Usance Letter of Credit (L/C) is a letter of credit that is payable on specific term / tenor upon presentation of necessary document on the term and condition of the letter of credit. Different with Sight L/C, where issuing bank will pay beneficiary of letter of credit right away (no credit tenor / sight basis) after the issuing bank find that the documents presented to them are comply with the Letter of Credit’s term and condition, under Usance L/C, the issuing bank will incur a deferred payment undertaking / payment acceptance that they will pay on specific tenor / credit term (usance tenor) once the document presented are comply.
Let me remind you that banks in L/C transaction only deal with documents, as long as the documents presented to the issuing bank is inline with the requirement of the L/C & the face appearance of the documents seems ok, the issuing bank is obliged to pay the beneficiary, even though in the reality the delivery of the goods is not inline with the buyer’s requirement, or even there is no shipment at all (bank is not obliged to make sure the authenticity of the presented documents, banks is only obliged to check the authenticity of the Letter of Credit). Having said that, it is extremely important to know your business counterpart to make sure the don’t do fraud / they ain’t sell bullshit to your company.
The common usance tenor used are X days after B/L date, X days after sight, etc. For example, if Usance L/C payable 30 days after B/L date, if the B/L date is on 1 Jan 2018, thus the payment due date for the issuing bank will be on 31 Jan 2018 (B/L date + 30 days). A term “after sight” is referring to the calculation of usance tenor starting from the date when the issuing bank receive the document for checking.
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