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Letter of Credit is a negotiable instrument by which consginee bank give assurance that if L/C mentioned terms and conditions complies and correct goods dispatched to importer than L/C opening bank will honor the payment comittment. At Sight and D/A LCs are two different types of L/C under UCP600.
At Sight L/C means bank holds themselves responsible to pay the shipper's invoice value maximum5 working days, if shipping documents presented without any discrepancy.
However, in D/A or usance L/C bank undertakes to give acceptance to pay the shipper invoice value on a specific date after counting the number of days for which L/C was established i.e.60 days DA,90 Days DA.
A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.
The D/A transaction utilizes a term or time draft. In this case, the documents required to take possession of the goods are released by the clearing bank only after the buyer accepts a time draft drawn upon him. In essence, this is a deferred payment or credit arrangement. The buyer’s assent is referred to as a trade acceptance.
The procedure would be the same as "Cash Against Document" except a draft will be accompanies the documents. The Buyer would made arrangements with its bank to repay the amounts due under the Draft. Until such arrangements are made the bank holds the Draft and the documents. SD/DP means the bank pays at "sight", i.e., upon presentation with the documents.
Thanks for Valuable contribution, especially Malik Muhammad Saeed
