An LC with a tenor, for example 30 to 180 days from shipment or from the transport document date. No draft is required for a pure deferred payment LC. The issuing bank promises to pay at maturity if documents are compliant. With UPAS, the seller can be paid at sight by a nominated or confirming bank while the applicant repays at maturity.
An LC where the beneficiary draws a time draft (bill of exchange). A bank accepts the draft, creating a clear bank obligation to pay the face value on the due date. The accepted draft can be discounted as a banker's acceptance.
| Feature | Usance LC | Acceptance LC |
|---|---|---|
| Payment method | Deferred payment at maturity against compliant presentation. No draft needed for pure deferred payment. UPAS can provide sight proceeds to the seller. | Payment of a time draft that has been accepted by a bank. The accepted draft states the due date. |
| Primary obligation | Issuing bank undertakes to pay at maturity under UCP600 deferred payment rules or UPAS terms. | Accepting bank endorses the time draft. That acceptance is a separate bank promise to pay the holder at maturity. |
| Discounting path | Via negotiation or UPAS. Banks fund at sight and recover from issuer/applicant at maturity. Pricing reflects issuer strength and corridor risk. | Straightforward. The accepted draft can be sold or discounted as a banker's acceptance. Pricing tracks the accepting bank's name and tenor. |
| Documents required | Commercial documents only, as per LC text. No draft for pure deferred payment. | Commercial documents plus a time draft for acceptance. |
| Common wording cues | “Deferred payment” or “UPAS” stated, maturity basis defined, presentation period stated. | “Acceptance” stated, draft tenor defined, drawer and drawee identified. |
| Who bears credit risk | At maturity the beneficiary relies on the issuing bank. If confirmed, the confirming bank adds its undertaking. | The holder of the accepted draft relies on the accepting bank name at maturity. Confirmation can still be used if needed. |
| Use cases | Importer wants terms without using a separate loan. Exporter wants either sight proceeds via UPAS or is fine to wait. | Exporter prefers a discountable bank paper. Markets where banker's acceptances are easily placed. |
Bank fees split into issuance, advising, document checking, and the cost of risk and funding over the tenor. For UPAS or acceptance discounting, add a per-tenor funding margin. Example for 3,000,000 at 120 days: issuance 0.40 percent flat, advising 0.10 percent, document examination 0.10 percent, funding 3.0 to 6.0 percent per annum pro-rated for 120 days, plus any confirmation premium set by bank name and country risk. Final allocation follows the charges clause in the LC.
Not exactly. Both are time LCs. An acceptance LC requires and creates a bank acceptance of a time draft. A usance LC sets a deferred payment date and can pay at sight via UPAS without a draft.
An accepted draft is straightforward to discount. UPAS is also widely used to achieve sight proceeds under a usance LC. Pricing depends on the bank names and tenor.
Yes if the LC states UCP600. Acceptance mechanics for drafts are consistent with UCP600 articles on drafts and acceptance. Deferred payment mechanics follow the deferred payment articles.
Start date for tenor, latest shipment, presentation period, and maturity calculation. Make sure the transport document dates support the tenor start. Keep the reimbursement path clear.
Share your draft LC text, contract or PO, shipment plan, KYC, and financials to receive eligibility feedback and pricing bands.
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