Buyers credit and Supplier's Credit

 

What is suppliers' credit?

Supplier's credit is a trade credit provided by the supplier itself. It is sale on a credit basis. Import on a deferred or usance basis is the example of suppliers credit.

 

Buyer's credit /UPAS LC

Under the facility, importers get short-term loans in foreign currency to import capital machinery and raw materials. Banks provide such facilities under their offshore banking units and the process helps facilitate international trade greatly. Importers are often unable to make payments to exporters due to lack of funds and banks or financial institutions make payments on their behalf against buyer's credit facility. The importers pay back the banks and financial institutions for the short-term foreign currency loan along with interests within a given time.

The buyers/importers avail buyer's credit facility as a short-term loan facility for repayment of dues of the exporters. One of the main reasons of the upturn in buyer's credit is its interest rate. If the importers receive a loan in local currency, interest has to be paid at a staggering rate of 8-9 percent whereas an importer has to pay only 3.5-4.5 per cent in case of foreign currency loan. However, due to the increasing demand of foreign currency loans, demand for local currency loans has gone down and excess liquidity has been created which the banks can neither lend nor invest and the fund remains unutilized.