Usance Letter of Credit

Deferred Payment

Shipping occurs as soon as the order is ready, but the clock for the payment only starts once the bank accepts the documents. This delay allows the buyer to receive the items, process them or even sell them before the bill comes due. The seller receives a promise of payment that they can sometimes sell to a bank for immediate cash.

Credit Period

Negotiated terms between the two companies determine the length of the usance interval. This window provides the importer with short term financing that is often cheaper than a bank loan. The specific date when the money must be paid is known as the maturity date.

Document Maturity

Presentation of the required paperwork to the bank triggers the acceptance of the draft. Once the bank signs the draft, it becomes a binding obligation to pay on the future date regardless of what happens to the goods. This security allows the exporter to ship with confidence even to a new or unknown customer.

The maturity date is fixed once the documents are found to be in compliance with the credit terms.