How Suppliers Credit can put Importers business back to Track?

Suppliers Credit: An importer initiates his business with the intention of accomplishing huge returns for the investments made. To fulfill the demand and needs of a country, the resources within a geographical border might not be sufficient, this space between the demand and supply is viewed as a profitable market in a business perspective by the traders. In the aftermath of the Central bank (RBI) forbidding the issuance of LOU’s for trade transactions, the Importers business was disrupted with the non-availability of immediate fund requirements for their working capital needs. Though a little time-consuming process, Suppliers credit backed by LC which is a similar option to Buyers credit has come to the rescue of small Importers. What is Suppliers Credit? The trade finance facility made available to the Importer to brings the goods into India based on the usance of Letter of Credit(LC) is known as Suppliers Credit. Here, the credit is funded by the overseas financial institutions or the sellers preferably from the seller’s country at a cost close to Libor rates which are cheaper than the local source of funding. How will Suppliers Credit help the Importers? Suppliers credit service can be availed only when it is backed by LC (Letter of Credit) which is an agreement comprising the details of the transactions. Also, the interest rates for the funding process is kept minimal, which is similar to buyers credit services with slightly varied costs. Tenure for Capital and Non-Capital Goods  A maximum tenure of 3 years is allowed for all the Capex transactions. A maximum tenure of up to 1 year/ 360 days is permitted for the Non-capex transactions from the date of the shipment. Transactions up to $20 million dollars are allowed, anything beyond the sanctioned limit requires RBI approval. Benefits / Advantages of Suppliers Credit The exporter/suppliers are dealt on sight basis Importer’s business is financed with short-term credit Importers can negotiate and settle for a better deal Financed in foreign currency close to Libor rates A low-cost source of credit significantly cheaper than the local funds Backed by LC guarantee which mitigates the risk to a certain extent Process Flow / Workflow for Availing Suppliers Credit  When an Importer requires credit after entering into a contract with the Supplier, he approaches SaveDesk (arranger) to avail Suppliers credit along with the relevant transactions details. SaveDesk, from an overseas financial institution, offers the best deal to the Importer. On acceptance of the offered price, the Importer gets an LC guarantee issued with his bank which is confined to the lending financial counters. Once the goods are shipped, the Supplier submits the necessary documents at his bank. Further, the documents are scrutinized by the lending overseas financial institution. On account of acceptance of documents and repayment as per as the LC terms by the Importer’s bank,the lending bank discounts the bill. The payment is remitted to the respected Supplier based on the LC terms. On the required due date, the Importer makes his payments to his bank which in return is settled to the lending overseas financial institution. Cost / Charges Involved in Suppliers Credit Interest cost i.e. LIBOR LC Advisory charges: which will be charged around 0.1- 0.5% Courier/Postage/Swift charges Corresponding bank charges: (Depends on bank networks) LC confirmation charges: ranges around 0.3% to 1.1% (optional) Indian Bank interest cost Documentation handling charges Negotiation charges A wise businessman takes the market arbitrage and imports goods and materials from other countries by availing low-cost loans (Suppliers credit) that would work out better for him. It can be the import of machinery equipment, raw materials anything from outside to make profits within the domestic boundaries.
Saurabh Jain
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How Suppliers Credit can put Importers business back to Track?

Saurabh Jain
Blog
30th May, 2018
How Suppliers Credit can put Importers business back to Track?

Suppliers Credit:

An importer initiates his business with the intention of accomplishing huge returns for the investments made. To fulfill the demand and needs of a country, the resources within a geographical border might not be sufficient, this space between the demand and supply is viewed as a profitable market in a business perspective by the traders.

In the aftermath of the Central bank (RBI) forbidding the issuance of LOU’s for trade transactions, the Importers business was disrupted with the non-availability of immediate fund requirements for their working capital needs. Though a little time-consuming process, Suppliers credit backed by LC which is a similar option to Buyers credit has come to the rescue of small Importers.

What is Suppliers Credit?

The trade finance facility made available to the Importer to brings the goods into India based on the usance of Letter of Credit(LC) is known as Suppliers Credit. Here, the credit is funded by the overseas financial institutions or the sellers preferably from the seller’s country at a cost close to Libor rates which are cheaper than the local source of funding.

How will Suppliers Credit help the Importers?

Suppliers credit service can be availed only when it is backed by LC (Letter of Credit) which is an agreement comprising the details of the transactions. Also, the interest rates for the funding process is kept minimal, which is similar to buyers credit services with slightly varied costs.

Tenure for Capital and Non-Capital Goods 

  • A maximum tenure of 3 years is allowed for all the Capex transactions.

  • A maximum tenure of up to 1 year/ 360 days is permitted for the Non-capex transactions from the date of the shipment.

  • Transactions up to $20 million dollars are allowed, anything beyond the sanctioned limit requires RBI approval.

Benefits / Advantages of Suppliers Credit

  • The exporter/suppliers are dealt on sight basis

  • Importer’s business is financed with short-term credit

  • Importers can negotiate and settle for a better deal

  • Financed in foreign currency close to Libor rates

  • A low-cost source of credit significantly cheaper than the local funds

  • Backed by LC guarantee which mitigates the risk to a certain extent

Process Flow / Workflow for Availing Suppliers Credit 

  • When an Importer requires credit after entering into a contract with the Supplier, he approaches SaveDesk (arranger) to avail Suppliers credit along with the relevant transactions details.

  • SaveDesk, from an overseas financial institution, offers the best deal to the Importer.

  • On acceptance of the offered price, the Importer gets an LC guarantee issued with his bank which is confined to the lending financial counters.

  • Once the goods are shipped, the Supplier submits the necessary documents at his bank.

  • Further, the documents are scrutinized by the lending overseas financial institution.

  • On account of acceptance of documents and repayment as per as the LC terms by the Importer’s bank,the lending bank discounts the bill.

  • The payment is remitted to the respected Supplier based on the LC terms.

  • On the required due date, the Importer makes his payments to his bank which in return is settled to the lending overseas financial institution.

Cost / Charges Involved in Suppliers Credit

  • Interest cost i.e. LIBOR

  • LC Advisory charges: which will be charged around 0.1- 0.5%

  • Courier/Postage/Swift charges

  • Corresponding bank charges: (Depends on bank networks)

  • LC confirmation charges: ranges around 0.3% to 1.1% (optional)

  • Indian Bank interest cost

  • Documentation handling charges

  • Negotiation charges

A wise businessman takes the market arbitrage and imports goods and materials from other countries by availing low-cost loans (Suppliers credit) that would work out better for him. It can be the import of machinery equipment, raw materials anything from outside to make profits within the domestic boundaries.

Saurabh
Blog Author

 

One of the Co-founders, Saurabh serves as an active advisor to several SaveDesk’s portfolio companies and also works closely with them to improve business performance, select key management personnel, ensuring statutory and financial oversight and compliance supported by various agreements.Prior to SaveDesk, Saurabh spent seven years with Standard Chartered Bank commercial banking team as an associate director, where he was responsible for client management,financial analysis, portfolio management and large ticket deal’s execution in South India. Saurabh holds an MBA in Marketing from the Institute of Technology Management, and graduated with Honors degree in Electrical and Electronics Engineering from RGPV, Madhya Pradesh

 

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