also be categorized as Capital good), an importer can avail financing for upto 3 years under Supplier's credit Or Buyer's credit (against SBLC) Route. For import of Raw materials, financing is available for upto 1 year only under the same two routes (Supplier's Credit or Buyer's Credit).

We arrange financing against LCs. Only banks can issue LCs and you will need an intermediary party in between who will be the issuer of an LC which is backed by another LC.

Yes, LC can be discounted at sight or after a certain credit free period agreed by the concerned parties. The funds will be remitted to the beneficiary upon the agreed date.

In this case, the applicant can open a confirmed LC under which the funds will be remitted to the Supplier as soon as the documents are presented on the desk of the funding bank (that is, before the issuing bank receives the underlying documents).

Supplier's Credit can be availed for a minimum of 30 days upto maximum of 1 year in case of Raw material & 3 years in case of Capital goods.

To avail Supplier's Credit facility, the applicant should have non-fund-based limits with his bank so that his bank can open a LC in favour of his supplier. Banks usually don't sanction Non-fund based limits to New Businesses because of lack of financial feasibility unless sufficient collateral is pledged. For queries related to Non-fund based limits, please contact your banking branch. If you can manage to obtain LC limits; you can enjoy supplier's Credit facility.

LC is issued in MT700 SWIFT message.

It depends on the condition & clauses prescribed by the funding banks. LC can also be directly advised to the beneficiary bank in case there is no RMA arrangement between funding bank and beneficiary bank. The funding bank needs to agree to this arrangement.

In this case, the funding bank can re-direct the LC to the second advising bank who has RMA arrangement with the beneficiary bank. Alternatively, the funding bank can allow direct advising of the letter of credit with a copy to funding bank.

An amendment needs to be sent by the Issuing bank in favour of the LC stating the extension of LC date of expiry & latest date of shipment.

In this case, following needs to be sent by the Issuing Bank to the Funding Bank

• Maximum Maturity in Case of Import of Non-Capital Goods: Up to 1 year from the date of shipment, however, linked to the trade cycle of the business.
• Maximum Maturity in Case of Import of Capital Goods: Up to 3 years from the date of shipment.
• Permissible Trade Credit: Trade credit for import of non-capital and capital goods up to USD 50 million or equivalent per import transaction is permissible.

After receiving the aforementioned documents, the funding bank will remit the funds to the beneficiary.

Under Supplier's Credit, the documents are routed through funding bank for due diligence of the transaction & record keeping. Once the documents are couriered by the funding bank, they share a tracking number. It is suggested to factor additional couple of days in the document handling process.

Depending on the various time zones of the funding banks, the arrangement is made at the earliest. For example, if the LC is to be opened by today evening, the arrangement can be done from a funding bank in Asia within an hour, but for arranging a US based Funding Bank the applicant has to arrange the Supplier's Credit at least a day before the LC is going to be issued.

It is your liability to pay on the due date. More importantly, it is the issuing bank's liability to honor their acceptance under the LC. In rare cases of delays, Funding bank charges Overdue Interest over and above Libor plus interest agreed at the time of opening of the LC.

In case of Sight payment, acceptance needs to be sent immediately after receiving the documents by the applicant. In case of credit free period given by the supplier, acceptance can be sent on or before the due date of the payment.

In case of unconfirmed LCs, it is necessary to send the acceptance from LC issuing Bank via MT754/32/99 to the funding bank on or before due date.

Yes, payments of partial shipments are permitted through suppliers credit route.

Yes, payments of transhipment are permitted through Supplier's Credit route.

Yes, Supplier's Credit can be availed in case the LC has been already issued by the Issuing bank. An amendment will be send in the LC via SWIFT enlisting all the necessary clauses of the funding bank.

No, Supplier's Credit is a LC backed facility.

No, you cannot avail Supplier's credit for such transactions.

No, Supplier's Credit cannot be availed for local bill discounting.

In this case, you need to guide the supplier to Field 41c of LC where it is clearly written that he will be paid on sight (or at the end of existing agreed credit period) regardless of the credit period you are availing from the funding bank. This is a fairly standard international way of obtaining financing in such transactions. The supplier can be requested to take an opinion from their relationship bank to clarify that their interests are being protected.

There is no limit for LC amount, however Supplier's credit can be extended for a maximum amount of USD 50 Million per shipment.

Under Supplier's Credit A bank can charge upto L + 250 basis points per annum for discounting of LC.

Yes, you can avail Supplier's Credit through foreign banks also. In this type of transaction, the applicant has to bear the With-holding Tax (WHT) on interest payment

No, Supplier's credit transactions are generally cheaper than borrowings in INR.

There is no prescribed minimum amount for availing Supplier's Credit, but overseas banks generally only entertain the transaction(s) which are above USD 25000.

The funding bank will share a copy of SWIFT MT202 with the issuing bank enlisting the payment confirmation, value date of the remittance along with Interest advice of the payment which is due to be paid on maturity by the applicant.

For Importers

• ♦ Availability of cheaper funds for import of raw materials and capital goods
• ♦ Ease in getting credit in the short term
• ♦ Able to meet the suppliers' requirement of payment at sight
• ♦ Ability to negotiate better prices with suppliers due to sight payment (to the exporter)

For Exporters

• ♦ Realize at-sight payment
• ♦ Avoid the risk of importer's credit by making settlement with a letter of credit

No, Supplier's credit transactions are generally cheaper than borrowings in INR.

• ♦ Maximum Amount Per transaction: USD 50 Million
• ♦ Maximum Maturity in case of import of non-capital goods: Up to 1 year from the date of shipment, however linked to trade cycle of the business
• ♦ Maximum Maturity in case of import of capital goods: Up to 3 years from the date of shipment
• ♦ Maximum Maturity in case of import of capital goods for companies classified as Infrastructure sector: Up to 5 years from the date of shipment
• ♦ No financing is allowed for advance imports
• ♦ Financing is linked to the operating cycle of the trade transaction
• ♦ All-in-cost ceilings: L + 250 bps p.a.

No, Foreign currency funding for services are not permissible under RBI guidelines

Banks outside India are known as overseas Bank. These banks can be branches of Indian banks and the foreign banks.

When the importer has Non-fund based limits in the bank along with good credit history.

Importer must have non fund based limit with the bank to be able to issue a guarantee. Banks that provide such facility would insist on the importer(s) to have a bank account with them (as this is a credit based facility).

Importer must have Current account with their Issuing bank.

Overseas banks are banks which provide funds to importer's bank against import documents and the importer bank transfers the funds to exporter's bank.

The customer has to pay with-holding tax (WHT) on the interest amount remitted to non- resident party overseas. It has to be deposited with the Indian tax authorities. The WHT is not applicable where Indian banks arrange for supplier’s credit through their offshore offices.

Flat charges are kept considering the monthly volume and ticket size of transactions which can vary for lower amount transactions.

• ♦ Interest in case of Supplier's Credit depends on the LIBOR and Spread.
• ♦ LIBOR depends upon the currency market which can have impact on the interest rate.
• ♦ As the cost of borrowing will vary; spread will vary.
• ♦ Hence change in currency rate does impact rate of interest.

Being specialized in Trade Finance business we pool transactions and take it to overseas bank and negotiate for better prices so it is rare to have better pricing. In case you get better rates than us, please inform us and we can further negotiate it on your behalf.

Overdue interest is to be paid that varies from bank to bank.

Supplier's Credit is usually cheaper than Cash Credit / Direct Payment.

No, you cannot borrow foreign funds if the import of goods is not related to your core business.

Supplier's credit is a cost effective procedure. Overseas funding banks enjoy lesser borrowing cost than our local banks, which enables them to lend funds at cheaper costs.

We are specialized in this service. We make pool of transactions and reach out to overseas bank, which allows us to obtain competitive rates. Additionally, by reaching out to many banks, we are able to secure the lowest funding quotation on your behalf.

Normally, two banks cannot extend funding for the same transaction based on different timelines. However, given that it is not double financing, and if the funding banks agree, it is possible in this case to get the LC discounted by the supplier by his bank on sight & discounted by the funding bank at the end of 120 days. For this arrangement field 41c available with will be amended by writing 'Any Bank'in place of the name of any specific Funding Bank.

RBI issued a notification on Dec 17, 2018 wherein it allowed a borrower operating in an SEZ to obtain Trade credits for purchases within the SEZ or from other SEZ entities. What this means is that any entity operating inside an Special Economic Zone (SEZ) can avail Supplier's Credit for the following

• ♦ Physical imports (goods crossing into India) of the SEZ entity
• ♦ Purchases from another entity operating within the same SEZ (goods are moving within the same SEZ)
• ♦ Purchases from another entity operating in another SEZ (goods are moving between two SEZs)

Keeping in mind the physical movement of goods is within the territory of India, documentary flow needs to be monitored to avoid unnecessary delays in funding and payment. While vanilla Supplier's Credit is still a viable option, in our opinion, the most preferred route for transaction is Reimbursement against Acceptance Financing under the LC. In this case, neither the LC needs to be advised through the negotiating bank, nor do documents be needed to be routed through the negotiating bank. The reimbursing bank extends financing under scanned copy of purchase documents along with authentic messages via SWIFT messaging system.

Following are the key differences between raising funds in INR & Foreign Currency.

• ♦ Rates: The INR cost of borrowing generally ranges around 9-12%, whereas the cost of borrowing in FCY ranges in 3.10-4.00%. Even after factoring in the forward premium, there is benefit in borrowing in FCY.
• ♦ Documentation: Even though borrowing in INR comes with simpler documents, FCY borrowings are simple & convenient and are usually bundled together with the documentation on exports/imports as prescribed by RBI.

Yes, while supplier's credit (or RA financing) is not possible without LC, client can avail SBLC backed Buyer's credit facility if underlying import documents are routed through banking channel. For this, the client will need their bank to issue an SBLC to overseas funding bank for availing Buyer's Credit.

Domestic / Inland Letter of Credit Discounting is actually a short-term post shipment credit facility offered by the banks to the clients. In this process, the banks or NBFCs purchases all the documents or bills produced by the client and which are backed by LCs and pay the money to the client against discounting interest for the usance period as per the terms of LC.

• ♦ Beneficiary basis: KYC of Supplier needed to get validated for discounting.
• ♦ Applicant basis: This is also called as Reverse LC discounting. In this, Buyer KYC is only needed by Bank/NBFC for approval, no need of separate KYC of all the different suppliers on which LC will be issued by the Buyer.

Improve your cashflow and receive payments promptly by paying discounting rate of interest at very low rates once documents accepted under the LC are confirmed as compliant. With guaranteed security by LC opening bank, LC Discounting can act as a benefit to all parties involved – buyer, seller and guaranteeing bank.

www.finocred.in provides a marketplace/platform for business owners to sell and Banks/NBFC to Fund invoices raised and backed by LC. It provides the best in class technology to Business-owners looking for discounting their LC and can use this platform to discount the LC at attractive rates. Register yourself with us on our website as a business and we will help you discount your LC at very competitive rates. Bankers looking to Fund for short term (1 to 365 days ) can earn attractive discounting interest. Register yourself with us on our website as a Banker and we will help you park your Funds in this asset class with varying maturity periods.

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• ♦ The bills should be drawn under irrevocable Letter of Credits issued by a Commercial Bank in India.
• ♦ The Bills drawn are in strict conformity with the terms of the LC.
• ♦ LC must have Usance period. (At sight LC cannot get discounted).
• ♦ Bills of exchange should have arisen out of bona fide commercial or trade transactions.

• ♦ Letter of credit
• ♦ Bill of exchange
• ♦ Receipted Challan being proof of delivery of goods/ Documents of title to goods evidencing dispatch of goods (RR/ LR/ E way bill, shipping documents)
• ♦ Any other relevant documents as per the terms of LC
• ♦ The bills should get accepted by the drawee through their bankers

Note : Interest and brokerage for the usance period, actual postage and handling charges will also be collected.

Domestic LCs are usually up to 180 days.

www.finocred.in plays a big role in getting the cheapest discount rates for LCs from various banks across the industry. Discounting interest rates corresponding to deals will be made available to borrowers after confirmation with banker / NBFC before any funding, this ensures that borrower know their interest cost before initiating the discounting.

www.finocred.in provides a platform to connect Borrowers seeking to discount LC and bankers / NBFC and execute transactions between them. www.finocred.in does not guarantee to its bankers and the funding would be subject to the traditional market risk associated with invoice discounting. Please refer to the Risk factors for details.

Any Bank / NBFC

FINOCRED is serious about data privacy and we maintain complete confidentiality of your private and financial data and we are legally bound by our privacy policy to not share the data. We request you to read our privacy policy and term of use for additional details.

Funding comes with its own associated risk. Since it is LC backed funding, applicant bank guarantees the payment to the funding done by negotiating bank. However, we have taken several steps to mitigate the risk – both strategically and operationally. www.finocred.in is a tech platform and it does not assume any credit risk on behalf of the lenders.

The global rule sets which govern standby letters of credit (SBLC) - both the Uniform Customs and Practices current revision 600 (UCP 600) and International Standby Practices current revision (ISP98) - define a SBLC as an “undertaking”. An undertaking provides the named beneficiary with an “independent” assurance of payment from the undertaking’s issuer (issuers are most often banks).

The obligations of the SBLC or “undertaking” supplement, and are in addition to, any other underlying contract/agreement between the issuer’s client (In SBLC terms, the client is most often referred to as the applicant) and the client’s contract counterparty (In SBLC terms, the counterparty is known as the beneficiary).

When the issuer bears a stronger credit rating, a SBLC is also a credit enhancement tool. An applicant’s ability to obtain a SBLC from an issuer reflects good faith as the SBLC supports an applicant’s credit quality.

SBLC issuance process – direct to beneficiary or utilizing an advising bank

A bank’s SBLC substitutes and may enhance or replace the creditworthiness of the applicant for that of the issuer of the standby letter of credit.

SBLC undertakings support/collateralize “any” type of underlying contract, agreement, or obligation between an issuer’s client/applicant and the applicant’s client/counterparty, the beneficiary.

SBLCs are recognized globally as an effective means of securing cross-border and domestic contracts.

Banks following BASEL or Dodd-Frank requirements will classify their issued or confirmed SBLCs as supporting either a “financial” or a “performance” obligation. These two classifications are defined as:

• ♦ Financial SBLCs are issued to back financial obligation or some form of indebtedness, such as loan repayment, and irrevocably obligate the Issuer in the event the Applicant fails to honor their payment obligation.
• ♦ Performance SBLCs are issued to back a company’s performance related duties. These are contractual, non-financial obligations such as: completing the building of a road or wind farm, etc. and irrevocably obligate the Issuer in the event the Applicant fails to perform as agreed.

• ♦ Advising bank – The beneficiary will typically request that a SBLC is sent to a bank in their country or one with which the beneficiary has a relationship. If the beneficiary does not request a specific bank, the issuing bank will either: send the SBLC directly to the beneficiary or choose to send the SBLC to the beneficiary through a bank with which the issuer has a relationship. If the issuer sends the standby letter of credit through another bank, the bank that receives the SBLC and sends it to the beneficiary will be known as the advising bank. The advising bank is not a party to a SBLC and has no authority to approve or disapprove an amendment’s terms or obtain drawing rights.
• ♦ Applicant - (also known as an instructing party or requesting party) – The SBLC applicant enters into a contract with a counterparty. When the contract requires a standby letter of credit to support it, the applicant will make a request, typically to its bank, to issue a SBLC in favour of its contract’s counterparty. In SBLC terms, the counterparty becomes the beneficiary. In the underlying contract, the applicant and beneficiary terms associated with SBLCs may have very different names: e.g. lender and borrower; buyer or seller; principal and drawer; etc. It must be noted that a SBLC’s stated applicant may or may not be the issuer’s client. An applicant may receive silent or openly known support to have a standby letter of credit issued. For example, Company AZA may have insufficient credit or collateral to induce an issuer/bank to issue its SBLC. In such a case, it can enlist its parent, a factoring company, etc. to lend support to help Company AZA be named as the applicant in the SBLC. The parent or other company providing the support may or may not be stated in the SBLC; however, it is considered the client/applicant of the issuer versus the applicant stated in a SBLC. An applicant is not deemed a party to an SBLC. They are the party which requests an issuer to issue its independent SBLC in favour of a beneficiary.
• ♦ Beneficiary – is the undertaking party who receives all the benefits of a SBLC. They are the only party who may make a drawing; receive payment against the SBLC and/or accept or reject amendments, etc. In the underlying contract, the applicant and beneficiary terms associated with SBLCs may have very different names: e.g. lender and borrower; buyer or seller; principal and drawer; etc.
• ♦ Confirmer or Confirming Bank – confirmation may only be added at the request of an issuer. When added, a confirmer or confirming bank becomes similar to a second issuing bank because, like the issuer, the confirmer undertakes to honour (or negotiate) or pay a complying document presentation. The confirmer’s undertaking is in addition to the issuer’s undertaking, but it may be limited in several manners, such as: a) amount; b) expiry; and c) allowable languages documents may be presented in, etc.
• ♦ Issuer or Issuing Bank or Opening Bank – is the party that issues a separate, irrevocable, independent SBLC on behalf of its applicant client. Because it is independent, a SBLC is separate and distinct from any underlying contract on which it may have been based. Because it is irrevocable, a SBLC cannot be amended until all parties agree to the amendment.
• ♦ Nominated Bank – is the bank/party authorized by the issuer to undertake honour, negotiate or otherwise make a payment in the event it receives a complying document presentation/demand. A confirmer is most often a nominated bank. A nominated bank which has not confirmed or otherwise committed to pay in some form has no obligation to do so. Unless a confirmer is involved in a SBLC, it is rare to see a nominated party as the majority of SBLCs expire and are only available for payment with the issuer.

Applicant considerations:

There is a cost associated with SBLC transactions.

• ♦ An applicant is not a party to an SBLC. The applicant is a party to an underlying contract while the issuer of the standby letter of credit is not. The applicant requests a SBLC to be issued. However, once issued, the issuer must then make its own, independent examination and payment decisions independent of input from the applicant and what the terms of an underlying contract state.
• ♦ An applicant should have a relationship comfort with the intended SBLC beneficiary because most standby letters of credit are payable against only a draft/bill of exchange and a simple drawing statement. This allows for the possibility for an improper drawing.
• ♦ Once a SBLC is issued, all parties must agree to any amendment or cancellation request unless the SBLC has expired.
• ♦ Applicants must align the contract’s terms with the SBLC especially in the area of drawing requirements. Because a standby letter of credit is documentary, an issuer is not concerned with the underlying contract and will make its payment decision solely upon reviewing a beneficiary’s document presentation on its face, against an SBLCs terms, without seeking confirmation of fact(s), action(s) or statement(s) made by the issuer of any document contained in the presentation.

Beneficiary considerations:

A beneficiary must determine its credit rating of the issuer. Where an issuer’s credit rating, size or country risks are unacceptable to the beneficiary, a beneficiary may require an acceptable confirming bank.

Once the beneficiary receives a SBLC, it should ensure that SBLC wording complies with the requirements of the underlying contract. Example :

• ♦ Can a beneficiary legally make the required statements and are all reasons they can make a demand for payment properly addressed?
• ♦ Does the SBLC expire with sufficient time to complete the underlying contract?
• ♦ Can the beneficiary obtain all required drawing documents?

This upfront review will help to assure success if the beneficiary makes a drawing against the SBLC, understanding that when a presentation does not comply with a SBLC’s stated terms/conditions, an issuer is not obligated to pay.

The SBLC should be made subject to its preferred international rules such as ISP98 versus UCP600 as the rules align everyone involved with a SBLC and may also assist in the case of a legal matter.

Confirmation and/or advising costs may be due by the beneficiary.

As the issuer is supporting its applicant, it needs to consider the applicant’s credit rating. They also need to consider their ability to complete the underlying contract/agreement, often without reviewing the contract/agreement.

Reputational and/or compliance risks such as money laundering, collusion between an applicant and a beneficiary, supporting an unpopular contract/agreement, etc. should also be considered.

Here is an overview of the most common types of SBLC.

• ♦ Advance payment: This SBLC’s purpose is to ensure the repayment of an advance payment which a buyer has made (or will make at a contract’s closing) to the supplier of goods or services. In connection with large contracts, especially international transactions, the parties will agree that a supplier of goods or services must receive a certain percentage of the overall contracted value, e.g. 10% upon signing of the contract. To safeguard the buyer against losing its advance payment, they will require an SBLC naming them as the beneficiary to secure the repayment of the sum(s) advanced should the contracted goods or services not be delivered or completed. The SBLC ensures the buyer is made whole for any advance made. However, often these types of SBLC’s do not provide remuneration for any loss of interest or profit margins that the buyer may sustain.
• ♦ Bid or tender bond: Supports an issuer's client’s bid to be awarded for a project or contract mandate. This type of SBLC assures the beneficiary that if selected, the applicant has the ability to support and comply with its bid and that they will honour the bid if they are selected. Most often used by contractors or construction companies, they are typically needed for a portion of the overall project’s value.
• ♦ Clean: A SBLC which generally requires only the presentation of a draft or bill of exchange without the need of any supporting statements whatsoever. From an applicant and/or an issuer's perspective, these are considered the riskiest type of SBLC. This is because a beneficiary will be able to draw for any reason. It is also risky because the simple terms of the SBLC with regards to a presentation or drawing requirement makes it difficult to stop an improper drawing.
• ♦ Commercial: Supports an applicant’s payment obligations to pay for goods or services on a one-off or ongoing basis in the event of non-payment by other methods.
• ♦ Direct-pay: Direct Pay LCs are hybrid SBLCs issued to provide a credit enhancement to a bond offering. E.g. industrial revenue bond, also commonly referred to as variable rate demand bonds. These types of SBLC are most often issued in favour of the bond trustee. Unlike the majority of SBLCs, they are the primary payment mechanism for the interest and principal due on the underlying bond and will receive periodic drawings for payment.
• ♦ Financial: A large majority of SBLCs will fall into this category. These standby letters of credit will support any financial payment obligation such as loan repayments, etc.
• ♦ Insurance: These SBLCs address the insurance or reinsurance obligations of the applicant and are used by insurance companies to distribute insurance risks among themselves. Rather than cash collateralizing other insurers or beneficiaries for use of their internal lines of credit, these SBLC’s are used as collateral.
• ♦ Performance: A performance SBLC is used to secure the applicant’s satisfactory fulfilment of its contractual performance obligations toward the beneficiary. For example, should the applicant fail to perform a contracted duty such as: complete a construction project, or repair equipment, or build a home or road within the contracted specifications and/or timelines, then the beneficiary will be entitled to present a drawing statement.
• ♦ Counter SBLC: An applicant or the beneficiary may require a local SBLC to be issued directly by an overseas, reputable party - most often a bank - in the same country as the beneficiary. The applicant may not have the means or would prefer not to open another line of credit with an overseas party to facilitate this limited need. In this case, they would request an issuer to issue a counter SBLC. The counter SBLC provides collateral to a local party or bank (often a correspondent of the issuer of the counter-undertaking), to induce that bank to issue its own separate and distinct, local undertaking. In these instances, there are two undertakings:
  • ♦ The 1st is the counter-SBLC between the issuer and the local bank
  • ♦ The 2nd is the local undertaking between the local issuer and the beneficiary
  The undertaking type and/or their governing rule sets do not need to be like for like. Each bank has its own policies toward issuing and receiving counter SBLCs. Through the use of counter SBLCs, a client maintains a single line of credit. A counter SBLC may be necessary in the following scenarios:
  • ♦ Beneficiary requires/demands a local SBLC or guarantee
  • ♦ Beneficiary requires a “local bank” to issue the final undertaking and will not allow another local bank to advise or confirm it
  • ♦ The undertaking or guarantee must be subject to laws outside of the issuer’s policies
  The beneficiary of the counter-SBLC is the financial institution requested to issue its own instrument. The beneficiary of the second instrument is the applicant’s counterparty in the underlying contract/agreement. The drawing requirements for a counter-SBLC generally require a simple statement that the second financial institution received a demand for payment against the instrument it issued. The drawing requirements under the second instrument will have ultimately been provided by the applicant of the counter SBLC issuer.

• ♦ Costs: Costs between SBLCs and Commercial LCs usually differ. At a high level both types of LC typically require an issuer to consider factors such as:
  • ♦ Applicant/client size
  • ♦ Collateral and required line of credit size
  • ♦ The issuer’s internal LC processing costs
  • ♦ Credit establishment and compliance risk costs
  • ♦ The differences of the types of LCs anticipated to be requested
  Depending on the laws applicable to the Issuer, there may be different cash reserve loss requirements needed for commercial LCs vs performance SBLCs vs financial SBLCs, (Note: This is the case for all countries following Basel) which may affect the issuing/opening fee. Both LC types will require an applicant to pay an issuance fee of some type. However, commercial LCs are expected to have at least one, if not multiple document presentations. Each presentation will typically be assessed by an examination fee of some type. Conversely, most SBLCs do not receive a beneficiary’s document presentation or drawing and so no examination related fees will be assessed. Where a SBLC generally covers longer term and ongoing contracts, the issuance fee is needed for the duration of the SBLC. Commercial LCs are typically issued to support a single need e.g. to cover a payment for: a) a shipment of goods; or b) services completed. They typically expire earlier than a SBLC. For applicants and beneficiaries which routinely transact, a longer term SBLC may be the more economical LC undertaking, instead of issuing multiple commercial LCs. The commercial LCs will be assessed multiple issuance and examination fees.
• ♦ Document presentations: Commercial LCs are a beneficiary’s primary payment option. Rather than relying on the underlying contract for payment, the beneficiary will request payment from the issuer’s independent commercial LC undertaking in settlement of the underlying contract they have with the applicant. Conversely, SBLCs take the opposite view and, in the overwhelming majority of cases, the issuer of a SBLC does not expect to receive a document presentation nor make a payment. As a secondary payment option to the beneficiary, if a document presentation/demand is received, it generally means that the applicant has failed to meet its terms against the underlying contract.
• ♦ Document types: Commercial LCs require documentary presentations which usually consist of commercial documents such as commercial invoices, packing or weight lists, transport documents, etc. SBLCs are payable most often against simple beneficiary statements and the documents presented often have no intrinsic value.
• ♦ Misstatements / Fraud: Understanding the difference with document types outlined above, the possibility of a beneficiary requesting a payment in error, by accident or purposely are greater with a SBLC. While a very rare occurrence, it is recommended that the applicant and beneficiary have an established relationship when dealing with SBLCs.
• ♦ Duration: Commercial LCs are typically short term in nature and their expiry date is generally 6 months or less. SBLCs most often cover longer term contracts, and their duration may be years in length on an overall basis.
• ♦ Tenors: Any LC undertaking must define the period when a complying document presentation is due for payment and this period is known as the LC’s tenor. As LC undertakings, both Commercial LCs and SBLC’s can be payable “at sight”. This means upon a reasonable time from when the nominated or issuer has found the documents to comply with an LC’s terms. Conversely there also exists time tenors, which detail that a payment is to be made at a fixed future certain date from the time a presentation is found to be complying. Time tenors are typically referred to as Deferred Payment Undertakings or Banker’s Acceptances. One term, “Negotiation”, may be used as a sight or time tenor. Commercial LCs often include some form of financing need for trade and, as such, time tenors are utilized. SBLCs which generally do not expect a presentation or demand for payment will overwhelmingly use the sight tenor.
• ♦ Terms and Conditions: Given their very different payment needs, the data content of commercial versus SBLCs differs significantly.
• ♦ Purpose: Commercial LCs facilitate trade and are issued with the intention that a document presentation will be delivered to a bank for payment for a shipment of goods or payment for services. They are the primary payment vehicle for the beneficiary. On the other hand, SBLCs cover any type of contract or agreement between two parties. Provided the issuer is willing to support its applicant, the type of contract a SBLC can support is boundless and includes the different types we covered above (which is not an exhaustive list). When an applicant does not meet its contracted duty(ies), the beneficiary will make a claim against the applicant for payment under the underlying contract. When the applicant fails to honour the request for payment, the beneficiary will make a presentation for payment against the SBLC making it a secondary payment vehicle, or payment of last resort for a beneficiary.

Similar to the commercial LC or a SBLC, a demand guarantee (DG) is an independent and irrevocable “undertaking,” provided by an issuer to a beneficiary, that provides assurance of payment upon receipt of complying document presentations. DGs are often referred to as first demand guarantees. DGs are more common in Europe, Asia, and the Middle East. SBLCs are more common in the Americas, however they remain globally issued and/or accepted. Surety or ancillary guarantees should not be confused with DGs and are not the same as LC undertakings. They are outside the scope of this guide. DGs and SBLCs are extremely similar “undertakings” with the key differences provided by its governing rule set. Like the SBLC, demand guarantees:

• Require the beneficiary to present a compliant documentary demand in order to receive payment against the undertaking
• Are independent from the underlying contract
• Do not require the issuer to investigate the legitimacy of a demand.

• Force Majeure situations
• Document examination period and approach
• Confirmation
• Allowable payment tenors
• Required notifications to an applicant
• Governing law and jurisdiction
• Replacing a DG or SBLC undertaking lost by a beneficiary
• Some terminology differences e.g. guarantor versus issuing party.

• International Standby Practice (ISP98)
• ISP is a set of rules that when incorporated into an undertaking by referencing the ISP98 or ICC publication 590, will cause the undertaking to be deemed as a Standby Letter of Credit.
• The ISP was approved and endorsed by the International Chamber of Commerce (ICC) in January 1999 (ICC publication 590).
• The ISP took more than five years to create and it was the result of interaction between individuals, banks, and national and international associations.
• The ISP98 is a copyright of the Institute of International Banking Law & Practice (IIBLP).
• ISP is not law, but it contains resemblances to USA L/C legal doctrine.
• It represents a more comprehensive rule set for SBLCs versus the UCP 600.

• Uniform Customs and Practice (UCP 600)
• UCP is a set of rules that when incorporated into an undertaking, will cause the undertaking to be deemed as a letter of credit.
• The primary focus of the UCP is to govern commercial letters of credit. However, as noted in UCP Article 1 in parenthesis, UCP applies to standby letters of credit “to the extent to which they are applicable”.
• UCP is not a law, rather a set of articles developed by the International Chamber of Commerce (ICC) Banking Commission and others. They are copyrighted by the ICC.
• ICC is a non-governmental organization.
• UCP was first published in 1933 making it the oldest and most legally tested rule set. Thereafter revised in 1951, 1962, 1974, 1983, 1993 and its current revision in 2007.
• UCP is not as thorough on SBLC day-to-day practice. It does not address a variety of situations such as:
• Receiving a document presentation which contains an extend or pay request e.g. request to extend the expiration date of the SBLC or pay the presentation
• Issuances of counter-SBLCs;
• Examining documents against a SBLC which requires a document to make and/or complete a statement utilizing quotation marks; require a witness, etc.
• What to do in cases where a beneficiary has merged or been acquired after issuance of an SBLC
• Syndicated or participated deals.

• Uniform Rules for Demand Guarantees (URDG 758)
• The URDG is a set of rules that when incorporated into an undertaking, will cause the undertaking to be deemed a demand guarantee (DG).
• URDG 758 entered into effect July 2010 and is a complete revision of the original revision URDG 458.
• The URDG rules support demand guarantees, not surety guarantees.
• Where possible, it was aligned with the concepts of UCP 600; however, its default positions differ from UCP and ISP in a variety of manners.
• URDG 758 now has a companion document titled the International Standard Demand Guarantee Practice (ISDGP) for URDG 758 (ICC publication 814E). It supplements the URDG by identifying and recording best practice in relation to the URDG rules and beyond.

Given the long-term expiry nature of SBLCs, they often insert what is commonly referred to as an “Evergreen” or “automatic-extension” clause. The Evergreen Clause allows an SBLC’s expiry date to automatically extend for a fixed period-of-time (e.g. every six months or year).

It also provides an issuer or confirmer and/or the applicant with an exit period (e.g. “unless XX days prior to any then current expiration date, the issuer notifies the beneficiary that the issuer elects not to extend the SBLC”). This allows them the possibility to have the SBLC expiry with a simple cancellation notification and without the need for a beneficiary to agree to an amendment.

However, any cancellation notification must be sent or received by the beneficiary by the notification period indicated in the SBLC’s specific evergreen clause. This is normally anywhere between 30 and 90 days from a then current expiration date.

The applicant, issuer or confirmer is provided with the means to close the SBLC without the need for a beneficiary to consent or otherwise have to agree to an amendment or return an undertaking. (Note: The cancellation is typically sent when the underlying contract is also close to completion, but there remain other reasons for cancellation such as: applicant seeking to replace an issuer for improved costs or other reasons, or an issuer seeking to remove itself from a deal; etc.)

In addition, providing longer-term commitments often requires higher rates/fees. The exit opportunity provided by an Evergreen Clause may keep fees more reasonable.

SBLC undertakings can support “any” type of underlying contract, agreement, or obligation between an issuer’s client or applicant and the applicant’s client/counterparty - the beneficiary - provided the issuer is willing to support the nature of the underlying contract.

The SBLC obligations supplement and are in addition to any other underlying contract/agreement between the issuer’s client, the applicant and the beneficiary. When the issuer bears a stronger credit rating, a SBLC is also a credit enhancement tool.

An applicant could require that a beneficiary must inform them of an intended drawing XX days in advance. The SBLC could require the beneficiary to make this certification and provide some form of documentary evidence; e.g. a copy of an email to ensure it was completed. This notification could allow an applicant to resolve the contract issue negating the need for a drawing.

Conversely, a trusted neutral third party or an applicant could require that a beneficiary’s drawing statement be countersigned or attested by a third party neutral to the applicant and beneficiary; or the applicant or their representative to help ensure that the drawing is warranted (Note: Given the neutrality of a SBLC between an issuer and a beneficiary, having an applicant requirement to countersign or attest to a drawing is discouraged in rules and often prohibited by an issuer and/or a beneficiary).

Most SBLCs have a sight tenor and, as noted throughout this guide, in most cases a SBLC will never receive a presentation or drawing so there is no need to make a payment.

Discounting or prepaying a sight SBLC can be associated with fraud and as such, caution is needed when considering such a possibility.

Yes, and as noted in UCP 600, ISP98 (and URDG 758) and when allowed by applicable law, in certain cases the issuer may issue a SBLC on its own behalf. In these cases, the issuer becomes the applicant and the issuer. This is commonly known as a two party SBLC.