Letter of credit

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08 April 2011 What are the major differences between a sight LC & Usance LC

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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08 April 2011 A letter of credit is used for conducting international trade. When exporters sell his goods to an international buyer, he normally asks the buyer to open a Letter of Credit in his favor from his Bank. A letter of Credit basically give exporter the peace of mind that in case buyer fails to pay him for his good that he has sold to him, the bank who has issued the letter of credit will pay him money on whatever terms that have been decided between buyer & seller at the time of opening the letter of credit.

So basically a letter of credit is a mode of payments between international buyers and sellers. Now a sight letter of credit is a letter of credit where the exporter gets the payment from his bank by discounting it. By discounting we mean that the exporter's bank will pay him the total amount of letter of credit by deducting some amount as its charges and remit the remaining money to exporter.
In sight letter of credit exporter get the money within 5 to 10 days after presenting the documents while in Usance letter of credit a time period is given before which exporter cannot claim payment from his buyer. This timeframe vary from 30 days to 90 days depends upon the terms of export sales contract (ESC)

FOR MORE INFOFLINK IS:
http://en.wikipedia.org/wiki/Letter_of_credit

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