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Usance LC Vs LC at Sight – The Key Difference understanding Types of LC Business. Many Importer / Exporter parties are confused between Sight LC and time letter of credit. Although both require certain documents, and both are common practice within the import & Export trade arena, there is clear difference between the two.
A sight Letter of Credit becomes due as soon as the beneficiary presents the proof of delivery or proof of shipment, and other ancillary documents. Whereas, a Time Letter of Credit or USANCE LC needs certain days to pass after submitting a letter of credit, proof of delivery or shipment, and other required documents, before the payment becomes due. Time period or Usance period is negotiated between buyer (Importer) and seller (exporter) which can be anywhere from 15 days to 360 days credit period.
There are different Types of Letter Of credit have been explained under FAQ on the Finacialdealz.com website. A step-by-step process for Issuing LC at Sight is further explained as below…1) Buyer (Importer) and seller (Exporter or Beneficiary) agree to conduct business. 2) The Exporter wants a letter of credit as the form of payment guarantee. 3) Importer applies to his bank for a letter of credit at sight in Favor of the exporter (beneficiary). 4) Importer’s bank approves the credit risk of the buyer, issues and forwards the credit to its correspondent bank (advising or confirming). The correspondent bank is usually located in the same geographical location as the exporter (beneficiary). 5) Advising bank will authenticate the credit and forward the original credit to the exporter (beneficiary).6) Exporter party (beneficiary / seller) ships the goods, then verifies and prepares the documentary requirements to support the letter of credit including the insurance and inspection certification. Documentary requirements may vary greatly depending on the perceived risk involved depending upon the level of trust risk factors .7) Exporter party will present the required documents to the advising or confirming bank to be processed for payment. 8) Advising or confirming bank examines the documents for compliance with the terms and conditions of the letter of credit. 9) If the documents are correct, the advising or confirming bank will claim the funds by: 10) Debiting the account of the issuing bank.11) Waiting until the issuing bank remits, after receiving the documents. 12)Reimburse on another bank as required in the credit. 13) Advising or confirming bank will forward the documents to the issuing bank. 14) Issuing bank will examine the documents for compliance. If they are in order, the issuing bank will debit the buyer’s account. 15) Issuing bank then forwards the documents to the Importer (The Buyer).
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