Demystifying Usance LC


Imagine you buy furniture from a country far away. You don't want to pay right away, and the seller doesn't want to send it until they get their money or assurance that money will be paid. That's where Usance LC comes in!

Think of it like a "delayed payment plan" for international trade. Here's how it works:

You (the buyer): Agree to buy the furniture and pay for it later with the help of your bank (the issuing bank).

Your bank: Issues a Usance LC to the seller's bank (the advising bank). This LC is basically a promise from your bank to pay the seller at a specific date in the future, usually 30-180 days after the shipment arrives.

Seller's bank: Informs the seller about the LC and holds it as a guarantee. The seller then feels secure sending the furniture because they know they'll get paid eventually.

Shipment: The furniture gets shipped, and the seller provides documents proving it arrived safely.

Payment: Once the documents are verified and the agreed-upon date arrives, your bank pays the seller's bank. The seller's bank releases the money to the seller.


Benefits for you (the buyer):

Financing: You get to pay for the furniture later, giving you more time to manage your cash flow.

Reduced risk: You don't have to send money upfront, so you're protected if the seller doesn't deliver.

Smoother trade: The LC helps ensure the transaction goes smoothly, reducing delays and complications.


Usance LC is like a trusted middleman: it makes sure both you and the seller get what you want, safely and securely, even if you're miles apart.

I hope this simpler explanation helps! Don't hesitate to reach out to me for your Trade Finance needs.

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