LETTER OF CREDIT
A Documentary USANCE LC is a banking instrument that ensures delivery and payment terms of both the buyer and the seller are met through their respective financial institutions.
A USANCE LC is similar to an ‘At Sight LC,’ however, the Documentary USANCE LC carries with it a predefined and mutually agreed upon contractual credit payment term. The credit term can vary from deal to deal but is typically defined as a period of 60,90, or 120 days. Usance LCs are necessary for businesses within the UAE and globally. Delivery may sometimes get delayed or cancelled. In other cases, goods may be damaged while shipping. For such reasons, all import-export businesses must insulate themselves with a DLC for seamless international trade.
An LC is a trade finance tool that is used to reduce the risks associated with importing and exporting. It allows the buyer to defer payments up and until he receives all the necessary trade documents. The exporter also benefits from an LC, as he/she will receive a guarantee from the buyer’s bank. The USANCE LC is one of the most popular types of LC and is commonly used when the importer and exporter already has a healthy working relationship. To learn more about our services, or to receive a customized quote against your requirement, reach out to our team by dialing +97143344652 for Dubai or +442076924837 for our London desk.
*Note: Documentary USANCE LC are subject to the Uniform Customers and Practice for documentary credits and the ‘ICC Delivery Terms Publication #600.’
HOW TO ACQUIRE A DOCUMENTARY
USANCE LETTER OF CREDIT WORK?
As mentioned, a documentary USANCE letter of credit is similar to an “At Sight Letter of Credit.” With an At Sight LC, the importer asks their bank to promise payment to the exporter on their behalf. This bank – dubbed the “issuing bank” – nominates an advising bank to act as a middle-man between them and the exporter. Once the exporter has processed the buyer’s order, they pass the confirmation documents onto the advising bank. The advising bank subsequently passes these documents onto the issuing bank for inspection and payment. A USANCE letter of credit follows this pattern almost exactly. Unlike a letter of credit at sight, however, a USANCE LC does not require the importer to pay upon receipt. Instead, the importer is afforded the privilege of paying at a later day.
Securing a USANCE letter of credit is challenging. Consequently, any UAE business owner or any business owner globally, applying for a USANCE LC is advised to enlist the help of Credico Capital. As the leading trade finance agency in Dubai, we have helped countless companies obtain USANCE LCs. Our specialists will streamline the application process, virtually ensuring swift approval and funding.
ADVANTAGES OF A USANCE LETTER OF CREDIT
A USANCE letter of credit boasts most of the advantages associated with a traditional LC. Namely, by allowing the importer to purchase goods without immediate payment. Additionally, it ensures the exporter will be compensated for their products. However, the USANCE letter of credit also has its own set of unique advantages.
- A USANCE LC allows the importer to defer payments for longer than a traditional LC. In some cases, the buyer may not have to pay for a full 120 days after receipt of trade documents.
- Customers defer payments to improve their cash flow models. This may cause the exporter significant sales in the long run.
- A buyer will usually receive their order before they must pay their USANCE LC. This provides ample time to inspect goods making sure all is in order.