Negotiation Credit

Definition / Meaning Negoziationskredit

As a short-term foreign trade credit, the negotiation credit is a special form of discount credit. It is also called a negotiation loan. A credit institution of the exporter buys a draft drawn on the importer and accompanied by the associated documents, i.e. a drawn bill of exchange that has not yet been accepted. Two forms of negotiation credit have developed internationally:

authority to purchase

In the authority to purchase the importer's bank declares that it is prepared to purchase or advance the draft drawn by the exporter on the importer in return for the documents being handed over. The import bank forwards this commitment to the exporter's bank with the request, if the exporter presents the relevant documents, to advance the draft in full or in part and to send the documents to the import bank. The authority to purchase can be revocable or irrevocable. It is mainly used in trade with the Far East.

corder to negotiate

In the corder to negotiate a draft is drawn by the exporter on a correspondent bank designated by the import bank in the exporter's country. Upon presentation of the documents, the draft will either be discounted immediately by the correspondent bank or initially only accepted.

Negotiation credit on the purchase of foreign trade documents

Today, a credit negotiation can refer to the purchase of foreign trade documents with or without a draft and regardless of the payment term. It gives the exporter the advantage of not only being able to draw drafts and wait for the payment to be received, but also to be able to sell the documentary draft immediately, with the deduction of a negotiation commission for the bank. The banking-related processing of negotiation credit and rebate credit is becoming more and more similar in practice. Compared to the Refund Loan the advantage of the negotiation loan is that the payment to be made is accelerated.

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