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Sight LC's are paid immediately whereas Usance LC's are deferred payment and it is used as a guarantee of payment.
BECAUSE IN USANCE PAYMENT WILL MADE ON FUTURE DATE AND DOCUMENTS DELIVERED AT ACCEPTANCE SO IN CASE OF ANY ISSUE BANK SHOULD HAVE A LEGAL DOCUMENTS AS SECURITY TO SOLVE THE ISSUE LEGALLY
In usance LC payment is defferred whereas in sight LC the payment is honored on sightation discrepancy free documents. (A bill of exchange is like a check drawn on drawee Bank.) An international draft is drawn by the seller on buyer’s bank to pay the seller after delivery of goods or shipping documents presentation & agreed period of time.
In sight LC , the buyer can only retire the documents upon payment at sight wherase in Usance, the payment takes place in some future time depending upon the terms of credit. Bill of eschange is prmoise by the seller to make the payment on future date.
Why is bill of exchange required in Usance LC and not in sight LC?
Because Letters of credit can permit the beneficiary to be paid immediately upon presentation of specified documents (sight letter of credit), or at a future date as established in the sales contract (term/usance letter of credit).
While sight in LC With a confirmed sight letter of credit, the payment of funds also flows from the applicant (buyer) to the beneficiary (seller). However, the payment made by the negotiating/confirming bank is made without recourse to the beneficiary
