====== Usance Credits ======


    * deferred LC
    * also known as a time or term LC
    * two types: acceptance and deferred payment credits[(:ref:baft-tfg-lc)]

Usance LCs are generally used when the buyer and seller lack a degree of trust.((https://archive.ph/mN5E7))

~~INTOC~~

===== Acceptance Credits =====

A documentary credit stipulating the presentation of a bill of exchange (“draft”) which the bank will accept and pay at maturity to the beneficiary.[(:ref:baft-tfg-lc)]

===== Deferred Payment Credits =====

do not require the presentation of a draft[(:ref:baft-tfg-lc)]

===== Tenor =====

The tenor is typically set out as being a certain amount of days following the bill of lading date or following sight.((https://archive.ph/mN5E7)) 

If it is “following sight” then this will be from the date the documents are received by the issuing bank.((https://archive.ph/mN5E7))

Under usance credits, the issuing bank undertakes to honour a compliant presentation at a future date (known as the “maturity date”).[(:ref:baft-tfg-lc)]

===== Date of Payment =====

When using an usance or deferred letter of credit, the issuing bank must make payment by a preset date.((https://archive.ph/mN5E7))

The date of payment is set either after the bills of lading are confirmed upon shipment, or when the issuing bank receives confirming documents and is typically set at 90 days.((https://archive.ph/mN5E7))

===== Payment Discounting =====

On the seller’s side, there is the option to negotiate payment discounting, which <wrap hi>allows the seller to receive payment faster</wrap>.((https://archive.ph/mN5E7))

In such cases, the <wrap hi>confirming bank will release the payment to the seller ahead of the deferred payment date but will deduct a greater percentage fee for itself</wrap>.((https://archive.ph/mN5E7))

Sellers can also add the option of discounting, whereby they agree to receive a slightly lower payment for the transaction, albeit at an earlier date.((https://archive.ph/mN5E7))

===== Buyer =====

If you are the buyer, <wrap hi>using a letter of credit provides evidence that you can make payment to the seller, which increases trust</wrap> between you and the seller.((https://archive.ph/mN5E7))

===== Seller =====

<wrap hi>If the terms are met, then the buyer’s issuing bank is legally obliged to pay you even if the buyer changes the order, cancels the order, goes bankrupt, or refuses to pay</wrap>.((https://archive.ph/mN5E7))

Better still, <wrap hi>the letter of credit itself can be used as collateral</wrap> in the meantime, to finance working capital loans that can help cover production and shipping costs.((https://archive.ph/mN5E7))