Trust Receipts

NEXT

Hi Folks, its been long again since I wrote my last article. I promise I would be more regular with my blogs going forward. :)

Todays article is about Trust Receipts or Trust Receipt Loans offered by Banks as part of their Trade Finance products. A Trust Receipt is like a loan offered based on trust and previous history of the customer as these are unsecured loans wherein a customer receives documents but does not have the money to pay.

In such situations Bank agrees to provide a short term loan which does not generally extends beyond 90 days and the customer is able to clear the documents and the goods associated with those documents. In a trade transaction, the terms of the deal are decided between the buyer and seller and the Bank is not a party to the transaction but if the customer is unable to fulfill his commitment towards the seller and is unable to get the goods cleared from customs, he approaches the Bank to get the documents cleared and thereby clearing his goods.

The customer makes payment on or before the due date of the loan. Generally   customers who use the trust receipt facility has an account with the Bank which is debited on due date to clear the outstanding. Incase the account is not funded by the customer or the customer forgets to fund the account, charges will be levied in addition to the interest levied on the amount provided to the customer as Trust Receipt.

Amount of interest that will be levied to customers account is determined at the time of agreeing to the transaction and availing trust receipt facility. Some customers avail this facility due to shortage of cash and some customers avail this facility to avoid making payment from their own funds;instead prefers to use the Banks money to make more than the money paid to the Bank as interest.

As mentioned in my earlier articles, every transaction make by the customer is deemed as a request by the Bank which may be approved or rejected, same is the case with trust receipts wherein customer profile is checked by the Bank thoroughly before extending this product as this is a highly unsecured product wherein the Bank will tend to loose the complete document value incase payment is not received on due date.

Stay tuned for more on various Banking products............................