In international trade, delayed payments are more than just an inconvenience – they can choke working capital, stall operations, and restrict business growth. That’s where LC bill discounting comes into play.
LC bill discounting is a short-term export finance solution that allows exporters to convert their future receivables under a letter of credit (LC) into immediate cash.
By discounting the bills backed by an LC, exporters don’t have to wait until the credit period ends to access funds. Instead, they can get upfront liquidity – often within a few days – to reinvest in inventory, logistics, or expansion.
For SMEs and growing exporters, speeding up cash flow through LC bill discounting can be the difference between stagnation and scale. But how do you ensure the process is quick, smooth, and compliant?
Here are 7 essential steps to execute LC bill discounting efficiently and avoid costly delays.
Step 1: Understand LC Terms Thoroughly
Before you even consider discounting a bill, know your letter of credit inside out.
Key things to check:
- Type of LC: Is it irrevocable, sight, or usance?
- Payment terms: When is the payment due – immediately (sight) or after a time period (usance)?
- Documents required: Commercial invoice, packing list, bill of lading, certificate of origin, etc.
- Compliance clauses: Are there specific shipment terms, insurance requirements, or deadlines?
Tip: Always cross-check the LC with your buyer and bank to eliminate ambiguity.
Step 2: Prepare Accurate and Compliant Documents
Documents are the foundation of LC bill discounting. Even minor mismatches can result in delays or outright rejection by the financing institution.
Must-dos:
- Ensure every document matches LC specifications exactly – no spelling errors, date mismatches, or inconsistent quantities.
- Use document checklists provided by your trade finance partner.
- Work with experienced shipping agents or freight forwarders who understand LC documentation protocols.
Example: An Indian spice exporter had their discounting request delayed because the invoice currency (USD) didn’t match the packing list (INR). A simple oversight, but a week’s cash flow was lost.
Step 3: Choose the Right Financing Institution or Platform
Not all financing providers are created equal. The speed, service quality, and cost of LC bill discounting depends on whom you work with.
Your options include:
- Traditional banks with trade finance divisions
- NBFCs (Non-Banking Financial Companies) specializing in export finance
- Digital trade finance platforms like Comtradesol that streamline documentation, verification, and fund disbursal
What to look for:
- Quick processing timelines (under 48–72 hours)
- Transparent fee structure
- Experience in working capital for exporters
- Digital workflow with document tracking
Step 4: Submit Documents for Verification
Once your documentation is ready and your financing partner is selected, it’s time to submit the required documents.
Typically submitted documents include:
- Letter of Credit
- Commercial Invoice
- Packing List
- Bill of Lading
- Insurance Certificate
- Certificate of Origin
- Any other LC-mandated paperwork
Your financier will conduct a document scrutiny process to ensure everything complies with LC terms and international banking standards (like UCP 600)
Pro tip: Use digital uploads via portals wherever possible – these speeds up verification and reduces human error.
Step 5: Approval and Sanction Process
Once the documents are verified and deemed compliant, your financing partner will move ahead with the sanctioning process.
Key checks include:
- Creditworthiness of the issuing bank
- Country risk (especially for high-risk jurisdictions)
- LC authenticity validation via SWIFT
After internal checks, the discounting terms are finalized – typically involving:
- Discounting rate (interest cost)
- Processing fees
- Tenure of the usance LC (if applicable)
Step 6: Discounting and Disbursal of Funds
This is the payoff moment.
Once approved, the financing institution will credit your account with the discounted value – essentially giving you upfront cash against the future receivable.
Example calculation:
For a 60-day usance LC of INR 100,000 at an annual discount rate of 10%, the disbursed amount would be:
- Discount = (10% / 365) × 60 × INR1 00,000 = ~INR 1,644
- Amount disbursed = ~INR 98,356
Note: The final amount depends on tenure, interest rate, and fees.
Funds are typically disbursed via NEFT, RTGS, or SWIFT – ensuring fast settlement.
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Step 7: Post-Discounting Responsibilities
Once you’ve received funds, your obligations don’t end.
Exporters must:
- Track the LC maturity date and ensure the issuing bank honors the payment
- Keep communication open with the financing partner regarding payment realization
- Reconcile accounts and settle any dues (in case of prepayment, refund, or additional charges)
Some trade finance platforms offer auto-tracking tools or reminders for LC due dates and settlements – minimizing manual follow-up.
Final Thoughts:
Whether you’re an SME exporter or a seasoned trader, LC bill discounting is one of the fastest, safest ways to access working capital without taking on new debt or disrupting operations.
But speed and efficiency depend on process awareness, document accuracy, and choosing the right partner.
At Comtradesol, we simplify LC bill discounting for Indian exporters – combining compliance support, fast disbursal, and transparent pricing into one seamless digital experience.
Explore Comtradesol’s LC Bill Discounting solutions and turn your receivables into working capital.
