Discounting of documents is an important concept in import and export activities. So what is discounting of documents? Let's find out with SeABank about discounting of documents and related issues that you need to know about this concept in the article below.
What is the discounting of documents?
Discounting of documents is a common concept in the field of import and export financing, in which the discounting bank will grant credit to the exporter by purchasing a set of documents (with or without a Bill of Exchange) before the payment due date.
In the process of international trade transactions, the time for exporters to receive payment from importers is often quite long. Especially when the transaction is agreed upon in the form of deferred payment. Instead of waiting for the expected payment date in the commercial contract, exporters can request banks to discount the set of documents, thereby helping exporters to recover capital sooner and reduce financial pressure during the export process.
Document discounting will help speed up the payment process
Things to know about document discounting
Document discounting is a useful financial tool that helps exporters increase cash flow, minimize risks and improve competitiveness. Therefore, businesses need to learn more about the following information when they want to use document discounting in their international trade transactions.
What are the benefits of using document discounting?
Using document discounting will bring many benefits to exporters. For example:
- Helping businesses increase working capital immediately: Instead of waiting for buyers to pay, exporters can immediately receive payment for goods, helping to supplement working capital, improve financial situation and continue to invest in production and business activities, while increasing the ability to manage cash flow.
- Minimize transaction risks: By cooperating with the bank in discounting the set of documents, businesses are supported in assessing transaction information, set of documents, importers, etc. before discounting, thereby reducing risks in the process of implementing export transactions. In addition, the exporter will also share the responsibility of collecting money from the buyer with the bank, minimizing the risk of not being able to collect the goods.
- Enhance competitiveness: Receive money immediately but still be able to meet the buyer's payment needs in installments, helping businesses maintain more competitive prices and meet market demand.
- No need for collateral: Businesses only need to present a set of unpaid, undue documents to receive credit from the bank, without having to add additional collateral.
Discounting a set of documents can help businesses increase working capital
What is the nature of document discounting?
Understanding the nature of a set of documents is extremely important for exporting businesses. This helps businesses ensure payment safety, take advantage of incentives, minimize risks, improve operational efficiency and enhance competitiveness.
Accordingly, documents will have the following nature that exporters need to know:
- Discounting a set of documents often occurs when the payment process at the bank is prolonged, especially in cases of deferred payment agreements (deferred L/C or D/A), leading to late cash flow while the exporter needs money immediately.
- Receiving prepayment: The exporter requests the bank to discount a set of documents to receive prepayment, helping to solve financial needs immediately.
- Based on the verification and confirmation that the Exporter's set of documents is valid and qualified, the Discounting Bank will pay the Exporter the payment amount according to the set of documents (with or without a draft), and then request the L/C opening bank/Collecting Bank/Importer to pay it. Discount amount: The amount paid in advance will not be equal to 100% of the value of the set of documents due to the deduction of interest, discount fees, other related fees and risk provisions from the Discounting Bank (if any).
Exporters should understand the nature of document discounting
Current types of document discounting
Currently, there are many different ways to classify documents depending on the discounting method, payment method, payment term, etc. Enterprises can refer to some of the following classifications to better understand document discounting:
Classification by discounting method
According to the discounting method, discounting of a set of documents is divided into two main types as follows:
- Recourse discounting of documents (Discounting by the purchase method with the right to recourse to the set of documents): In this form, the discounting bank has the right to request the enterprise to refund the principal, discount interest and other costs when it does not receive full payment from the responsible party on the due date. This method is often applied by commercial banks.
- Recourse discounting of documents (Discounting by the term purchase method of the set of documents): In this form, the enterprise commits to repurchase the set of documents after a certain period of time before the due date of payment of the set of documents. Accordingly, if the responsible party does not pay the discounting bank, the bank also has no right to recourse from the exporting enterprise. However, due to the high risk, few banks apply this method.
Discounting of documents can include recourse and non-recourse
Classification by payment method
Depending on the payment methods used in the Foreign Trade Contract, discount products can be applied according to each type of payment method such as L/C (Letter of Credit), D/P (Payment on Delivery of Documents), D/A (Payment Acceptance on Delivery of Documents), etc.
Classification by payment term
Based on payment term, discounting of documents can be classified as follows:
- BCT discount at sight: These are discounts with a short term, usually less than 30 days. This type of discounting of documents is only applied to types of Documents (with or without Bill of Exchange) that are paid at sight. For example, Sight Letter of Credit, D/P (Documents against Payment), CAD (Cash against Documents),...
- Deferred BCT discount: This is a form of discount for a period of more than 30 days and is applied to a set of documents for deferred payment. For example, Usance Letter of Credit, D/A (Documents against Acceptance),...
Publishers can choose to discount documents for quick or delayed payment
Learn about discounting documents at SeABank
Currently, there are many banks that provide discounting methods for documents, notably SeABank. Currently, SeABank is providing discounting according to the purchase method with the right to recourse for the export documents presented by customers at SeABank.
This helps exporters have a flexible, simple, and fast payment method. You can refer to SeABank's document discounting method below to choose the most suitable bank:
Discount conditions
To be able to discount a set of documents at SeABank, the enterprise must meet the following conditions
- Legal conditions: The enterprise must have legal status and be allowed to operate in the field of import and export.
- The enterprise needs to discount BCT by L/C, D/P, D/A (or other payment methods according to SeABank's regulations from time to time).
- Must have legal ownership of the set of documents.
- Must use the discount money to pay for transactions that are not prohibited by law.
- Other conditions according to SeABank's regulations from time to time.
Enterprises need to meet the conditions for discounting SeABank's set of documents.
Features of discount products at SeABank
The discount product of a set of documents at SeABank has many features that bring benefits to Exporters when choosing. For example:
- Customers receive money immediately upon delivery, enhancing financial capacity through increasing cash flow, thereby minimizing risks arising from receivables.
- Flexible discount currency, customers can use VND or foreign currency in accordance with the provisions of law.
- Customers do not need to add collateral with the L/C or D/P method (if meeting SeABank's conditions)
- High discount rate up to 98% of the value of the set of documents.
- Flexible discount period, suitable for the payment period of the set of documents and meeting business needs.
- Competitive discount interest rates with many preferential programs exclusively for import-export customers.
- Simple discount procedures, quick and convenient document processing and handling time.
- Get free consultation on document preparation and have your documents checked for validity by SeABank's team of experienced experts.
The discount rate of a set of documents at SeABank can be up to 98%
Procedures for registering to discount a set of documents
The registration procedure for discounting a set of documents at SeABank is very simple, usually including:
- Legal documents.
- Discounting request documents: including Discounting request, Export documents (with or without Promissory note), L/C, Foreign trade contract, Customs declaration, etc.
- Financial documents, Collateral documents and other documents (if any) according to SeABank's regulations from time to time.
Basic discounting process
After learning about the concept of document discounting as well as the true nature of document discounting, let's learn about the working process:
- Step 1: According to the requirements of the L/C or Foreign Trade Contract, the Exporter delivers the goods to the Importer.
- Step 2: The Exporter prepares a set of documents according to the Contract or L/C and presents it to SeABank to send to claim money from the Importer, and at the same time will request SeABank to discount the set of documents. The Exporter provides the discount documents according to SeABank's regulations.
- Step 3: SeABank checks the discount conditions and if the documents are valid, it will discount the set of documents and advance money to the Exporter.
- Step 4: After discounting, SeABank sends the set of documents to the bank issuing the L/C. The collecting bank (the importer's bank) and requests this bank to pay/commit to pay.
- Step 5: The importer's bank transfers the money to SeABank immediately after receiving the valid set of documents (for the set of documents for immediate payment) or pays on the due date of the set of documents (for the set of documents for deferred payment).
Time limit for discounting documents at SeABank
Depending on each specific case, SeABank will determine the appropriate discount period based on consideration of the payment method, payment period, time of sending the set of documents and related international practices. The maximum discount period is up to 30 days for L/C at sight, 60 days for D/P, up to 6 months for deferred payment methods and varies from period to period.
The discount period for documents at SeABank will change from time to time
Conclusion
Hopefully, with the useful information in this article, you will better understand what document discounting is and the issues related to this payment method. Don't forget to learn about document discounting services at SeABank. Proud to be one of the leading banks in the field of export finance, SeABank will always be ready to accompany businesses with comprehensive and effective financial solutions.
To learn more about SeABank's document discounting services, please visit the website: https://sme.seabank.com.vn/ or contact Hotline 1900.599.952 (KHDN).
