As per LC terms when the payment is due, bank gives us two options.
1. Buyeru2019s credit.
Buyeru2019s credit is loan from foreign bank against guarantee by Indian bank. Whenever payment is due our
Indian bank can arrange a buyers credit through some foreign bank who will pay the amount to vendor
On our behalf. For example: If we have issued LC worth GBP 100,000 and as per payment terms 25%
is due on site (GBP 25,000), bank can arrange for buyers credit through foreign bank like HSBC or JPMC
Here the foreign bank will charge their interest say 3.5% on amount financed and India bank will charge
Commission to arrange for buyers credit.
In buyers credit terms of payment will be defined along with the amount payable in foreign currency on
due date. India bank will charge commission on amount arranged for buyers credit. For example 1.25%
on amount payable to foreign bank on due date with interest.
We can also take a forward cover for exchange fluctuation where we have to pay premium to our Indian
for the period till the payment of buyers credit is made.
How to map this in sap
Regards
Sree