Mr Old Man Payment Q&A DISCOUNTING VS. NEGOTIATION UNDER LCs: WHAT’S THE DIFFERENCE? By Mr Old Man Posted on April 25, 2025 1 min read 0 0 568 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUESTION: What is the difference between discounting and negotiation in the context of letters of credit? Could you clarify? ——- ANSWER: Hi, Great question — it’s one that often comes up in trade finance. Under UCP 600, the term officially used is “negotiation”, not “discounting.” According to Article 2 of UCP 600, negotiation refers to: “The purchase by the nominated bank of drafts (drawn on a bank other than itself) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the day reimbursement is due.” On the other hand, the term “discounting” is not defined in UCP 600, but it’s frequently used in practice. When people say “discounting” in the LC world, they’re often referring to the act of a bank (typically the nominated bank) advancing payment against a usance draft or deferred payment undertaking that it has itself accepted or incurred. In real-world banking, the terms are often used interchangeably, without any clear distinction in meaning. Kind regards, Mr. Old Man