Supplier credit means when an exporter supply goods or services to a foreign buyer on some credit terms which enable to get quick access to liquidity.
Supplier Credit loans is short-term credit available for buyer or importer from the banks or financial institutions for the import of permitted capital or non-capital goods and services based on Letter of Credit
A letter of credit is given by the bank as a guarantee that a buyer has paid the correct money to a seller on time.
Why Suppliers Credit Required?
- The exporter/suppliers are deal on sight basis
- It is a Short-term fund at a cheaper rate.
- Importers can negotiate for better commercial terms.
- Letter of Credit of backed transactions provided by Supplier’s Credit.
- Supplier’s Credit loan can be provided by Indian private and government banks, foreign banks, or other financial institutions.
Also Read:-Bank Overdraft Meaning
How does a Supplier Credit work?
The first step is a sale agreement between buyer and supplier for the purchase of goods or services.
With all transaction details of importer approaches arranger to get Suppliers Credit for the transaction.
Arranger getsindicative pricing from a lender such as foreign banks, foreign branches of Indian banks,or other financial institutions and the importer confirms.
Importer select his bank and get LC from bank.The supplier will receive a copy of LC through his bank.
The supplier ships the goods and submits required documents to his banks.
The supplier dispatches the same documents to the overseas lender.
The overseas lenders check the document and forward it to the importer’s bank for confirmation.
Importer’s Bank receives the documentsand confirm them. Importer’s bank and Importer accept documents. Importer’s Bank provides acceptance to Overseas Bank, guaranteeing payment on the due date.
On maturity, Importer give the payment to his bank, and Importer’s bank.
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