A letter of credit (LC) is a financial instrument where the financial institution behave as an intermediary between a buyer and a seller to complete the transaction. The buyer request the bank to provide a letter of credit to the seller or the beneficiary. Thereafter the bank verifies the Letters of credit before the seller ships the goods. The seller furnishes all the necessary documents to the bank, due to which the bank pays the seller the entire amount mentioned in Letter of credit.
In this article, we will discuss usance letter of credit. So let's start:
What is usance letter of credit?
A usance letter of credit is a particular type of letter of credit that provides a pre-decided credit period to the buyer. In the field of business and finance, it is commonly known as a differed letter of credit.
Types of Usance Letter of Credit
Letters of credit is a type of payment instrument which is used to conduct international trade transactions. The primary goal of a letter of credit is that it assists to reduce the risk related to international transaction and trading for both seller and buyer. Like with any payment mode, a letter of credit also serves a different purpose. Other than usance letter of credit, there are other types of letters of credit that is used for different purposes for exporter and importer.
A usance letter of credit helps the buyer by providing a differed payment option. The period of payment is pre-determined by the seller and buyer. This letter of credit can be divided on the basis of the period.
Advantages of usance letter of credit
The main advantage of usance letter of credit is to get the credit period in order to make the payment. Whereas other types of letter of credit do not offer such a deferred payment option. This means the buyer does not have to pay additional interest against the borrowed capital. It should be noted that, when you are using a usance letter of credit, the importer has the provision to receive the goods before making the payment. In this way, the buyer can able to evaluate the quality of goods before he makes the payment.
Find a reputed financial company
Merchant Credit and Guarantee Corporation Limited (MCG) is a Non-Bank and Non-Financial Company that has been in business for over 20 years successfully offering consultancy and broking services. Their consultancy services assist and support discerning clients and companies to facilitate trade and business. Merchant Credit and Guarantee Corporation Limited assists and interacts with various bankers and traders to establish trade credit lines. If you want any financial assistance, then you can visit merchantcreditcorp.co to know more.
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