A Discounting Letter of Credit is a crucial trade finance instrument used when a beneficiary of a Letter of Credit (typically an exporter) wishes to receive payment before the maturity date of the LC. This document, governed by Hong Kong law, sets out the terms under which a bank will purchase the rights to payment under the original LC at a discount. It's commonly used in international trade transactions where the beneficiary requires immediate liquidity rather than waiting for the normal payment period. The document includes essential details such as the discount rate, payment mechanics, required documentation, and risk allocation between parties. When using a Discounting Letter of Credit, parties must comply with both Hong Kong banking regulations and international banking practices, particularly the UCP 600. This instrument is especially valuable in situations where businesses need to improve their cash flow while maintaining their trading relationships.
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1. Letter Header and Date: Bank's letterhead, date, and reference numbers
2. Addressee Details: Full name and address of the beneficiary of the LC
3. Reference to Original LC: Details of the original Letter of Credit including LC number, issuing bank, and amount
4. Discounting Offer: Clear statement of the bank's offer to discount the LC, including the discount rate and calculation method
5. Payment Terms: Details of how and when payment will be made, including any deductions
6. Documents Required: List of documents required from the beneficiary for the discounting process
7. Representations and Undertakings: Key statements and promises made by the beneficiary regarding the LC and underlying transaction
8. Bank's Rights: Statement of the bank's rights, especially in case of non-payment by the issuing bank
9. Governing Law: Specification of Hong Kong law as the governing law
10. Signature Blocks: Space for authorized signatures from both the bank and the beneficiary
1. Recourse Provisions: Additional terms specifying whether the discounting is with or without recourse to the beneficiary - include when the bank requires recourse rights
2. Security Arrangements: Details of any additional security required - include when additional collateral is needed
3. Insurance Requirements: Specific insurance requirements for the underlying goods - include for high-value or high-risk shipments
4. Sanctions Compliance: Specific provisions regarding sanctions compliance - include for international transactions involving sensitive jurisdictions
5. Tax Provisions: Specific provisions regarding tax implications - include when cross-border transactions are involved
1. Original Letter of Credit: Copy of the original LC being discounted
2. Discount Calculation Schedule: Detailed breakdown of the discount calculation and final amount payable
3. Required Documents Checklist: Checklist of all documents required for the discounting process
4. Form of Draw-down Request: Standard format for requesting disbursement under the discounting facility
5. Specimen Signatures: Authenticated specimen signatures of authorized signatories
Relevant legal definitions
Clauses
Relevant Industries
Banking and Financial Services
International Trade
Export/Import
Manufacturing
Commodities Trading
Shipping and Logistics
Wholesale Trade
Agricultural Trade
Energy and Resources
Textile Industry
Relevant Teams
Trade Finance
Treasury
Legal
Compliance
Risk Management
International Banking
Trade Operations
Credit
Documentary Credits
Finance
Relevant Roles
Trade Finance Manager
Treasury Manager
Export Finance Specialist
Documentary Credits Officer
International Banking Officer
Trade Operations Manager
Financial Controller
Chief Financial Officer
Banking Relationship Manager
Trade Finance Coordinator
Compliance Officer
Legal Counsel
Credit Risk Manager
Foreign Exchange Manager
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