Letter of Credit Discounting
Financely is a financial services company that provides support with the establishment of Special Purpose Vehicles (SPVs) to receive letters of credit (LCs), and discount them. We handle SPV structuring, and the opening of bank accounts with banks willing to discount the LCs for the specific deal client is applying for.
We do not work with non-rated banks, and for discounting to occur, there must be an underlying transaction. The maximum loan-to-value (LTV) for first-time transactions generally does not exceed 25%, but can reach 80% if a surety bond, or a performance bond is in place.
What is letter of credit discounting/monetization?
Letter of credit discounting/monetization is the process of converting a letter of credit (LC) into cash before the LC matures. This allows businesses to access the funds they need to finance their operations more quickly.
How does letter of credit discounting/monetization work?
The process of letter of credit discounting/monetization typically involves the following steps:
- The beneficiary bank discounts the LC with a discount provider.
- The discount provider pays the beneficiary bank the discounted value of the LC.
- The beneficiary bank pays the supplier the full value of the LC.
- The discount provider collects the full value of the LC from the issuing bank when the LC matures.
Benefits of letter of credit discounting/monetization
There are a number of benefits to letter of credit discounting/monetization, including:
- Improved cash flow: Letter of credit discounting/monetization can help businesses to improve their cash flow by providing them with access to funds more quickly.
- Reduced risk: Letter of credit discounting/monetization can help to reduce the risk of non-payment, as the issuing bank is obligated to pay the discounted value of the LC to the discount provider, even if the buyer defaults.
- Increased flexibility: Letter of credit discounting/monetization can give businesses more flexibility in how they finance their operations.
Who can benefit from letter of credit discounting/monetization?
Letter of credit discounting/monetization can be beneficial for a wide range of businesses, including:
- Importers: Importers can use letter of credit discounting/monetization to access the funds they need to pay their suppliers upfront, without having to wait for the goods to be delivered and sold.
- Exporters: Exporters can use letter of credit discounting/monetization to receive payment for their goods more quickly, which can help them to improve their cash flow and reduce their risk of non-payment.
- Project finance: Letter of credit discounting/monetization can be used to finance large-scale projects, such as infrastructure projects and construction projects.
How Financely can help
Financely can help businesses to benefit from letter of credit discounting/monetization by:
- Helping them to establish an SPV to receive the LCs.
- Discounting the LCs with banks that are willing to discount LCs for the specific deal client is applying for.
- Providing guidance and support throughout the process.
If you are interested in learning more about letter of credit discounting/monetization, or how Financely can help you, please contact us directly on our website.
Financely offers specialized trade finance and project finance advisory services to businesses and governments around the world, without operating as a securities broker/dealer. For detailed information about what we do, please consider booking a consultation with us.
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Financely Inc. is a corporate finance consulting firm wholly owned by Aurora Bay Trust, a Bahamas established Trust or its relevant authorised affiliates. Our advisory business is carried out through Financely Group LLC. We do not operate as a securities broker/dealer. Please read our terms of service to determine if working with Financely Group is appropriate for you. Pursuant to the Dodd-Frank Act, we operate as an exempt
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