LC at Sight

A sight letter of credit is a document which stands as a proof of payment in return of the goods or services to be released for the transportation by the seller. Once the goods or services reach the buyer, the buyer has to pay the financial institution that provided the Sight LC.

The process of submitting and verifying the documents is known as the sighting process, after verification the document is called the Sight LC . The banks or financial institutions generally take between 5 to 10 business days to process these documents.

Under LC at sight exporters have freedom to manage their working capital as they can receive payments against goods as soon as the shipment is on the way, which is one of the most beneficial benefits of a Sight LC. As a result, the exporter may not encounter a cash constraint and can effectively manage working capital.

We can issue at sight LC in 7-14 days.

How does a Sight LC work?

Step by step process of how sight letter of credit works:

    • A buyer who needs certain goods contacts a supplier and gets a quote for the requirement and confirms the deal.
    • The buyer then goes to his bank, generally, one that has already extended him a line of credit and asks the bank to issue a sight LC towards the supplier.
    • After having looked at the creditworthiness of the buyer, the bank issues a sight LC and sends it to a bank in the supplier’s country.
    • The supplier’s bank then informs the buyer and sends them the LC along with all the terms and conditions of the trade.
    • Once the supplier is happy with the LC, he ships the products and submits the shipping documents to the supplier’s bank.
    • The bank processes the documents and sends them to the buyer’s bank.
    • The buyer is alerted by the bank that the documents have arrived, and he needs to make the full payment to collect the documents. The buyer will need these documents to get the delivery of the product.
    • The buyer inspects the documents and pays for the LC, after which the buyer’s bank sends the payment to the seller’s bank. The seller is paid for the amount, generally much before the goods reach the buyer.

LC at sight – Payment Terms

When a bank issues a sight LC, it acts as a guarantor of payment to the beneficiary. The seller has to furnish all the shipping documents mentioned under the terms and conditions in the LC to receive the payment. Once you submit all the documents and the issuing bank verifies the same, the bank releases the funds. The buyer immediately makes the full payment to the bank upon the receipt of documents.

In case the supplier is not able to provide the documents, the bank is not liable to release the payment. Furthermore, if there are any discrepancies found in the paperwork, the issuing bank can deduct a small fine from the total payment.

By now you’d have come to the realization that trade finance is a complicated subject that exporters/importers have to deal with on a regular basis simply due to the complexities involved with international trade.

At Ametheus, we understand the plight that most importers are faced with and our competitive exporters finance products & buyer’s credit products are best suited to facilitate hassle-free international transactions so you can focus on scaling your business.

Usance LCs

In the case of Usance LCs, also known as deferred payment LCs, the buyer is given a grace period of 30, 60, 90, or 120 days after receiving the documents to make the payment. This is known as LC 30 days, LC 60 days, LC 90 days, and LC 120 days.

Under usance letter of credit the buyer is allowed to make the payment after the delivery, within a stipulated grace period. Unlike with sight LCs, the buyer doesn’t have to make payment immediately to receive the documents. Usance LCs generally provide a buffer of 30, 60, 90, or 120 days to make the payment. A usance LC is also known as a deferred payment LC, or a term LC.

Benefits and Drawbacks of Usance Letter of Credit

    • The buyer, who is given a credit time to complete a payment, benefits most from a usance letter of credit. No other kind of letter of credit provides the buyer with the option of postponed payment. For the buyer, this translates to operating money without interest.
    • Additionally, better working capital management is the outcome. The buyer may obtain the items before completing the payment when utilising a use letter of credit, which is another crucial factor to consider. He can then inspect the things before paying for them in this manner.
    • However, the identical set of benefits turns into a negative for the seller. As he extends a credit duration to the customer, the seller must manage his strained working capital.
    • In conclusion, a usance letter of credit is typically utilised when the purchaser has the advantage over selling or when the property exists. The seller consents to abide by the mild conditions of an overdraft Usance letter of credit.

Advantages of Usance LC for the Exporter

    • The discount bank will provide the exporter with immediate cash.
    • Daily Sales Outstanding (DSO) is decreased when payment is received “at sight”.
    • This LC makes things more marketable by offering customers the perk of more extended payment periods.
    • Maintains the price’s integrity because the seller need not factor in the expense of covering more extended payment periods.
    • Maintains the integrity of the receivables since the letter of credit continues to provide security for payment assurance.
    • Allows for more extended payment periods and the possibility of less expensive financing, strengthening ties with customers.

Advantages of Usance LC for the Importer

    • Comparatively speaking, borrowing is cheaper than any other kind of financing.
    • It facilitates working capital optimization.
    • Payment deferral for a maximum of 360 days
    • Foreign money can be purchased at a discount rate.
    • This approach is straightforward and practical.
    • This LC allows for payment upon Sight, which improves ties with the supplier.
    • Days Payable Outstanding (DPO) is enhanced by offering more extended payment periods.
    • It aids in providing a second source of cash.
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