This document discusses supply chain finance concepts like bill discounting and purchase order financing. It defines supply chain and supply chain finance, explaining how bill discounting and purchase order financing work by outlining the key parties involved and cash flow. Bill discounting involves a bank paying a seller early by deducting interest from an invoice amount, which the bank then collects from the buyer on the due date. Purchase order financing provides working capital to a seller by financing a portion of a purchase order upfront. The document also discusses how banks earn interest from these arrangements and provides screenshots of the M1 Exchange platform for facilitating supply chain finance transactions digitally.
Merchant banking and Financial services bills discounting.pptxSudhamathi4
A commercial bill is a negotiable instrument used to finance medium-term business needs. It allows a company to receive advance payment for invoices by discounting the bill with a bank before the maturity date. Discounting involves the bank deducting interest from the bill amount and providing immediate funds to the company. Key terms include the drawer (seller), drawee (buyer), and payee. Bill discounting provides cash flow benefits to companies, requires no collateral, and has no balance sheet impact. It is a simpler process than obtaining a business loan.
This document discusses international transaction laws and letters of credit. It defines a letter of credit as a commitment from a bank to guarantee payment for an import/export transaction. The document outlines the key parties in a letter of credit transaction and the process, from the buyer obtaining a letter of credit to the goods being shipped and payment being made. It also discusses different types of letters of credit and factoring, including recourse vs. non-recourse factoring.
COMMERCIAL BANKS & SCHEMES OF COMMERCIAL BANKS.pptxkittustudy7
The document discusses various loan schemes offered by commercial banks to small businesses and MSMEs. It describes fund based facilities like loans, overdrafts, cash credits, and bill discounting which provide working capital. It also discusses non-fund based facilities like letters of credit and bank guarantees. The document provides details on the purpose and functioning of each facility.
International Payment terms – Guide To Imports.pdfdumonte
International payment terms define the agreed methods for buyers and suppliers in different countries to transact payments for goods or services. The most common terms include advanced payment, documents against payment (DP), documents against acceptance (DA), and letter of credit (LC). Each term specifies when and how payments are made and which documents are required to clear customs and finalize the transaction. International payment terms help facilitate global trade by establishing standardized processes that avoid disputes over payment obligations.
The document provides information about various payment documents and methods used in business transactions. It defines key documents like invoices, pro forma invoices, and statements of account that are used to record payments and transactions between buyers and sellers. It also outlines different payment methods including bank transfers, checks, letters of credit, cash on delivery and more. Specific examples and definitions are provided for certain payment documents and methods.
Merchant banking and Financial services bills discounting.pptxSudhamathi4
A commercial bill is a negotiable instrument used to finance medium-term business needs. It allows a company to receive advance payment for invoices by discounting the bill with a bank before the maturity date. Discounting involves the bank deducting interest from the bill amount and providing immediate funds to the company. Key terms include the drawer (seller), drawee (buyer), and payee. Bill discounting provides cash flow benefits to companies, requires no collateral, and has no balance sheet impact. It is a simpler process than obtaining a business loan.
This document discusses international transaction laws and letters of credit. It defines a letter of credit as a commitment from a bank to guarantee payment for an import/export transaction. The document outlines the key parties in a letter of credit transaction and the process, from the buyer obtaining a letter of credit to the goods being shipped and payment being made. It also discusses different types of letters of credit and factoring, including recourse vs. non-recourse factoring.
COMMERCIAL BANKS & SCHEMES OF COMMERCIAL BANKS.pptxkittustudy7
The document discusses various loan schemes offered by commercial banks to small businesses and MSMEs. It describes fund based facilities like loans, overdrafts, cash credits, and bill discounting which provide working capital. It also discusses non-fund based facilities like letters of credit and bank guarantees. The document provides details on the purpose and functioning of each facility.
International Payment terms – Guide To Imports.pdfdumonte
International payment terms define the agreed methods for buyers and suppliers in different countries to transact payments for goods or services. The most common terms include advanced payment, documents against payment (DP), documents against acceptance (DA), and letter of credit (LC). Each term specifies when and how payments are made and which documents are required to clear customs and finalize the transaction. International payment terms help facilitate global trade by establishing standardized processes that avoid disputes over payment obligations.
The document provides information about various payment documents and methods used in business transactions. It defines key documents like invoices, pro forma invoices, and statements of account that are used to record payments and transactions between buyers and sellers. It also outlines different payment methods including bank transfers, checks, letters of credit, cash on delivery and more. Specific examples and definitions are provided for certain payment documents and methods.
Bank products have evolved beyond traditional loans and deposits to include a wide variety of wholesale, retail, fee-based, and foreign products. Commercial credit includes both funded credit like cash credits and demand loans that involve funds flowing from the bank to borrowers, as well as non-funded credit like guarantees. Retail banking offers consumers credit products like credit cards, retail loans, and housing loans, as well as deposit products like savings and current accounts.
letter of credit presentation by Vipin Vipin Kumar
This document provides an overview of a letter of credit. A letter of credit is a document issued by a bank to facilitate international trade between a buyer and seller who do not know each other. It ensures payment to the seller if they fulfill obligations such as shipping goods. The key participants are the applicant/buyer, beneficiary/seller, issuing bank, and advising bank. There are two stages: issuance, where the letter of credit is opened, and settlement, where goods are shipped and documents are presented to banks to release payment to the beneficiary.
It includes EXIM financing - Preshipment and Post shipment Financing, Forfaiting and factoring. In addition to this Interest rate subvention and ECB are also covered
a letter of credit is a payment mechanism whereas a bill of exchange is a pay...ssuser391d36
This document defines a bill of exchange, outlines the key parties involved, and describes the essential components. A bill of exchange is a non-interest bearing written order used in foreign trade that binds one party to pay a fixed amount to another at a future date. It must be in writing, signed, contain an unconditional order for a fixed sum, and specify certain parties such as the drawer, drawee, payee, and acceptor. A bill of exchange provides a means for international trade by allowing creditors and debtors to transfer money for goods between countries.
This slide is about Short Term Financing. I prepared it for my class presentation at the course FIN101. All the information in this slide collected from various kind of sources.
This document provides information about letters of credit (LC), including:
- An LC is a bank guarantee that ensures payment to the seller if they meet the buyer's requirements. It protects sellers from non-payment.
- The key parties in an LC are the applicant (usually buyer), beneficiary (usually seller), issuing bank, and advising bank.
- There are different types of LCs like irrevocable, revocable, confirmed, unconfirmed, transferable, back-to-back, revolving, and those with payment terms like at sight or deferred.
- An LC outlines the documents required from the seller to receive payment, such as invoices and shipping documents, ensuring
Factoring- FINANCE FOR UGC-NET COMMERCE & MANAGEMENTDIwakar Rajput
This document discusses various types of factoring. Factoring allows a seller to receive immediate payment from a third party for invoices, with the third party then collecting payment from customers. There are several types of factoring arrangements: recourse factoring, where the seller bears the risk of non-payment; non-recourse, where the factor assumes this risk; maturity factoring with no advance but payment after collection; and advance factoring with a 75-85% advance. Factoring can also involve invoice discounting, various levels of services provided, and domestic versus cross-border arrangements.
Buyer's credit is extended by an overseas financial institutions to the importer to make purchases against large imports. This is a unique credit facility that aids the importer to access the international trade transactions at cheaper rates as they are quoted close to LIBOR rates.
This document discusses export financing options available to exporters in India. It describes pre-shipment financing, which provides working capital to purchase raw materials, process goods, and prepare for export. Post-shipment financing is also described, which provides credit after goods have been shipped until payment is received. Specific financing products like packing credit, clean packing credit, and running account facilities are explained. Requirements, periods of advance, and liquidation of pre-shipment credit are outlined. Financing of service exports is also briefly covered.
,
letter of credit
,
parties involved in lc transaction
,
letter of credit process
,
commercial letter of credit flow
,
advantages of letter of credit
,
risks involved
This document discusses different payment methods for international trade, including cash in advance, letters of credit, documentary collections, and open account. It explains that importers want to receive goods quickly but delay payment as long as possible. Letters of credit and documentary collections provide more security for sellers by requiring documents be submitted before goods or payment are released. Cash in advance provides maximum security but no guarantee goods will be shipped. Open account has the least security and highest risk of non-payment for sellers. The document aims to help exporters choose a payment method that minimizes risk while accommodating buyers' needs.
Murabaha process, documentation & practical issues by (1)Bavitraa Babu
The document provides information on Murabaha, an Islamic financing structure where a buyer and seller agree to a sale transaction at a cost plus agreed profit amount. It discusses the basic rules and steps of a Murabaha transaction. Key points include that the asset being purchased must exist and ownership must be transferred from seller to buyer, disclosure of cost is required, and payment can be made immediately or deferred. The document also outlines some practical issues like ensuring proper timing of key documents, limitations on rollovers and discounts, and the various documents required like agreements, purchase orders, and payment schedules. Case studies provide examples of how Murabaha may work for purchases of goods like vehicles.
This document provides an overview of international payment methods, including cash in advance, letters of credit, documentary collections, and open account. It discusses the advantages and disadvantages of each method from the perspective of both buyers and sellers. Letters of credit are described in more detail, outlining the key parties involved, steps to obtain an L/C, required documents, and potential issues that can arise. Export incentive programs from the US are also briefly outlined.
The document discusses various types of trade finance instruments including letters of credit, bills of exchange, and guarantees. It provides details on how letters of credit work, involving an importer, exporter, issuing bank, advising bank, and reimbursing bank. The key parties and processes are defined. It also explains the different types of guarantees commonly used in international trade, including bid guarantees, advance payment guarantees, and performance guarantees. The mechanics of how a transaction involving a guarantee is processed between the applicant, issuing bank, advising bank, and beneficiary are outlined.
Factoring is a financial transaction where a business sells its accounts receivable to a third party called a factor in exchange for immediate cash. This differs from a bank loan in that factoring emphasizes the receivable's value rather than the firm's creditworthiness, it is a purchase of assets rather than a loan, and involves three parties rather than two. The three parties are the seller of the receivable, the debtor, and the factor. Factoring transfers ownership of the receivables to the factor, giving them the right to collect payment from debtors and bear the risk of nonpayment.
Factoring is a financial transaction where a business sells its accounts receivable to a third party called a factor in exchange for immediate cash. This differs from a bank loan in that factoring emphasizes the receivable's value rather than the firm's creditworthiness, it is a purchase of an asset rather than a loan, and it involves three parties rather than two. The three parties are the seller of the receivable, the debtor, and the factor. Factoring allows a business to access cash from its outstanding invoices sooner than if it waited for the debtor to pay.
Bank products have evolved beyond traditional loans and deposits to include a wide variety of wholesale, retail, fee-based, and foreign products. Commercial credit includes both funded credit like cash credits and demand loans that involve funds flowing from the bank to borrowers, as well as non-funded credit like guarantees. Retail banking offers consumers credit products like credit cards, retail loans, and housing loans, as well as deposit products like savings and current accounts.
letter of credit presentation by Vipin Vipin Kumar
This document provides an overview of a letter of credit. A letter of credit is a document issued by a bank to facilitate international trade between a buyer and seller who do not know each other. It ensures payment to the seller if they fulfill obligations such as shipping goods. The key participants are the applicant/buyer, beneficiary/seller, issuing bank, and advising bank. There are two stages: issuance, where the letter of credit is opened, and settlement, where goods are shipped and documents are presented to banks to release payment to the beneficiary.
It includes EXIM financing - Preshipment and Post shipment Financing, Forfaiting and factoring. In addition to this Interest rate subvention and ECB are also covered
a letter of credit is a payment mechanism whereas a bill of exchange is a pay...ssuser391d36
This document defines a bill of exchange, outlines the key parties involved, and describes the essential components. A bill of exchange is a non-interest bearing written order used in foreign trade that binds one party to pay a fixed amount to another at a future date. It must be in writing, signed, contain an unconditional order for a fixed sum, and specify certain parties such as the drawer, drawee, payee, and acceptor. A bill of exchange provides a means for international trade by allowing creditors and debtors to transfer money for goods between countries.
This slide is about Short Term Financing. I prepared it for my class presentation at the course FIN101. All the information in this slide collected from various kind of sources.
This document provides information about letters of credit (LC), including:
- An LC is a bank guarantee that ensures payment to the seller if they meet the buyer's requirements. It protects sellers from non-payment.
- The key parties in an LC are the applicant (usually buyer), beneficiary (usually seller), issuing bank, and advising bank.
- There are different types of LCs like irrevocable, revocable, confirmed, unconfirmed, transferable, back-to-back, revolving, and those with payment terms like at sight or deferred.
- An LC outlines the documents required from the seller to receive payment, such as invoices and shipping documents, ensuring
Factoring- FINANCE FOR UGC-NET COMMERCE & MANAGEMENTDIwakar Rajput
This document discusses various types of factoring. Factoring allows a seller to receive immediate payment from a third party for invoices, with the third party then collecting payment from customers. There are several types of factoring arrangements: recourse factoring, where the seller bears the risk of non-payment; non-recourse, where the factor assumes this risk; maturity factoring with no advance but payment after collection; and advance factoring with a 75-85% advance. Factoring can also involve invoice discounting, various levels of services provided, and domestic versus cross-border arrangements.
Buyer's credit is extended by an overseas financial institutions to the importer to make purchases against large imports. This is a unique credit facility that aids the importer to access the international trade transactions at cheaper rates as they are quoted close to LIBOR rates.
This document discusses export financing options available to exporters in India. It describes pre-shipment financing, which provides working capital to purchase raw materials, process goods, and prepare for export. Post-shipment financing is also described, which provides credit after goods have been shipped until payment is received. Specific financing products like packing credit, clean packing credit, and running account facilities are explained. Requirements, periods of advance, and liquidation of pre-shipment credit are outlined. Financing of service exports is also briefly covered.
,
letter of credit
,
parties involved in lc transaction
,
letter of credit process
,
commercial letter of credit flow
,
advantages of letter of credit
,
risks involved
This document discusses different payment methods for international trade, including cash in advance, letters of credit, documentary collections, and open account. It explains that importers want to receive goods quickly but delay payment as long as possible. Letters of credit and documentary collections provide more security for sellers by requiring documents be submitted before goods or payment are released. Cash in advance provides maximum security but no guarantee goods will be shipped. Open account has the least security and highest risk of non-payment for sellers. The document aims to help exporters choose a payment method that minimizes risk while accommodating buyers' needs.
Murabaha process, documentation & practical issues by (1)Bavitraa Babu
The document provides information on Murabaha, an Islamic financing structure where a buyer and seller agree to a sale transaction at a cost plus agreed profit amount. It discusses the basic rules and steps of a Murabaha transaction. Key points include that the asset being purchased must exist and ownership must be transferred from seller to buyer, disclosure of cost is required, and payment can be made immediately or deferred. The document also outlines some practical issues like ensuring proper timing of key documents, limitations on rollovers and discounts, and the various documents required like agreements, purchase orders, and payment schedules. Case studies provide examples of how Murabaha may work for purchases of goods like vehicles.
This document provides an overview of international payment methods, including cash in advance, letters of credit, documentary collections, and open account. It discusses the advantages and disadvantages of each method from the perspective of both buyers and sellers. Letters of credit are described in more detail, outlining the key parties involved, steps to obtain an L/C, required documents, and potential issues that can arise. Export incentive programs from the US are also briefly outlined.
The document discusses various types of trade finance instruments including letters of credit, bills of exchange, and guarantees. It provides details on how letters of credit work, involving an importer, exporter, issuing bank, advising bank, and reimbursing bank. The key parties and processes are defined. It also explains the different types of guarantees commonly used in international trade, including bid guarantees, advance payment guarantees, and performance guarantees. The mechanics of how a transaction involving a guarantee is processed between the applicant, issuing bank, advising bank, and beneficiary are outlined.
Factoring is a financial transaction where a business sells its accounts receivable to a third party called a factor in exchange for immediate cash. This differs from a bank loan in that factoring emphasizes the receivable's value rather than the firm's creditworthiness, it is a purchase of assets rather than a loan, and involves three parties rather than two. The three parties are the seller of the receivable, the debtor, and the factor. Factoring transfers ownership of the receivables to the factor, giving them the right to collect payment from debtors and bear the risk of nonpayment.
Factoring is a financial transaction where a business sells its accounts receivable to a third party called a factor in exchange for immediate cash. This differs from a bank loan in that factoring emphasizes the receivable's value rather than the firm's creditworthiness, it is a purchase of an asset rather than a loan, and it involves three parties rather than two. The three parties are the seller of the receivable, the debtor, and the factor. Factoring allows a business to access cash from its outstanding invoices sooner than if it waited for the debtor to pay.
3. • What is Supply Chain
• What is SCF
• Why SCF is needed for Business
• Bill Discounting
⮚ How Bank/ FI is earning from Bill discounting
• PO Financing
⮚ How Bank/ FI is earning from PO Financing
• Platforms in INDIA for Bill discounting & PO financing
⮚ Workflow of these platforms
Today’s Discussion
4. Supply chain is a network of individuals and companies who are involved in from Raw material to product
delivery system.
Raw Material OEM Supplier Buyer
A supply chain encompasses everything from the delivery of
source materials from the supplier to the manufacturer through
to its eventual delivery to the end user.
What is Supply Chain
5. Supply chain finance, also known as supplier finance, is a set of solutions that
optimizes cash flow by allowing businesses to lengthen their payment terms to
their suppliers while providing the option for their large and SME suppliers to
get paid early.
What is Supply Chain Finance ?
Raw Material OEM Supplier Buyer
6. Traditional
Method
Buyer
Seller
1.
Purchase
Order
2.
Ship
Goods
3.
Payment
Credit Period
Supply Chain Finance
Buyer
Seller
1.
Purchase
Order
2.
Ship
Goods
3.
Payment
Bank
4. Payment
Credit Period
• Sellers need not to wait for
contracted credit period
• Smooth cash flow for sellers
• Improving working capital
position for sellers
• Buyers can pay on the due date
• Reducing the payment risk
• Stability & Flexibility of
payments for both buyer &
suppliers.
Why Supply Chain Finance ?
7. Buyer
Buyer who place the order or wants to buy something
Seller who manufacture or sell the goods
Financial Institutions or Banks who provide financial services to both of buyer & seller
FI/ BANK/ Individuals
Vendo
r
Parties involved in SCF
10. Bank takes the invoice/ bill drawn by borrower on his (borrower's) customer and
pay him immediately deducting some amount as discount/commission. The Bank
then presents the Bill to the borrower's customer on the due date of the Bill and
collects the total amount.
Parties Involved
Buyer
Vendo
r
Buyer’s Bank Seller’s Bank
* The Buyer’s Bank & the Seller’s/ Supplier’s Bank may be same
What is Invoice/ Bill Discounting ?
11. 1. Place PO
2. Supply Goods & raise Invoice
• Seller will arrange the buyer’s
confirmation on the invoice
raised.
• Buyer’s bank & Seller’s bank
may be same bank
• Bank will check Buyer’s credit
worthiness.
• Discounting will happen at
the end of seller’s bank.
• Buyer’s bank will pay on
behalf of the buyer on much
earlier
• Buyer’s bank will collect the
invoice amount at the end of
the contracted period.
How Invoice/ Bill Discounting works?
* Risk has to be carried by the Buyer
4. Discounted and paid
6. Paid on due date
12. 1. Purchase Order (PO)
2. Supply goods & Invoice
6. Paid to bank
How Invoice/ Bill Discounting works?
13. 1.Invoice of 10 L
2.Ack invoice with 3 months Credit
period
Lets assume bank changes interest of 10 %. It’s
also called as discounting charge/ fee.
So here Bank will charge 10 % int on 10,00,000
for 90 days on seller.
So it becomes
(3/12)*0.1*1000000 =25,000
Bank will upfront deduct 25,000 from 10,00,000
10,00,000-25,000= 9,75,000
Bank will collect 10,00,000 from Buyer on due
date.
Hence bank’s income 25,000 here.
How bank earns from Invoice/ Bill Discounting ?
14. Types of Bill Discounting ?
Clean Bill Discounting : Clean Bill Discount is a lending service that enhances company's short-term liquidity using a bill, bill of
exchange, promissory note or post-dated cheque
Bill Discounting Backed by LC : This type of bill discounting happens depending on the letter of Credit. Letter of Credit aka
LC is a payment instrument drawn by Buyer on the Supplier at the time of placing the order
Invoice Bill Discounting : Invoice discounting is a process in which a supplier sells an invoice to a third party (Bank/ FI).
Immediately after selling an invoice, the supplier gets a percentage of the amount billed to the client while the Bank/ FI takes on
the responsibility of collecting the full payment from the buyer
15.
16. • Receive money much earlier than the credit period
• Smooth cash inflow as working capital for next projects
• No loan required to be taken
• Not affecting the GL
• Paying money at the end of the credit period
• Maintaining good relationship with the suppliers
Supplier’s advantage in Invoice/ Bill Discounting
Buyer’s advantage in Invoice/ Bill Discounting
17. All the bills or invoices are not eligible for discounting. Banks have their own set of rules. Bills / invoices
need to be passed those check listed points prior to discount. Some of the points are as below
• Usance Bill with fixed maturity date: A bill which has a specific payment date
• Demand bills are not accepted: A bill which doesn’t have any specific data of payment but needs to be paid at
sight if produced within expiry date.
• Bill/ Invoice should be accepted by the Buyer/ Drawee
• Buyer should have a good credit rating
• Buyer’s repayment history is good
How Banks take decision for Invoice/ Bill Discounting ?
19. PO financing or Purchase Order Financing is an instrument using which Seller can
avail working capital by presenting a purchase order received from a reputed
buyer.
Parties Involved
Buyer
Supplier
* The Supplier & OEM may be same
Supplier’s Bank
OEM
What is PO Financing?
20. 1. Placed PO
2.
Forward
PO
for
Financing
3.1. PO financed and amount provided to
OEM
Buyer
Supplier
Supplier’s Bank
OEM
5. Supply Order
6. Make Payment
7.
Make
Payment
• Finance will be done on the received
PO
• 70%-80% value of the PO will be
financed
• This provided Suppliers the working
capital
• If the Payment terms of the buyer is
cash on delivery, Supplier will receive
the payment immediately and repay
the finance.
• If supplier invoice buyer with credit
terms (e.g. 60-90 days), can opt for
Invoice discounting
How PO Financing works?
21. Buyer
Supplier
Supplier’s Bank
OEM
1. Gives order of 10,00,000
2.
Request
for
PO
financing
3.1 PO Financed & paid to OEM 7,00,000
5. Order delivered & received 10,00,000
6.
Paid
7,00,000
+
Interest
Lets assume supplier receives an order of
10,00,000 of which 9,00,000 is the cost of
development of the product and 1,00,000 is
profit of the supplier.
But the supplier has only 2,00,000 as WC to pay
the Original Equipment Manufacturer (OEM). So
supplier requested the Bank to finance the PO on
the remaining amount of 7,00,000. Bank
underwrites & paid the same to OEM directly.
Open a loan account of 7,00,000 in name of the
supplier at 10 %.
After getting the delivery of the goods from OEM
within 1 month, supplier deliver the same to the
Buyer and receives 10,00,000 within 1 month.
Supplier paid the loan amount + interest to the
bank.
Interest =(1/12)*0.1*10,00,000= 8,333
Total paid to bank 7,08,333
So Bank’s earning is 8,333
Supplier’s income =
10,00,000- 9,08,333= 91,667
* If the buyer is enjoying the credit period as contracted, then to pay the loan
supplier may use the bill discounting
How bank earns from PO Financing?
22. Buyer
Supplier
Supplier’s Bank
OEM
Gives order of 10,00,000
Request
for
PO
financing
PO Financed & paid to OEM 7,00,000
Order delivered & received 10,00,000
Paid
7,00,000
+
Interest
Supplier delivered the order but will receive
the 10,00,000 after credit period of 90 days
from buyer.
So here if the supplier use the Bill discount
on 10,00,000 at 10 % then the discounted
bill amount will be
10L – ((3/12)*0.1*1000000) = 9,75,000
Interest of 1 month(during the development
period) for PO financing is 8,333
Need to pay to bank is
7,00,000+8333=7,08,333
Receives from Bank after discount= 9,75,000
So supplier has
9,75,000-7,08,333=2,66,667
Paid as Advance to OEM 2,00,000
Net income from order is 66,667
Lets understand what if Supplier use the Bill discount here