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Hello sir,
I wanted to know whether letters of credit , invoice discounting and factoring are short term sources of finance ?
Letters of credit are not sources of finance – they are just a guarantee that an invoice will be paid.
Invoice discounting is a source of short-term finance.
Factoring is a funny one. If it is a long-term policy to factor the debts then it is actually a long-term source (although for calculations we treat it as short-term).Could u sir elaborate on the process of letters of credit and how is that different from invoice discounting and factoring as I have a concept that the process is similar
Suppose you owe me money. I might be worried as to whether or not you would pay me (especially if you live in another country where it would be harder for me to take legal action). So I might insist that you get a letter of credit from your bank.
If you send me the letter of credit then instead of you owing me the money, then bank then owes me the money and has to pay it. So it is much safer for me – I am more certain that I will get the money on the due date.So the bank wouldn’t charge anything for this? And is the letter sellable in the money market ?
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