A Sight Letter of Credit and a Usance Letter of Credit are both documentary-credit structures. The main commercial difference is when payment becomes due after a complying presentation.
Under a sight structure, payment is made at sight in accordance with the credit terms after the nominated or issuing bank determines that the presentation complies.
Under a usance or deferred-payment structure, payment is due at an agreed future date or after an agreed tenor, such as a number of days from shipment, bill of lading date, invoice date or another defined event.
How a Sight LC supports a supplier
Suppliers often prefer sight payment because it reduces the period between shipment and cash receipt. The seller still has to present documents that comply with the LC terms, but once the documents are accepted, payment is not intentionally deferred for a long commercial credit period.
For the buyer, sight payment may mean that funding is required earlier in the trade cycle.
How a Usance LC supports buyer payment terms
A usance LC can allow the buyer more time before payment becomes due. This may help align payment with shipping, customs clearance, inventory turnover or customer collections.
For the supplier, the deferred period creates a longer wait for cash unless the receivable or bank undertaking can be discounted or otherwise financed, subject to the bank and transaction.
Examples of usance periods
30 days after bill of lading date.
60 days after shipment.
90 days after invoice date.
Another agreed tenor clearly defined in the credit.
Which structure is better?
Neither is automatically better. The correct structure depends on bargaining power, supplier needs, buyer liquidity, financing cost, country risk, banking relationships and transaction economics.
A supplier may offer better commercial terms if it receives earlier payment. A buyer may prefer deferred terms to protect working capital. The final LC structure should reflect the commercial agreement between the parties.
Documentary compliance remains essential
Whether payment is at sight or deferred, the LC remains a documentary instrument. Banks examine the presentation against the credit terms and applicable rules. A poorly drafted credit or inconsistent documents can create discrepancies, delays and additional cost.
For this reason, the payment tenor should be agreed together with the document requirements, shipment dates, expiry, presentation period and other core LC terms.
Frequently Asked Questions
Does 'at sight' mean payment is instant?
Not literally instant. The presentation must be examined and found compliant, and operational processing still takes time. 'At sight' describes the payment basis rather than a guaranteed same-minute transfer.
Is a 90-day LC always a usance LC?
A 90-day deferred structure is commonly described as usance, but the exact payment basis should be read from the LC terms.
Can a supplier receive early payment under a usance LC?
Potentially, through discounting or another financing structure, subject to the bank, credit, issuer and transaction.
Which option preserves more buyer working capital?
A deferred-payment structure can delay the buyer's cash outflow, but total cost, facility use and transaction terms must be assessed.
Discuss Your Requirement
Every transaction is different. TradeMore reviews the commercial requirement, transaction structure, counterparties, documentation and applicable compliance considerations before identifying an appropriate financial solution. Solutions remain subject to assessment, eligibility, due diligence and financial institution requirements.