Trade Finance & Supply Chain
UPAS LC vs Supplier’s Credit: Compare Total Cost
Compare the same purchase, currency and payment dates before comparing financing rates. A low headline rate can conceal higher fees or a supplier price that already embeds credit cost.
Answer first
Prepare two complete cash-flow schedules. Separate purchase price, financed principal, interest, bank fees, restricted margin and the exchange rate used for budgeting. Confirm regulatory eligibility separately from the arithmetic.
Define the transaction before pricing
For this comparison, UPAS describes an LC arrangement in which the supplier receives sight payment while the buyer pays on agreed deferred terms through the financing arrangement. Supplier’s credit describes credit extended by the supplier through a deferred payment obligation. The precise undertaking, funder, recourse and settlement mechanics depend on the documents. Obtain those documents rather than treating a product label as a complete term sheet.
Ask the bank whether interest is collected upfront, periodically or at maturity; which amount attracts commission; when the financing clock begins; and whether an amendment changes charges. Ask the supplier for both sight and deferred quotations on an identical goods and delivery basis.
A like-for-like illustrative quotation
| Assumption | Quotation A | Quotation B |
|---|---|---|
| Purchase / financed principal | USD 100,000 | USD 100,000 |
| Tenor and basis | 90 days / 360 | 90 days / 360 |
| Illustrative annual rate | 6% | 7% |
| All entered fees | USD 1,000 | USD 500 |
| Simple interest | USD 1,500 | USD 1,750 |
| Interest plus entered fees | USD 2,500 | USD 2,250 |
Quotation B has the higher rate but the lower cost under these assumptions. These are invented teaching inputs, not market quotations, approved pricing or a Bangladesh rate ceiling. A supplier price difference, different value dates or an omitted charge can reverse the comparison.
Margin is cash tied up, not automatically an expense
A 20% margin on USD 100,000 represents USD 20,000 of restricted liquidity. It is not a USD 20,000 bank fee. Record when it is deposited, whether it earns interest and how it is released or applied. If an internal analysis assigns an opportunity cost, show that assumption separately from bank charges. Do not subtract margin from maturity liability unless the actual arrangement applies it that way.
Bank quotation checklist
- Identify the funder, principal, recourse and beneficiary payment date.
- Record rate basis, reset dates, day count, tenor start and payment schedule.
- Separate issuance, financing, amendment, confirmation and reimbursement charges where applicable.
- State whether taxes, correspondent fees and supplier financing premiums are included.
- Use alternative FX assumptions for future BDT requirements; identify any actual hedge separately.
- Check the current Bangladesh Bank instrument and any approvals before choosing the structure.
Turn the quotation into a repeatable worksheet
Use the LC financing cost comparator for simple-interest scenarios. It compares entered assumptions and does not determine product eligibility or prescribe bank pricing. For a credit with several drawdowns or repayments, build a dated cash-flow model instead of multiplying one balance by the full tenor.
Sources and further examination
- Bangladesh Bank FEPD-1 Circular 30/2026: consolidated import framework
- ICC UCP 600: documentary credit framework
These are original educational explanations. ICC rules apply according to incorporation in the instrument; use the applicable authorized publication for detailed examination. Bangladesh requirements must be read with effective amendments and transaction-specific conditions.