Trade Finance
Have an LC But Need Working Capital? 3 Routes (2026)
An LC is a payment promise, not cash — but it unlocks cash at three points: before shipment, at presentation, and across the usance. Spend it in order.
The Monday-morning answer — the LC is collateral
You hold a signed letter of credit and an empty working-capital account. Raw materials will not wait for the buyer's bank, and the LC pays only against shipped, complying documents — which do not exist yet. The good news: that LC is the best collateral an exporter can offer a bank, and it releases money at three distinct points. The exporters who struggle are the ones who discover only the third.
Spend the LC in shipment order: borrow against it before you produce, get paid against it when you present documents, and sell the waiting period if the LC pays later. Each route has its own margin, documents and failure modes.
What this post is not
This is the sequencing decision — which LC funding route, when, and what it costs you. For the mechanics of each instrument, the companion guides below go deep; they are linked at each decision point instead of being repeated here.
Tell trad your LC details
Share the LC value, issuing bank, tenor and shipment date — see which working-capital routes your credit actually unlocks.
Check your LC funding options →Your three LC funding routes — sequenced by stage
One LC, three liquidity events. Match your cash need to the right one instead of forcing the wrong one early.
| Route | When | What you get |
|---|---|---|
| Packing credit against LC | Before shipment, against the lodged LC | Staged advances for materials and production, up to FOB or production cost less margin |
| Negotiation at presentation | On shipping, against complying documents | Bill value credited now (sight LCs); bank collects from the issuer — fastest post-shipment cash |
| Discounting the usance | After acceptance, for deferred-payment LCs | Accepted bill sold for immediate cash less discount; without-recourse variants move the risk too |
The routes chain: packing credit liquidates out of negotiation or discount proceeds, converting pre-shipment into post-shipment inside one continuous facility. Healthy files run all three as a single line against the LC, not as three separate negotiations with the bank.
Margin and limits — what the bank keeps back
Banks fund need, not face value. The quantum of packing credit is worked on the FOB value or domestic cost of production, whichever is lower — then the margin comes off. The margin serves three purposes: keeping your stake in the deal, cushioning value erosion in the hypothecated stock, and excluding your profit from bank finance. Expect it, negotiate it within your track record, and never plan production assuming 100% funding.
- Pre-shipment is staged, not lump-sum: drawings follow production milestones, and the bank watches end-use — concessional credit diverted elsewhere is a compliance problem, not a clever one.
- The 360-day guillotine: packing advances not adjusted by export documents within 360 days lose concessional pricing from day one — align the LC shipment date with reality before drawing.
- At presentation, the deduction is discount plus charges: interest for the collection waiting period, negotiation commission, SWIFT and handling — small individually, visible together.
- Recourse is the default: standard negotiation and discounting debit your account if the issuer does not pay — without-recourse costs more precisely because it does not.
- Foreign-currency packing credit needs no separate sanction once the packing limit exists and can sharpen the cost for dollar-cost exporters — but it adds currency mechanics to manage.
The documents that release each tranche
LC finance is document finance at every stage. The bank's credit decision was made at sanction; every release after that only checks whether this tranche deserves the money.
- At sanction: the LC itself (irrevocable, in your name or transferred to you), plus the bank's application set — lodgement first, drawings after.
- During production: stage-wise stock statements where hypothecation applies, and order/LC validity still live — an expired LC freezes further releases.
- At presentation: invoice, packing list, transport document and every LC-specified certificate, matching the credit word for word, within expiry and the presentation period — banks examine strictly and get five banking days to decide.
- For usance: the accepted draft or acceptance advice fixing the actual due date — discounting prices off this date, not your estimate of it.
- Standing file: FIRC references and shipping-bill trails so proceeds, eBRC and limit liquidation reconcile without a quarter-end scramble.
The discrepancy tax
One mismatched weight, date or description downgrades negotiation to collection — same bill, weeks slower, discounting possibly refused. Pre-presentation checking is the highest-paid hour in the export department.
When the LC does not fund you
Four LCs look funded and are not: an unconfirmed credit from a bank your bank will not take risk on; an LC not available by negotiation when you planned to negotiate; a credit whose shipment date your production cannot meet; and documents that cannot be made compliant because the LC text itself is unworkable. Each has a fix, and every fix is cheaper before shipment — confirmation arranged pre-shipment, availability amended by swift, dates extended while the LC is live, impossible clauses renegotiated with the buyer.
Is your LC bankable?
Confirmation mechanics, what banks check before confirming, structuring the LC before issue, and the Bangladesh USD 500,000 worked example.
Read the LC confirmation guide →Price the discount before you need it
How usance discounting is priced, the 60 vs 90 vs 120-day worked example, and recourse engineering for deferred LCs.
Read the LC discounting guide →Run it as one facility
The exporters who fund smoothly treat the LC as one continuous line: packing credit drawn in stages, liquidated by negotiation proceeds at presentation or discount proceeds at acceptance, with any balance running as post-shipment credit to maturity. Substitution of contracts, EEFC or rupee prepayment, and tenor-matched forward cover are adjustments to that line — not separate products to discover under pressure.
Master the pre-shipment half
What packing credit funds, what it costs, how to apply, and how limits and security are set — the full pre-shipment mechanics.
Read the packing credit guide →Tell trad your LC details
The fastest funding answer needs four facts: the LC value and currency, the issuing bank and whether it is confirmed, the tenor (sight or usance days), and where production stands — yet to start, in progress, or shipped with documents ready. With those, trad maps which of the three routes fits and what your bank will ask for.
Unlock the working capital in your LC
Send the LC details and production status — see the funding sequence, the margin math and the document list for your exact position.
Tell trad LC details →Frequently asked questions
Can I get a loan against an export LC before shipment?
Yes — packing (pre-shipment) credit is granted against an LC in your name, released in stages as production needs it. The quantum is typically the FOB value or domestic cost of production, whichever is lower, less the bank's margin. If documents are not submitted within 360 days of the advance, the credit loses its concessional rate from day one — so the LC's shipment date and your production plan must agree before you draw.
What is the difference between negotiation and discounting of export bills?
The bill type. Banks purchase demand bills, discount usance bills, and negotiate LC bills — negotiation means the bank gives value against complying LC documents and seeks reimbursement from the issuing bank. Negotiation is only possible if the LC is expressly available by negotiation. In all three, you get credited now and the bank collects later; the interest for the waiting period is the discount. Assume recourse unless the structure explicitly says otherwise.
How much working capital will the bank give against my LC?
Banks work on need-based finance with no fixed formula, but the shape is consistent: pre-shipment up to the FOB or production cost less margin (the margin protects the bank against value erosion and keeps your stake in the deal); at presentation, the bill value less discount and charges. Post-shipment advances commonly reach 80–90% of invoice value. Your track record, the issuing bank's standing and the goods determine where in that range you land.
What if my export documents have discrepancies?
The funding route downgrades. A negotiating bank pays against complying presentations; discrepant documents go on approval or collection instead — same bill, weeks slower, and discounting may be refused until the issuing bank waives the discrepancy. Most first-presentation rejections are avoidable paperwork errors, so check every document against the LC word for word before presenting, within the LC's expiry and presentation period.
Can I discount a usance LC without using my own credit limit?
Sometimes. Discounting with recourse uses your limits and needs your collateral; discounting without recourse — available where a bank has confirmed the LC or holds a line on the issuing bank — can leave your limits untouched, because the financing bank is taking the issuer's risk, not yours. Without-recourse structures must be arranged deliberately and cost more; never assume them.
What happens if the LC expires before I ship?
An expired LC funds nothing — no packing credit can be drawn against it and no negotiation is possible. Get the LC amended (validity extension) before expiry; amendments cost a fee and value enhancements re-bill commission, but that is trivial next to an unfunded production cycle. Diary the expiry and the latest shipment date separately — they are different dates and both bind you.
Should I take packing credit in rupees or foreign currency?
Compare the all-in cost for your cycle: rupee packing credit at the bank's export-credit rate versus pre-shipment credit in foreign currency (PCFC), which tracks international benchmarks plus a small spread and needs no separate sanction once your packing limit exists. PCFC suits exporters with dollar costs or a view on the currency; rupee credit suits the rest. Either way, both liquidate out of the same bill proceeds — the currency choice changes the cost, not the structure.