A deferred LC (Letter of credit)

A deferred LC, also known as a deferred payment letter of credit or usance LC, is a financial instrument used in international trade.

It allows the importer (buyer) to defer payment to the exporter (seller) until a specified future date after the shipment of goods.

This type of letter of credit is beneficial as it provides the seller with a guarantee of payment while giving the buyer additional time to make the payment,

which can be particularly useful if the buyer needs time to sell the goods before paying the exporter.

Here’s how it works:

The buyer and seller agree on the terms of the trade, including the deferred payment period.

The buyer applies for a deferred LC from their bank, specifying the deferred payment terms.

Once the goods are shipped, the seller presents the required documents to their bank.

The seller’s bank then forwards these documents to the buyer’s bank.

Payment is made to the seller after the agreed-upon deferral period, which can range from 30 to 180 days after the shipment.