Buyer’s credit is short term credit availed by an importer (buyer) from overseas lenders such as banks and other financial institutions for the goods they are importing. The overseas banks usually lend to the importer based on the letter of comfort (similar to a bank guarantee) issued by the importer’s bank. For this service the importer’s bank or the buyer’s credit consultant charges a fee called an arrangement fee.
In India, buyer’s credits for imports up to USD 20 million per import transaction is permissible under the current Foreign Trade Policy of the DGFT with a maturity period up to one year (from the date of shipment) for current a/c imports and upto 3 years for capital goods imported into India.
Did you know that – “Buyer’s credit in India is only permissible if the goods have entered the country. Hence Buyer’s Credit cannot be availed in a Merchanting trade transaction”!!!