- Instrument
- Accepted or deferred-payment LC
- Raised by
- Beneficiary
- Priced as
- Benchmark plus margin
- Cash flow
- Proceeds now, bank waits for maturity
Getting paid before the credit matures
A usance credit pays at a future date, and it gets there one of two ways: the bank accepts a draft drawn on it, or — under a deferred payment credit, where no draft is drawn — it incurs a deferred payment undertaking. Either way a bank has committed to pay you on a known date, and that commitment is a bankable asset long before it falls due. Discounting is selling it early: the bank advances the face amount less the discount and waits for maturity itself.
Because the payment obligation sits with a bank rather than with your buyer, the discount reflects bank and country risk plus the tenor — not your buyer’s balance sheet. Pricing is a benchmark rate plus a margin, and the margin is where banks differ.
On TradeOrigin the accepted credit is posted once with its maturity and documents, and banks bid the margin. You see every offer side by side, in the same shape, and accept one.
The shape of the flow
The bank steps into the waiting. You are paid now; the issuing bank pays the bank on the maturity date the credit already fixed.
How it works on TradeOrigin
The same four steps as any bid on the platform — the difference is what is being priced.
Post the undertaking
Key the credit, the acceptance or deferred payment undertaking, the maturity date and the amount to be discounted, and attach the presentation documents. Discounting is normally offered by the nominated or confirming bank that incurred the undertaking.
Banks bid the margin
Discounting banks return their all-in pricing — benchmark, margin and any fees — sealed from each other.
Accept the best all-in cost
Offers are normalised so you are comparing like with like rather than reading four differently-worded emails.
Funds and maturity tracked
The discount, the value date and the maturity date sit on the deal, so both sides know exactly what falls due and when.
Who it is for
Sitting on usance paper
You would rather have working capital now than a receivable in six months, without adding to your own borrowing lines.
Turning stock faster
Your margin comes from cycle time; waiting out a 180-day credit is the expensive part of the trade.
Buying bank risk, not corporate risk
A discounted acceptance is exposure to the issuing bank on a defined maturity — easy to price, easy to fit inside a country limit.
What you get
Cash without new debt
You are selling a bank obligation, not drawing on an overdraft, so the facility does not have to come out of your own limits.
Margins compared properly
All-in cost is presented the same way for every bidder, so the cheapest headline rate cannot hide a fee.
One record to maturity
Acceptance, discount, value date and maturity live on a single deal with a complete audit trail.
Confidential pricing
Sealed bids mean the margin you are offered reflects the credit, not what your last bank knows about you.
What the bank will ask for
Uploaded once, against the deal, and visible only to the counterparties on it.
Questions
Is this with or without recourse?
That is a commercial term between you and the discounting bank, and it is carried on the deal. Without-recourse purchases of longer-dated paper are usually structured as forfaiting.
Which benchmark is used?
Whichever the market for that currency uses — the bid states the benchmark, the margin and the day-count basis, so the all-in cost is explicit.
Can I discount part of the credit?
Yes. Post the amount you want discounted; the rest runs to maturity as normal.
Related
LC Confirmation
Add a second bank’s undertaking to a letter of credit, priced by banks competing for the confirmation.
ProductForfaiting
Sell medium-term export receivables without recourse and take the risk off your balance sheet entirely.
ProductReceivable Finance
Discount approved invoices early, against a buyer acceptance letter and bill of exchange.