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Dear sirs,

there is a question, What is difference between deferred and usance?

regards,
Farhad.H.M

dear ferhad,

in simple way, usance and deferred letter of credit dont have any significant differences. both are the methods of paying at some future date. however there is a little difference.

interest; who is gonna pay it? considering this option

Usance L/C means - the exporter will issue draft for say 180 days sight, but gets the money at sight. but the importer will pay his bank after 180 days ofcourse interest. i have heard that south korea is the origin of such LCs while i have dealt with some in action.

on the other hand deferred Payment means the payment will be effected say 180 days after sight. that is the issuing bank will pay the exporter after 180 days. ofcoucrse the exporter has the opportunity to get the money before that through negotiation or discounting. in that case it the exporter who will be paying the interest.

nevertheless, in market, the terms deferrer letter of credit and usance letter of credit are used interchangeably.

hope that will help.

regd

shahriar

im not sure about the shahriar explanation. doesnt make any sense to ask the exporter to draw a 180 days sight draft if the exporter is being paid at sight actually. rather the importer should have some credit line with the issuing bank; may be import loan. however; practice differs.

one more thing. usance is more similar to acceptance letter of credit than deferred letter of credit sine usance letter of credit involves a draft.

iLC

dear iLC,

i have a little argument to made. it make sense to draw a 180 days sight draft even though the beneficiary is paid at 0 days sight. because, in some cases, the issuing bank will be endorse the draft to the importer and get his payment. but as you rightly pointed out; practice differs and i think the local law will be a determinant here.

about involvement of a draft in usance; fairly right. but not always true. Commentary on UCP 600 says

When an issuing bank issues a documentary credit available by negotiation, a nominated bank acting on its nomination will negotiate, i.e., advance funds or agree to advance funds, but when the documents are received by the issuing bank they will either pay (a documentary credit available at sight with or without a draft), or accept or incur a deferred payment undertaking (a documentary credit available on usance terms with a draft (accept) or without a draft (incur a deferred payment undertaking)).

regd

shahriar

Dear Friends,

All credits must clearly indicate whether they are available by sight payment, by deferred payment, by acceptance or by negotiation.

Acceptance documentary credit
An acceptance (also known as term) documentary credit calls for a tenor (or usance) bill of exchange to be drawn by the beneficiary on and duly accepted by a named drawee. The bill of exchange is drawn for a certain period (say, 90 days aftersight).

The example given by Shahriar that time draft 180 days after sight will pay at sight. Time draft will only pay at sight when L/C indicated clearly that usance bills drawn are to be nogotiate at sight basic.

Deferred payment documentary credit
In some countries, a tenor bill of exchange can attract exorbitant stamp duty. Thus, as an alternative, no bill of exchange is called for to overcome the stamp duty. In this case where a deferred payment documentary credit is involved, no bill of exchange is drawn. Payment will be made payable at a specific future time.

Regards,
Leechian