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Buyer's Credit

Buyer's credit is short term credit availed to an importer (buyer) from overseas lenders such as banks and other financial institution for goods they are importing. The overseas banks usually lend the importer (buyer) based on the letter of comfort (a bank guarantee) issued by the importer's bank.

A loan facility extended to an importer by a bank or financial institution to finance the purchase of capital goods or services and other big-ticket items. Buyer’s credit is a very useful mode of financing in international trade, since foreign buyers seldom pay cash for large purchases, while few exporters have the capacity to extend substantial amounts of long-term credit to their buyers. A buyer’s credit facility involves a bank that can extend credit to the importer, as well as an export finance agency based in the exporter's country that guarantees the loan.

Buyer's credit helps local importers gain access to cheaper foreign funds that may be closer to LIBOR rates as against local sources of funding which are more costly.

The duration of buyer's credit may vary from country to country, as per the local regulations. For example in India, buyer's credit can be availed for one year in case the import is for tradeable goods and for three years if the import is for capital goods.

This Facility is available for development, upgrading or expansion of infrastructure facilities; financing of public or private projects such a plants and buildings; professional services such as surveyors, architecture, consultations, etc.


Benefits of Buyer’s Credit:

The benefits of buyer’s credit for the importer is as follows :

The exporter gets paid on due date; whereas importer gets extended date for making an import payment as per the cash flows
The importer can deal with exporter on sight basis, negotiate a better discount and use the buyers credit route to avail financing.
The funding currency can be in any FCY (USD, GBP, EURO, JPY etc.) depending on the choice of the customer.
The importer can use this financing for any form of trade viz. open account, collections, or LCs.
The currency of imports can be different from the funding currency, which enables importers to take a favorable view of a particular currency.
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