ECGC: Export credit Guarantee corporation of India=It protects exporters from
financial loss.It provides guarantee & insurance to finance exporters.
Export Risk Insurance Corporation(ERIC) 1957 was converted into ECGC in 1964.
Pre & Post shipment loan to exporters
PCFC: Pre shipment credit in foreign currency.It is also called as Pre Shipment
Loan(PSL) or Packing Credit Loan (PCL)
Credit extended by bank/ADs to an exporter for financing the
purchase,processing,packing of goods prior to shipment, on the basis of Letter of
Credit opened in his favour.
It can be extended either in Rs or any other convertible currency.
Initially it is extended for 180 days.
Interest rates are based upon LIBOR.
PSFC: Post shipment credit in foreign currency ,It is also called as PSEF i.e. Post
shipment Export Finance: Advance against receivables
EBR: Export Bill Rediscounted Abroad: Discounting of export bill
Supplier's Credit: extended by overseas supplier of goods to the importer.
Buyer's credit: credit arranged by importer from bank outside his country to settle the
payment of imports.
IEC Number: Importer-Exporter Code Number= a unique code number for every
importer & exporter
Letter of Credit (LC): Documentary Credit (DC)
Authenticated instrument issued by buyer's bank,stating an undertaking to pay seller
specified amount of money on producing documents of shipment.
Applicant: Importer/buyer
Issuing/opening Bank: issues LC on behalf of applicant: Buyer's Bank
Advising bank: Bank in seller's country who acts as an agent of issuing bank. No
Liability on Advising bank to pay on behalf of issuing bank.
Confirming Bank: who undertakes to pay on behalf of issuing bank.
Negotiating/Nominated Bank: nominated by issuing bank.It examines documents
Reimbursing banks: it reimburses confirming bank: It is usually NOSTRO/VOSTRO
Bank of the opening bank.
Beneficiary: exporter/seller
Advising bank Confirming Bank Negotiating/Nominated Bank could be the
same.
International Chamber of Commerce: UCPDC 600 : Uniform Customs & Practices
for Documentary Credit
Types of LC:
1. Revocable: which can be revoked without consent of any other party
2. Irrevocable: which can not be revoked without consent
3. Irrevocable Confirmed LC: which is confirmed by bank & which can not be
revoked without consent: Confirming bank performs the functions of Issuing
bank.
4. Revolving LC: issued when exporter & importer deal which each other very
frequently.
5. Transferable: can be transfered in favour of more than 1 beneficiary
6. Red Clause LC: It enables seller to avail pre-shipment credit from nominated
bank.
7. Green Clause LC: If further advance is given to exporter for storage etc:
Extension of Red LC
8. Back to back LC: issued by exporter to local supplier to procure goods on
strength of export LC received in his favour.
9. Sight LC: instant payment on presentation
10. Acceptance credit LC: bill of exchange with certain usance period are drawn &
are payment after some days.
11. Deferred Payment LC: no bill of exchange & payment after some days
12. Negotiation LC: payment to negotiating bank which negotiates documents
13. Standby LC: Document of promise as guarantee in case of non-performance
Factoring:
It is a continuing arrangement between a financial institution(Factor) & client
whereby the factor purchases the client's Account receivables/book debts either
with or without recourse to the client.
Without Recourse is NOT permitted in India.
In short,it is a mechanism to convert credit sales into ready cash.
It is for max maturity of 6 months.
Sales Ledger administration is taken up by the Factor.
Client---------Factor(FI)----------Customer
v
1. Recourse Factoring: In case of default, payment is made by the client to the
factor.It does not include bad debts protection.
2. Without Recourse : In case of default, NO payment is made by the client to the
factor i.e. entire burden of recovery lies on factor & not on client.
3. Advance Factoring: 80% payment is made in advance to the client & 20% is
made when recovery is done from the customer.
4. Maturity Factoring: NO advance
5. Old line Factoring: Full Factoring.It includes all features of non-recourse &
advance factoring.
6. Cross border/International Factoring: 1 Export Factor & 1 Import Factor.
7. Invoice Discount: Finance against invoices
Charges for Factoring:
Finance Charges
Service Charges
Forfaiting: Discount of International trade receivables upto 100% without recourse
basis for long term (upto 5 years)
It turns exporter's credit sales into ready cash & eliminates all risks from exporter's
books.
The Importer has to arrange LoC in favour of the exporter.
Forfaiting costs are borne by the importer while factoring costs are borne by the
exporter.
Forfaiting is case to case basis while Factoring is continuous and revolving
facility & entire sales ledger of the client are handled by the factor.
Forfaiting is only for international trade while factoring can also be done for
domestic trade also.
Exporter-------Forfaiter-------Importer's Banks------Importer
