Trade Finance
LC Discounting Explained: LC Bill Discounting, Process, Charges & 90-Day Example (2026)
LC discounting (letter of credit discounting, LC bill discounting / bill discounting under LC) — meaning, process flow, LC discounting charges & fees per quarter, cash margin for £/$1m LC, and 90-day usance worked example with recourse.
What is LC discounting? LC discounting meaning
LC discounting (also called letter of credit discounting, LC bill discounting, bill discounting under LC, discounting of LC, or LC backed bill discounting) is post-shipment finance where a bank advances cash against an irrevocable letter of credit before the LC matures. Instead of waiting 60–120 days for the issuing bank to pay a deferred/usance LC, you get most of the LC value today and the discounting bank collects the full amount at maturity.
What is LC discounting in banking? It is the discounting of the usance bill (time draft) drawn under the LC — a bank bill, not an ordinary trade invoice. Letter of credit bill discounting vs bill discounting under LC is the same product: the LC is the collateral, the bill is the instrument. Deferred LC is simply a usance LC with payment deferred to 60/90/120 days — the bill that is discounted.
The key difference from factoring is what backs the deal. Factoring leans on buyer credit and the local factoring market; LC discounting leans on a bank’s promise to pay. That makes LC discounting the natural product where factoring coverage is thin but LC liquidity exists.
Whether LC discounting is available for your buyer comes down to issuing bank and buyer country. Trad’s buyer financing checker shows LC discounting coverage for 194 markets, so you know before you negotiate terms.
LC discounting process and process flow
LC discounting process / LC discounting process flow is a 5-step post-shipment flow under UCP 600. Every LC discounting facility uses the same steps, whether the LC is at sight or usance.
- Buyer arranges irrevocable LC (often deferred/usance 90 days) from its issuing bank and you receive the LC via advising bank.
- You ship goods and present the LC plus shipping documents (bill of lading, invoice, packing list, insurance where required) and the usance bill of exchange to your bank.
- Bank verifies documents are compliant (no discrepancies vs LC terms). Clean presentation is discountable; discrepancies trigger fees and may block discounting.
- Bank advances discounted value: LC value minus discount margin and fees (confirmation per quarter, SWIFT/handling) — see charges table below.
- At maturity (e.g., 90 days after B/L or sight), bank collects full LC value from issuing bank and settles. With recourse, you repay if issuing bank fails to pay; without recourse (confirmed LC), confirming bank bears risk.
Types of shipping bills are not part of LC discounting — the LC requires a transport document (bill of lading/airway bill); the shipping bill is the Indian customs export declaration filed via ICEGATE. Keep them distinct for documentation.
Post-shipment discounting for 90-day usance LC — pricing, recourse and worked example
How does post-shipment discounting work for a 90-day usance export LC, how is it priced, and what recourse applies? You present the usance LC and compliant docs after shipment; the bank advances the discounted value now and is repaid by the issuing bank in 90 days. It is post-shipment because the advance is against a shipped, LC-backed receivable — not pre-shipment packing credit.
| Component | How it works for 90-day LC | Typical (indicative) |
|---|---|---|
| Discount margin | Annual % on LC value × 90/365 | 7–13% p.a. ⚠️ by issuing bank/country risk/currency |
| Recourse | With recourse = you repay if issuing bank defaults; without recourse = only via confirmed LC | Most India discounting is with recourse |
| Tenor effect | 90-day bill locks 90 days of discount; 120-day LC costs ~33% more | Shorter usance = cheaper |
| Base amount | LC value (e.g., ₹50,00,000 or $/£ equivalent) | Per LC value |
Worked discounting example — 90-day usance export LC for ₹50,00,000, indicative discount 10% p.a., with recourse: Discount = ₹50,00,000 × 10% × 90/365 = ₹1,23,288. Advance ≈ ₹50,00,000 − ₹1,23,288 = ₹48,76,712 before confirmation/SWIFT/handling. If the tenor were 60 days, discount ≈ ₹82,192; if 120 days, ≈ ₹1,64,384 — same LC, higher tenor = higher cost. Real quotes vary by issuing bank rating, currency and country risk; the example is simplified and illustrative.
With vs without recourse — the key clause
With recourse (standard): discounting bank can claim back from you if the issuing bank does not pay at maturity. Without recourse (only via confirmed LC): confirming bank assumes issuing-bank risk and cannot claim back from you. Confirmation fee per quarter buys that risk transfer.
LC discounting charges: fees, per-quarter pricing, who pays and cash margin for £/$1m LC
LC discounting charges are the discount margin plus bank fees. LC discounting charges in India follow FEDAI conventions; UK ranges differ by issuing-bank risk and corridor. Below is what banks charge to confirm and/or discount an export LC, who usually pays, how rates rise for higher country/issuing-bank risk, and what cash margin / collateral might be required for a ~£/$1m LC.
| Fee | Indicative range (UK/India) ⚠️ | Who usually pays | What drives it |
|---|---|---|---|
| Confirmation fee (per quarter) | 0.1–0.5% per quarter for low-risk banks; 0.5–1.5% per quarter for higher-risk country/issuing bank | Exporter (or beneficiary) — often deducted from proceeds | Issuing bank rating, country risk, tenor (charged per quarter or pro-rata) |
| Discount margin (p.a. on usance value) | 7–13% p.a. ⚠️ (India indicative); UK/EU base + margin varies by currency | Exporter (deducted as discount) | Issuing bank, currency (USD/GBP/EUR), tenor, country risk |
| LC amendment charges | Fixed £/$50–200 per amendment | Per LC terms — often importer, sometimes shared | Number and type of amendments |
| SWIFT / handling / courier | SWIFT ~£25–50 / ₹2,000–4,000; handling ~£50–150 / ₹1,500–5,000; discrepancy ~£75–150 per defect | Often shared or per advising bank schedule | Bank schedule, number of presentations |
| Cash margin / collateral for ~£/$1m LC | 0–15% for low-risk/confirmed + ECIB cover; 10–25% FDR/cash margin for higher-risk, unconfirmed or restricted markets | Importer for LC issuance; exporter for discounting facility limit (bank-dependent) | Bank’s internal rating, buyer country, ECIB cover, collateral available |
Per-quarter, SWIFT, and collateral — read the LC
Confirmation and discounting are quoted per quarter (e.g., 0.2% per quarter = 0.8% p.a.). SWIFT/handling are fixed per LC/bill, not p.a. Cash margin (e.g., 15% on £1m = £150k FDR) is deal-specific — banks waive it for strong clients or where ECIB/NIRVIK cover applies. Always get a per-deal quote; UK ranges above are illustrative, not trad quotes.
How are rates set for higher country/issuing-bank risk? Banks tier by country group (Open Cover vs Restricted per ECGC/ECA) and by issuing bank’s international rating (Banker’s Almanac rank). Higher risk = higher confirmation per quarter + higher discount margin. A bank in a low-risk market may discount at the low end; the same tenor from a higher-risk issuer prices at the high end or requires confirmation first.
LC discounting: worked example (60 vs 90 vs 120 days)
Same ₹50,00,000 LC at indicative 10% p.a. shows tenor effect before fees: 60-day usance discount ≈ ₹82,192 (advance ₹49,17,808), 90-day ≈ ₹1,23,288 (advance ₹48,76,712), 120-day ≈ ₹1,64,384 (advance ₹48,35,616). The 90-day case is the common quote — it is post-shipment discounting, and like all LC discounting it is usually with recourse unless the LC is confirmed.
LC clearance is not an LC discounting term — it is customs clearance of goods. For LC discounting, the relevant clearance is document compliance: a clean set under UCP 600 clears for payment/discounting.
Confirmed vs unconfirmed LC
A confirmed LC adds a second bank’s guarantee — usually a bank in your country — that payment will be made even if the issuing bank cannot. Confirmation makes discounting safer and often cheaper to price, but you pay a confirmation fee per quarter.
- Confirmed LC: two banks stand behind payment. Easier to discount, often without recourse, clearer pricing, but confirmation fee per quarter applies.
- Unconfirmed LC: only the issuing bank promises payment. Discountable in many corridors, priced on issuing-bank risk, with recourse to you.
For very high-risk markets, a confirmed LC is frequently the only way to get discounting at reasonable rates — the confirmation fee buys the risk transfer.
When to use LC discounting
- Your buyer can only work on LC terms (often deferred 60/90/120 days), and you do not want to wait for maturity.
- Your buyer’s country has limited factoring coverage but active LC confirmation.
- The LC is issued by a bank with solid standing — price improves with the bank, not just the country.
- You want a post-shipment facility backed by a bank promise (LC backed bill discounting) rather than buyer credit.
- Less ideal: small LC values where fixed SWIFT/handling fees eat the margin, or LC issuing banks in highly risky jurisdictions without confirmation.
If you are unsure whether factoring or LC discounting fits your buyer, check the buyer’s country first — trad shows both products and a recommendation across 194 markets.
Sight LC vs usance LC — which tenor are you on?
Difference, usance period and what 30/60/90/120 days at sight means for your cash flow.
Read LC payment terms →LC discounting in India
Indian banks discount export LCs under UCP 600, with pricing conventions set by FEDAI. Discounted proceeds are export realisations that must be reported under RBI’s EDPMS, with your e-BRC or FIRA serving as proof of realisation. LC discounting charges in India are quoted as discount margin (indicative 7–13% p.a. ⚠️) plus confirmation per quarter, SWIFT/handling and ECIB-related bank charges where applicable.
Your export compliance obligations do not change because you discounted the LC — you still need the same realisation documentation. LC discounting just gets the cash to you earlier.
Find out if your LC can be discounted
Check LC discounting availability for your buyer's confirming bank across 194 markets before you accept the payment term.
Check buyer financingFrequently asked questions
What is LC discounting? LC discounting meaning in banking?
LC discounting (letter of credit discounting, also called LC bill discounting or bill discounting under LC) is post-shipment finance where a bank advances cash against an irrevocable LC before maturity. You present the LC + compliant shipping documents, the bank pays the discounted value now and collects from the LC issuing bank at maturity. Also called discounting of LC or LC backed bill discounting.
What is letter of credit discounting vs LC bill discounting vs bill discounting under LC?
Same product, three names. Letter of credit discounting = LC discounting = discounting of LC. LC bill discounting / bill discounting under LC / LC backed bill discounting emphasise the bill (draft) drawn under the LC. All mean the bank discounts the usance bill accepted under the LC, not a standalone invoice.
How does LC discounting work? LC discounting process flow?
1) Buyer’s bank issues irrevocable LC (sight or usance 60/90/120 days, often deferred). 2) You ship and present LC + shipping documents (bill of lading, invoice, packing list). 3) Bank checks compliance (UCP 600). 4) Bank advances discounted value (LC value minus discount margin + fees). 5) At maturity, bank collects full LC value from issuing bank. With recourse, you repay if issuing bank defaults; without recourse (confirmed LC), the confirming bank bears the risk.
How does post-shipment discounting work for a 90-day usance export LC, how is it priced, and what recourse applies? Include worked example.
For a 90-day usance LC for ₹50,00,000 at indicative 10% p.a., discount ≈ ₹50,00,000 × 10% × 90/365 = ₹1,23,288, so advance ≈ ₹48,76,712 before fees. Pricing = discount margin (indicative 7–13% p.a. ⚠️ by issuing bank/country risk/currency/tenor) + confirmation 0.2–1.5% p.a. if confirmed + SWIFT/handling. Most LC discounting in India is with recourse — if issuing bank fails to pay, you repay the advance. Without recourse is only via confirmed LC where confirming bank takes the risk.
What are LC discounting charges? LC discounting charges in India?
Discount margin indicative 7–13% p.a. ⚠️, confirmation fee 0.2–1.5% p.a. if confirmed, plus SWIFT/handling (fixed per LC), discrepancy fees per defect, and negotiation charges. LC discounting charges in India follow FEDAI conventions and are quoted per quarter for confirmation (e.g., 0.1–0.4% per quarter) plus discount margin. Exact quote per deal by issuing bank risk.
What fees do banks charge to confirm and/or discount an export LC — pricing per quarter, SWIFT/handling, who pays, and cash margin for ~£/$1m LC?
Confirming bank charges confirmation fee per quarter (often 0.1–0.5% per quarter for low-risk banks, higher for higher-risk countries/issuing banks — UK ranges illustrative), plus discount margin 7–13% p.a. ⚠️ on usance value, plus SWIFT (≈£25–50), handling/courier (≈£50–150) and discrepancy fees if docs fail. Importer usually pays LC opening commission; exporter (or confirming bank) pays confirmation + discounting; SWIFT/handling often shared per LC terms. For a £/$1m LC, cash margin/collateral: banks often require 0–15% margin (or FDR/cash collateral 10–25% for higher-risk/restricted buyers) — varies by bank, buyer limit and ECIB cover. Confirm per-deal quote, not a fixed table.
Is LC discounting with or without recourse?
Most LC discounting is with recourse — if the LC issuing bank does not pay at maturity, you must repay the discounting bank. Without recourse is available only when a bank has confirmed the LC; then the confirming bank assumes the issuing-bank risk and cannot claim back from you.
What is deferred LC vs usance LC? LC 120 days?
Deferred LC is a usance LC where payment is deferred to a future date (e.g., 90 or 120 days after B/L or sight). Usance / deferred LC (including LC 120 days) means bank pays at tenor, not at sight. That deferred bill is what you discount to get cash early.
Do I need a confirmed LC to discount?
No — unconfirmed LCs can be discounted in many corridors, priced on issuing-bank risk. Confirmation adds a local bank guarantee and usually makes discounting cheaper and non-recourse, but adds confirmation fee per quarter. For high-risk markets, confirmed LC is often the only viable option.
What documents are needed for LC discounting?
Original irrevocable LC, shipping documents matching LC terms (bill of lading, invoice, packing list, insurance where required), and bills of exchange/drafts under the LC. Presentation must be free of discrepancies under UCP 600.
Is LC discounting available for any buyer country?
No — depends on issuing bank standing and country risk. Trad’s financing matrix shows LC discounting availability across 194 markets. Deferred/ usance LCs from stronger banks in Open Cover markets discount cheapest.
LC discounting vs factoring?
Factoring is against ordinary invoices and relies on buyer credit. LC bill discounting is against a bank promise (the LC), so it works where factoring coverage is thin but LC liquidity exists. LC backed bill discounting is the bridging product between the two.