Usance Letter of Credit [Usance LC] and possibilities for Discounting
Letter of credit is the most common method of payment in business and into commonly practice by seller and buyers.
Most of the Buyers are interested in opening USANCE LETTER OF CREDIT (Usance LC). Let’s first understand the Usance Letter of Credit.
USANCE LETTER OF CREDIT which is also known as Usance LC in short is letter of credit issued by purchaser or buyer to the seller or supplier who will get the draft for say 180 days sight, but after negotiating with bankers can get the money at sight. On the other hand the purchaser / Buyer or importer who had opened the Usance LC will pay his bankers after 180 days.
If simple ordinary language, the Usance LC receiver can negotiate and discount the Usance LC against the negotiable documents like invoices / BL / quality of certificate as mentioned in the contract under the clause ‘Documents required for Payment’. The Usance LC receiver’s bank will, after getting the confirmation from the Usance LC issuing bank will release the payment to the Usance LC receiver and thus the Usance LC receiver will get the payment at sight; off course the payment will attract interest as per the banks standard terms.
The terms “Usance” means the tenor for which the Letter of Credit is issued and the Bill of Exchange to be drawn by the beneficiary on and duly accepted by the name drawee. The payment will be made at sight when the Usance LC clearly indicates that the Usance bills drawn are to be negotiated at sight.
The Usance LC with above terms can be discounted and the exporter / supplier / seller can get the payment at sight.
