The Benefits of Usance Letters of Credit for International Trade: A Guide for Businesses

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What is a Usance Letter of Credit?

A usance letter of credit, also known as a deferred payment letter of credit, is a financial instrument that guarantees payment to the seller of goods or services at a specified future date (ICC, n.d.). Usance letters of credit are often used in international trade to facilitate the purchase of goods from a foreign supplier.

How Do Usance Letters of Credit Work?

The process of using a usance letter of credit involves several parties: the buyer, the seller, the issuing bank, and the advising bank. Here’s a brief overview of how it works:

1. The buyer and seller agree to the terms of the sale, including the price, quantity, and delivery date of the goods.
2. The buyer applies for a usance letter of credit from their bank, the issuing bank. The issuing bank reviews the application and, if approved, issues the letter of credit to the buyer.
3. The buyer then sends the letter of credit to the seller, along with any other required documents, such as a commercial invoice or bill of lading.
4. The seller presents the letter of credit and supporting documents to their bank, the…