A Usance or Deferred Letter of Credit is payable at a predetermined time after the presentation of required documents. It is why this trade financing arrangement is popular as Time LC or Term LC as well. It gives the buyer a grace period for payment as the buyer receives ordered goods immediately, but pays back the bank later on a decided date.
Under Usance LC, the issuing bank incurs a deferred payment undertaking or payment acceptance that they will pay on specific tenor or credit term. However, the payment is released when we receive documents complied with the LC terms.
The usance of bills varies from countries to countries and often ranges from two weeks to two months. It is mostly preferred by businesses that have closer seller and buyer relationship with each other.
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