Purchase Discount of Foreign Bills : Purchase or discount facilities in respect of export bills drawn under confirmed export contracts are generally granted to exporters who enjoy Bill Purchase/Discounting limits sanctioned by the bank. As the security offered by the issuing bank under letter of credit arrangement is not available, the financing bank is totally dependent upon the credit worthiness of the foreign buyer. The documents, under the Documents against Payment (DP) arrangements, are released through foreign correspondent only when payment is received.
Whereas in that case of Documents against Acceptance (DIA) bills, documents are delivered to the overseas importers against acceptance of the draft to make payment on maturity. Since the financing banks are open to the risk of non-payment, ECGC policies issued in favour of exporters and assigned to banks are insisted upon.
Under the policy, ECGC fixes limits and payment terms for individual buyers and the financing bank has to ensure that the limit is not exceeded so that the benefits of policy are available. Banks also secure a guarantee from ECGC on the post-shipment finance extended by them either on a selective or whole turnover basis. Banks sometimes do obtain credit reports on foreign buyers before they purchase the export bills drawn on the foreign buyer.