What is Buyers Credit Meaning & Buyer Credit facility?
To encourage Indian exporters, the Government of India introduced special schemes known to be buyers credit, where the foreign buyers issues letter of credit in favour of Indian exporters to make transaction decision stronger & risk-free.
Through this credit facility exporter get wider chances to explore well in international markets as well as business capital gets increased. Its betterment the project implementation without interrupting the flow of trading. While on the other hand, it enhances the workflow through aiding financial support whether it’s medium or long-term finance.
If we talk about Buyer's Credit meaning or buyer credit facility – both the term refers the same one, it is a short-term loan provided to the importer by an overseas lender such as a private and government bank or financial institution.
Buyers’ credit is mostly available for high purchases or a huge import/export, and its deal costing in millions of dollars and buyer credit is used for purchasing goods & services at cheaper rates as compared to domestic availability of goods.
An export loan agency gives guarantees of the loan and reduces the risk for the exporter. Buyer's credit allows the buyer, or the importer & to borrow the buyers credit loan at lower rate.
For getting Buyers Credit Against SBLC, international bank used to check whether the buyer is creditworthy give approval, various factors are considered in terms of degerming buyer profile.
Highlights of Buyer Credit -
- Buyer’s credit at competitive interest rates
- Get financed your capital goods
- Borrowing rates are cheaper as compared to general rate
- Implement project through financing facilities
Benefits of Buyers Credit -
- Buyer gets extended date for making payment.
- Even with the aid of buyer credit one can easily use this type of financing in different forms whether it's a open account, Letter of credit or collection.
- Buyers can be able to negotiate better rate, get the advantage of financing through buyer credit facility.
Benefits of Seller Credit -
- Seller gets paid within the maturity of time for his shipped goods
- Risk gets reduced as per certain norms
- Payment for shipped goods are confirmed
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Difference between Buyer Credit and Supplier Credit?
Supplier’s credit means the exporter extends credit to the importer by allowing it to pay on a deferred payment basis. Promissory notes issued by the importer as evidence of the credit.
Buyer’s Credits is a Eurocurrency loan provided to finance a specific transaction involving the import of goods and services. Under this arrangement, the bank pays the exporter on the presentation of shipping documents.
What is Buyers Credit and how it works?
The process might look slightly complicated until you go through understanding buyer’s credit well, the overall process gets started with exporter were entered into contract with the foreign buyer.
How do you get a Buyers Credit?
Generally, finance agencies lighten the risk by assuring credit. Through this facility buyers are able to get goods at LIBOR rates which comparably lower to domestic offered rates. Its cover-up all major thread to payments like debtor non-transaction, natural disaster & other relevant occurrences.
Typically, the credit for purchasing goods is obtained from financial institutions by the buyer. Intermediary financial institution pays amount to exporter/seller as per contract terms while the buyer pays agreed interest & principal amount to financial institution.
Some important points you should consider opting for Buyers Credit:-
- The maximum time period of Buyers Credit Facility for Capital Goods in 3 Years.
- Buyers credit is fully dedicated credit scheme to Indian exporters
- Business have at least 3 years of profitable continuity
- Business name shouldn’t be fallen in any criminal case
- Must have a good financial track record
The interest rate on buyers' credit loans is the lowest of all credit products in India. This interest rate cannot be offered by any other credit products. If you take a rupee loan the interest rate will be coming to around 9-10%, but buyers' credit interest rate is around 2.5%.
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