Buyers’ credit
When the permissible capital/non-capital goods are imported under the Foreign Trade Policy of the Government of India, to finance the imports, credit facilities are availed from overseas suppliers, banks, financial institutions, and other recognized lenders for maturity. Based on the source, such Trade Credits (TC) are either called Buyers credit or Suppliers credit.
The Buyers credit is a short-term credit facility provided by foreign banks in foreign currency, at a rate of interest lower than other locally available loans. It gives the buyer security of delivery of goods with an extended credit period to make payment, while the seller gets immediate payment.
Suppliers’credit is applied for by the suppliers. In this structure, overseas suppliers or financial institutions outside India provide financing to the importer on LIBOR linked rates against the usance letter of credit (LC).
The major difference between the two forms of trade credits is the mode of payment and the cost involved.
The payment for buyers’ credit can be made by any of the prescribed methods, while that of the suppliers’ credit is to be made by LC transactions only.
Buyers’ credit involves only the interest cost, while the suppliers’ credit involves cost for LC advising, LC amendment charges, document processing charges, courier charge, confirmation cost, and interest cost.
Our team of experts at ABV is well-experienced to advise the clients in the matters of Trade Credit and coordinate the process.
