Procedure for Buyers Credit

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186

Further to my earlier post. Before you proceed for buyers credit below check needs to done

Internal Check from your end.

1. Non Fund based Limit. In order to avail buyers credit, you should have non fund based limit with you existing bank. Under banking terms, Non Funds limits are defined as Letter of Credit (LC) limits, Bank Guarantee limits (BG) limts etc. Normally during sanction, bank tends to keep these limits inter changeable between LC / BG or fund based limits. If not, your bank would not be able to issue Letter of undertaking / Comfort for buyers credit. Some nationalized bank insist on using word buyers credit in sanction before you can avail buyers credit. Thus as a first check, check if this limits are available in your sanction, if not get you bank to add this limits or make it interchangeable.
2. Gap availability in Non fund based limits: Incase, where you already have non fund based limits but it is already fully utilized for say LC or BG, than also, you might not be able to utilize it for buyers credit. Thus at the time of sanction of loan or at the time of renewal, you make sure that there are sufficient limit available and interchange with fund based limit as well, if required, can convert fund based limit to non fund based for that much amount.
3. Tenure of Buyers Credit: At the time of sanction, bank clearly mention for what tenure an lc / bg can be issued for.  This needs to be check, as maximum tenure for which you can avail buyers credit would depend on that. Say you may want buyers credit for 180 days were as you non funds based limits say 90 days, than maximum you can avail 90 days buyers credit at a time and than you will have to role it over.
4. Forward Booking: Depending on bank to bank, they would either insist on booking forward cover for the currency risk upto the amount of buyer credit amount. So before moving into transaction, check on the approximate forward premium for the tenure.
5. Format of Letter of Comfort: Every international bank offering buyers credit has their own format of letter of comfort / undertaking. There might be a chance that your bank might not issue letter of comfort in that format or might insist on using their own format. Thus check with your bank on this before proceeding.
6. Operation Issue: Say each of the above is taken care of and you got the offer letter for buyers credit and now you have has to issue letter of comfort and payment is due in couple of days. Normally it should not take more than few hours to issue a letter of comfort /undertaking if the above points were already taken care. But some nationalized bank branches would still take couple of days to issue letter of comfort. Thus you should make provision for same. Secondly some international bank might insist on getting Letter of comfort / undertaking to be sent by authenticated swift. Thus you might have to check if there is swift key arrangement between your bank and the fund offering bank.

Initial requirement for getting quote issued

1. Amount and Currency of Transaction: Exact value of as per invoice or lc has to be provided here
2. Tenure for which buyers credit is required: Details of tenure for which buyers credit is required has to provided here. As per RBI regulation, under non capital goods (Raw material etc) payment has to be made with 360 days from the shipped on board date of BL and for Capital goods with 3 years from the shipped on board date. Thus according to you requirement, RBI regulation and your sanction (as per point 3 of initial check), will determine for what tenure to be mentioned
3. Due date of transaction: Date on which you want funds to be in your bank Nostro Account. Normally one should mention 1 day before due date. Also care should be taken to check if the same is not Saturday or Sunday or Currency holiday for that currency. Otherwise it would delay your transaction.
4. Bank which will provide letter of comfort / undertaking: Mention your bank name. Every bank has line of credit on other bank. It might be possible that overseas bank from where you are arranging quote does not have line on your bank and thus would not be able to offer you funds for the transaction.
5. Underlying transaction (Goods involved): What goods are involved in the transaction. As per bank's internal policy, they would not like to deal in few products and thus would not offer funds for the transaction. Like i know of one bank which does not provide buyers credit if the underlying goods involves wood.
6. Country of Origin of Goods: Internationally there are sanction on various countries under UN sanction or OFAC sanction and thus dealing under a particular currency is not allowed for that country. For example, import from Iran, Libya etc, international branches would not offer buyers credit on such transaction because of OFAC sanction.

Other than above bank to bank would ask for additional info like, in case of LC transaction, LC no, issue date, expiry date, last date of shipment etc.

As you have seen above, there are many operational check before you can enter into a buyers credit transaction. Thus is it suggested that you take help of consultant like me so that your keep on moving smoothly. One more benefit it brings in that, because as consultant are in touch with many international bank, thus would be in position to provide you competitive rates.