Why Suppliers Credit Is Crucial For Importer Business?

The concept of imports and exports serves the purpose of fulfilling the domestic demands by mutually sharing the resources and commodities between two national borders. To facilitate easy trade finance to the importers of India the government had structured buyers credit funding process. After divulging the PNB biggest buyers credit scam, there has been a surge of prices and stringent practices followed by the RBI which has significantly disrupted the Indian importers. Nevertheless, another similar option is available to the importers to avail trade finance, which is popularly known as Suppliers credit. What is Suppliers Credit? Suppliers credit is a trade credit funded to the importer on basis of Letter Of Credit (LC). Under the LC method of payment, the overseas suppliers or financial institutions preferably from the seller’s country finances the importers at cheaper rates than the local source of funding, which are close to Libor rates. It is beneficial to the seller as he receives payments immediately after the shipment of goods, which in turn helps the importer to negotiate for better prices. Since the issuance of LOU(letter of undertaking) has been banned, the importers are switching  to avail suppliers credit facility which also aids in availing cheap interest rates like buyers credit. Why suppliers credit?/Advantages of suppliers credit: The exporter/suppliers are dealt on sight basis Importers can negotiate for better commercial terms. Low-cost source of funds As only imports under LC qualifies for suppliers credit the risk in the process is mitigated. The letter of credit is an assurance issued which includes detailed information of the transaction and is generally restricted to overseas FI counters. Suppliers credit can be availed by the importers on both capital/non capital goods up to USD 20 million per transaction. The payments here are processed through international payment networks known as SWIFT(Society for Worldwide Interbank Financial Telecommunication code). Differences between Buyers Credit and Suppliers Credit: Buyers Credit Suppliers Credit Swift payments through MT799 Swift payments through MT760 Credit is funded to the importers nostro account Portion of the transaction is paid at sight, the rest of it is paid in accordance with the terms and conditions agreed with the seller (drafts, promissory notes etc). Additional clauses or Amendments are not required in LC Negotiation Clause, Reimbursement Clause and Confirmation Clause are covered under this. LC Clauses might need to be included/amended as requested by suppliers credit offering bank   Payments were allowed to be made on the due date to the exporters Supplier/exporters are paid at sight With the non-availability of the buyers credit trade facility, the importers were put under inconvenience. Now, the importers are availing suppliers credit which has evolved to be a new revolution in the importers trade finance facility.  
Saurabh Jain
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Why Suppliers Credit Is Crucial For Importer Business?

Saurabh Jain
Blog
02nd Apr, 2018
Why Suppliers Credit Is Crucial For Importer Business?

The concept of imports and exports serves the purpose of fulfilling the domestic demands by mutually sharing the resources and commodities between two national borders. To facilitate easy trade finance to the importers of India the government had structured buyers credit funding process. After divulging the PNB biggest buyers credit scam, there has been a surge of prices and stringent practices followed by the RBI which has significantly disrupted the Indian importers.

Nevertheless, another similar option is available to the importers to avail trade finance, which is popularly known as Suppliers credit.

What is Suppliers Credit?

Suppliers credit is a trade credit funded to the importer on basis of Letter Of Credit (LC). Under the LC method of payment, the overseas suppliers or financial institutions preferably from the seller’s country finances the importers at cheaper rates than the local source of funding, which are close to Libor rates. It is beneficial to the seller as he receives payments immediately after the shipment of goods, which in turn helps the importer to negotiate for better prices.

Since the issuance of LOU(letter of undertaking) has been banned, the importers are switching  to avail suppliers credit facility which also aids in availing cheap interest rates like buyers credit.

Why suppliers credit?/Advantages of suppliers credit:

  • The exporter/suppliers are dealt on sight basis

  • Importers can negotiate for better commercial terms.

  • Low-cost source of funds

  • As only imports under LC qualifies for suppliers credit the risk in the process is mitigated.

The letter of credit is an assurance issued which includes detailed information of the transaction and is generally restricted to overseas FI counters. Suppliers credit can be availed by the importers on both capital/non capital goods up to USD 20 million per transaction.

The payments here are processed through international payment networks known as SWIFT(Society for Worldwide Interbank Financial Telecommunication code).

Differences between Buyers Credit and Suppliers Credit:

Buyers Credit

Suppliers Credit

Swift payments through MT799

Swift payments through MT760

Credit is funded to the importers nostro account

Portion of the transaction is paid at sight, the rest of it is paid in accordance with the terms and conditions agreed with the seller (drafts, promissory notes etc).

Additional clauses or Amendments are not required in LC

Negotiation Clause, Reimbursement Clause and Confirmation Clause are covered under this. LC Clauses might need to be included/amended as requested by suppliers credit offering bank



 

Payments were allowed to be made on the due date to the exporters

Supplier/exporters are paid at sight

With the non-availability of the buyers credit trade facility, the importers were put under inconvenience. Now, the importers are availing suppliers credit which has evolved to be a new revolution in the importers trade finance facility.

 

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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