What happens if overseas buyer not paid export bills discounted?

Bill discounting and collecting money from bank does not mean that exporter received amount from overseas buyer under his export consignment. Export bill discounting can be treated as a ‘loan’ amount receiving from his bank like any other negotiable instrument. Here the bank discount export bills and provide amount to exporters on the basis of export bills. Once after receipt of invoice amount from overseas buyer against such export bills, bank recovers the said discounted bills with exporter.

Here the question is, if overseas buyer does not pay amount of export sales, how does bank recover discounted export bills?

What happens if overseas buyer not paid export bills discounted?

In an export bill discounting procedures, the exporter gets money immediately up on shipment of goods from his authorized bank. The bank receives amount only after collection of export bills from his overseas buyer as per the agreed terms and conditions between exporter and importer.

What happens if importer (overseas buyer of exporter) does not pay invoice amount under the said discounted bills.

Shipments under DAP or DP terms, the bank has a hold on documents as overseas buyer’s bank does not release shipping documents to importer unless otherwise he pays the value of goods mentioned in the commercial invoice. However in a DA terms of shipments, the risk on credit is high for exporter’s bank in the case of non availability of credit worthiness of such buyers.

Normally the exporter’s bank debits back the discounted amount along with necessary bank interest charges with exporter’s account if discounted bill amount has not been realized from overseas buyer. However, banks in some of the countries cover insurance against overseas buyer up to the limit of bill discounting.

In India, bank covers insurance policy with Export Credit Guarantee Corporation ECGC who compensate such amount, if not paid by overseas buyer.