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A usance letter of credit is how buyers get time to pay while sellers still ship under a controlled, bank-verified structure. It is also where a lot of people get confused: “usance” does not mean “less secure.” It means the payment date is deferred. If you need the foundations first, start with our letters of credit guide and the operating rules in UCP 600.
A usance (deferred payment) documentary letter of credit pays at a future maturity date (for example, 30, 60, 90, or 180 days after shipment or after document acceptance), provided the seller presents compliant documents. Sellers can often discount that future receivable to get cash earlier. The real pricing is a mix of LC fees plus the cost of discounting and bank risk appetite. For standby alternatives, compare with SBLC mechanics.
“Usance” is trade shorthand for a deferred payment term. Instead of paying at sight (immediately after compliant presentation), the issuing bank commits to pay on a defined maturity date as long as the documents comply. In many markets you will also hear “term LC” or “deferred payment LC” used interchangeably.
Practical definition: a usance LC converts a shipment into a bank-conditional receivable that matures in the future. Whether the seller can turn that receivable into cash today depends on discounting appetite and the bank set involved.
Sight and usance are the same product class (documentary credits under UCP 600), but the cash timing changes everything: buyer liquidity, seller working capital, and the financing options available.
| Feature | Sight LC | Usance LC |
|---|---|---|
| Payment timing | Payable at sight after complying presentation | Payable at a future maturity date after complying presentation |
| Buyer benefit | Less time to pay | More time to pay, improves cash conversion cycle |
| Seller benefit | Faster cash if docs are clean | Can sell the receivable via discounting if bank appetite exists |
| Main friction point | Document discrepancies delay payment | Discrepancies plus discounting conditions and bank risk limits |
| Most common use | Standard imports, first-time counterparties | Repeat trade flows, buyers seeking payment terms |
If you want to understand where authenticated bank-to-bank messages can sit in a closing sequence (without confusing them for instruments), see MT799 explained.
Discounting is how the seller converts a future-dated LC receivable into cash today. The seller presents compliant documents, the bank (or a discounting counterparty) evaluates the risk, and the seller receives cash net of discount charges. The pricing is driven by bank risk, country and bank limits, tenor, currency, and document quality.
The seller remains liable if the issuing bank does not pay at maturity or if a dispute arises. This can price cheaper but shifts risk back to the seller.
The discounting bank takes issuing bank risk (and sometimes country risk). This requires strong issuers and clean corridors, and it often prices higher.
Sellers often focus on LC fees and forget the discount cost. If the buyer asks for 120-day terms, you are effectively being asked to finance them unless the LC is discountable on acceptable terms.
Total cost is not only the issuing bank’s LC fees. It is the combined effect of fees, collateral, and the economics of time. If you are budgeting credit enhancement alternatives, compare with SBLC cost drivers and the instrument choice discussion in SBLC vs bank guarantee.
| Cost component | What it usually looks like | What moves it |
|---|---|---|
| Issuance fees | Commission and bank charges on the LC (varies by bank) | Buyer credit strength, limits, tenor, corridor, currency |
| Confirmation | Extra fee if a confirming bank is added | Issuer reputation, country risk, beneficiary requirement |
| Collateral / cash margin | Can be 0% to 100% depending on buyer credit | Buyer balance sheet, facility terms, bank policy |
| Discounting cost | Interest-like discount charge on the usance period | Issuer and country limits, recourse terms, document quality |
| Discrepancy handling | Extra fees and time cost if documents are not clean | Operational quality, shipping docs, presentation discipline |
Common maturity bases include “X days after bill of lading date,” “X days after shipment,” or “X days after acceptance.” Ambiguity creates disputes and kills discounting appetite.
Clean documents compress timelines and protect discountability. Sloppy docs increase discrepancy risk, delay maturity confirmation, and increase cost.
Place of presentation and bank roles (issuing, advising, confirming, nominated) impact timing and fees. If the structure is unfamiliar, start with letters of credit basics.
MT799 can support closing coordination, but the LC itself is the instrument. See MT799 explained and avoid treating messaging as a substitute for issuance.
Usance backfires when the seller agrees to long terms and then discovers the LC is not discountable, or only discountable with full recourse at a punitive cost. If the buyer is pushing long terms without a bankable issuer, you may be better off with a different structure or stronger credit enhancement.
The exact list depends on the LC terms, but typical core documents include:
If you are building a lender-ready package for trade finance, this is where a proper underwriting memo and document checklist saves weeks of churn. See what’s in a trade finance underwriting memo.
If you have a live transaction, share your draft LC terms, commodity or product details, shipment schedule, incoterms, counterparties, and the target usance period. We can advise on bankability, issuer routing, and whether discounting is realistic before you lock in terms you cannot finance.
Disclaimer: This page is for general information only and is not legal advice. Financely is not a bank and does not issue letters of credit. Any LC, discounting, confirmation, or financing is subject to eligibility, full KYC and AML review, sanctions screening, credit approval, and definitive documentation by regulated counterparties.
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