What is the difference between Bill Negotiation and Bill Discounting in export import business?

 

In short, this process involves banks, shipments where there is no Letter of Credit involved, Export Bill Discounting takes place. Export Bill Negotiation takes place when Letter of Credit is involved.

After the completion of all important export formalities and procedures, the exporter or seller prepares a document kit including all necessary documents to send to his overseas importer or buyer to collect the goods or services. This document kit includes the commercial invoice, packing list, Bill of Lading (BOL), certificate of origin, Airway Bill (AWB), quality certificate, Bill of exchange and other documents mentioned by the importer or buyer at the time or placing an order.

 If this shipment falls under the LC terms, the exporter or seller has to be deeply involved while preparing this document kit in order to meet all the necessary requirements that fall under the terms of Letter or Credit (LoC) in export import business. Once this document kit is prepared, the exporter or seller then submits it to his/her authorized bank.

If the consignment falls under LC terms, the bank then verifies the documents and sees to it that is meets all the necessary terms and conditions under the Letter of Credit (LOC) and “negotiate” the export bills. The invoice amount is further credited to the exporter’s or seller’s bank account after negotiation process of bills, i.e. deducting necessary nominal bank charges. The bank takes back the discounted amount after realization of amount from overseas buyer or importer. This is done after debiting necessary bank interest to the exporter.

If the shipment falls under DA or DAP (DP) terms, the bank discounts the bill and goes ahead and credits the amount to the exporter or seller. After the amount is realized from the overseas importer’s bank, the bank takes back the discounted amount after debiting necessary bank interest to the exporter or seller.