Negotiation

1
Negotiation

• Negotiation is a process of giving value to the
  documents
• After shipping the goods, Seller presents the
  documents, and if found in order by the
  negotiating bank, it pays the party without
  recourse

2
Why Negotiation / Purchase / Discounting of
Bills?
I can help you. Ill pay you immediately and
collect the money from issuing bank after 60 days
ICICI Bank (Negotiating Bank)
Seller
Buyer
I need to manage my cash flow. I need the money
immediately
I need credit of 60 days
3
Advantages for two players
Seller
Bank

• Managed cash flow
• Convenience of payment
• Mitigating exchange risk
• Protection against regulatory requirements

• Fee generation
• Interest income
• Better relationship with seller

4
Risks involved and Mitigation for the Bank
Risks
Mitigation measures

• Non-acceptance of bills by Issuing bank
• Non-payment on due date
• Foreign exchange fluctuation  
• Regulatory changes

• Payment under recourse
• Indemnity letter
• Sound scrutiny
• Buyers / Issuing banks credibility to be
  ascertained

5
Export Bills Variations

• Negotiation Bills are under LC and payment to
  exporter happens on submission of documents
• Purchase Non-LC Sight Bills, payment to exporter
  happens on submission of documents
• Discounting Non-LC Usance Bills, payment to
  exporter happens on submission of documents
• Collection Cover both LC / Non-LC payment to
  exporter happens only after it is received from
  foreign bank

6
Export bills for collection

• If advance is not given against export documents
  tendered by the Exporter and are accepted on
  collection basis by the Exporters/Sellers Bank,
  they are called export bills for collection
• In such a case scrutiny is limited
• Sellers/Exporters account is credited only after
  receipt of sale proceeds from the Buyers Bank
  abroad
• Even an export bill sent on collection basis
  becomes an overdue export bill if not realised on
  the due date and all the procedures relating to
  handling of overdue export bills ( other than
  crystalisation) is applcaible.