LC at sight

A Sight Letter of Credit is a secure and widely used trade finance instrument that serves as a guarantee of payment from the buyer’s bank to the seller upon presentation of compliant documents. It acts as proof of payment in exchange for the release of goods or services for transportation. Once the required shipping and commercial documents are verified, the seller receives immediate payment from the issuing or negotiating bank.

Key Process

The process of submitting and verifying the relevant documents (such as the commercial invoice, bill of lading, packing list, certificate of origin, etc.) is known as the sighting process. Upon successful verification, the Letter of Credit becomes a Sight LC. Banks and financial institutions typically take 5 to 10 business days to complete the document examination and processing.

Major Benefits for Exporters

  • Faster Cash Flow: Exporters can receive payment as soon as the shipment is dispatched (often while goods are still in transit), significantly improving liquidity.
  • Better Working Capital Management: With prompt realization of funds, exporters avoid cash constraints and can efficiently manage their operations, procurement, and growth.
  • Reduced Risk: The Sight LC minimizes credit risk and provides greater financial certainty in international trade transactions.

We can facilitate the issuance of a Sight Letter of Credit within 7 to 14 business days, subject to standard due diligence, KYC, and approval processes.

How does a Sight LC work?

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

  1. Agreement Between Buyer and Seller The buyer identifies a supplier, negotiates the terms of the transaction (price, quantity, quality specifications, delivery terms, etc.), and confirms the deal.
  2. Application for Sight LC The buyer approaches his bank (the Issuing Bank), which has usually already extended a line of credit or has sufficient collateral/security. The buyer requests the issuance of a Sight Letter of Credit in favor of the supplier (beneficiary).
  3. Issuance of the LC After assessing the buyer’s creditworthiness and risk, the Issuing Bank issues the Sight LC and sends it to the Advising Bank (usually in the supplier’s country) through secure banking channels (SWIFT).
  4. Advising the Beneficiary The Advising Bank verifies the authenticity of the LC and forwards it to the supplier along with all terms and conditions. The supplier reviews the LC to ensure it matches the agreed contract terms.
  5. Shipment of Goods Once satisfied with the LC, the supplier ships the goods as per the agreed Incoterms (e.g., FOB, CFR, CIF) and prepares the required shipping and trade documents (Bill of Lading/Airway Bill, Commercial Invoice, Packing List, Certificate of Origin, Inspection Certificate, etc.).
  6. Presentation of Documents The supplier submits the original documents to the Advising Bank (or a nominated Negotiating Bank) for payment under the Sight LC.
  7. Document Examination & Payment to Supplier The bank examines the documents. If they are found to be in full compliance with the LC terms (strict compliance principle), the bank makes immediate payment to the supplier at sight (i.e., without any usance/credit period). This is the key advantage of a Sight LC — the supplier receives payment quickly, often long before the goods reach the buyer.
  8. Forwarding of Documents The Advising/Negotiating Bank forwards the documents to the Issuing Bank.
  9. Payment by Buyer & Release of Documents The Issuing Bank notifies the buyer that the documents have arrived. The buyer examines the documents. Upon acceptance, the buyer makes full payment to the Issuing Bank (or the bank debits the buyer’s account). The Issuing Bank then releases the original documents to the buyer, who uses them to take delivery of the goods from the carrier/port.
  10. Reimbursement The Issuing Bank reimburses the Advising/Negotiating Bank as per the LC terms.

Key Advantages of Sight LC

      • Security for Seller: Guaranteed payment upon compliant document presentation.
      • Security for Buyer: Payment is made only against genuine shipping documents.
      • Faster liquidity for the supplier compared to open account or usance LCs.

LC at sight – Payment Terms

A Sight Letter of Credit (LC) is one of the most secure and widely used payment instruments in international trade. Upon issuance, the issuing bank acts as a guarantor, undertaking to make payment to the beneficiary (seller/exporter) at sight — i.e., immediately upon presentation of compliant documents.

How It Works:

  1. The seller ships the goods and prepares all required documents as stipulated in the LC.
  2. These documents are submitted to the nominated or confirming bank.
  3. Upon verification and confirmation that the documents are in full compliance with the LC terms, the bank releases payment to the seller immediately.
  4. The buyer (applicant) is then required to reimburse the issuing bank for the full amount.

Key Conditions:

  • The bank is under no obligation to make payment if the supplier fails to submit the required documents.
  • Any discrepancies in the presented documents may result in the bank refusing payment or levying discrepancy charges/penalties as per the LC terms and international banking practices (UCP 600).

While trade finance instruments like Letters of Credit provide essential security in cross-border transactions, they can be complex and require meticulous attention to detail — something importers and exporters navigate regularly.

At Ametheus, we understand these challenges deeply. Our tailored Exporter Finance and Buyer’s Credit solutions are designed to simplify international trade, reduce working capital pressure, and ensure smooth, hassle-free transactions. Whether you are importing or exporting commodities, we provide competitive financing structures that let you focus on growing your business with confidence.

Usance LCs

A Usance Letter of Credit, also known as a Deferred Payment LC or Term LC, allows the buyer (importer) a grace period—typically 30, 60, 90, or 120 days (extendable up to 360 days in some cases)—to make payment after the documents are presented or after shipment.

Unlike Sight LCs, where payment must be made immediately upon presentation of compliant documents, a Usance LC gives the buyer time to receive, inspect, and even resell the goods before payment is due. This type of LC is commonly referred to as LC 30 days, LC 60 days, LC 90 days, or LC 120 days, depending on the agreed tenor.

Key Features

  • Payment is deferred for a fixed period after document acceptance or shipment.
  • The seller (exporter) ships the goods and presents documents to the bank.
  • The buyer accepts the documents and pays on the maturity date.
  • The LC remains a secure, bank-backed payment instrument for the seller.

Advantages and Disadvantages of Usance LCs

For the Buyer (Importer): Usance LCs are particularly beneficial for the importer as they provide working capital flexibility without immediate cash outflow.

Advantages for Importer:

  • Improved Cash Flow & Working Capital: The importer can receive and potentially sell the goods before making payment, optimizing liquidity.
  • Cheaper Financing: Often more cost-effective than other forms of short-term borrowing.
  • Inspection Period: Allows time to inspect goods for quality and compliance before payment.
  • Extended Payment Terms: Up to 360 days in certain cases.
  • Better Supplier Relationships: Offering longer payment terms can strengthen ties with exporters.
  • Discount on Foreign Currency: Opportunity to purchase foreign exchange at potentially better rates.
  • Enhanced DPO (Days Payable Outstanding): Improves financial ratios and working capital management.

For the Seller (Exporter): While Usance LCs help make offers more competitive, they shift some financial pressure to the exporter.

Advantages for Exporter:

  • Immediate Liquidity: The exporter can discount the accepted LC with a bank and receive funds upfront (minus discount charges).
  • Reduced DSO (Days Sales Outstanding): Faster effective realization of payment compared to open account terms.
  • Market Competitiveness: Ability to offer extended credit terms without compromising on price integrity.
  • Payment Security: Remains protected by the issuing bank’s irrevocable undertaking.
  • Stronger Customer Relationships: Builds long-term buyer loyalty through flexible payment options.
  • Access to Financing: Easier and often cheaper financing against a bank-guaranteed LC.

Disadvantages:

  • For the seller, the main drawback is the delay in full payment, which can strain working capital unless the LC is discounted.
  • For the buyer, there may be additional bank charges and the requirement to provide collateral or margins.

When to Use Usance LCs

Usance LCs are ideal when:

  • The buyer needs time to generate cash from the resale of goods.
  • The seller is comfortable with the buyer’s creditworthiness and is willing to extend trade credit backed by a bank.
  • Building long-term trade relationships is a priority.
  • The transaction involves high-value or seasonal goods where immediate payment would be burdensome for the buyer.

Recommendation: Always clearly specify the usance period, maturity calculation (e.g., from date of shipment, bill of lading, or document acceptance), and discount terms in the LC application and contract to avoid disputes.

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