Sight LC vs Usance LC: Which Letter of Credit Should You Open?

The difference is when the bank pays. A sight letter of credit pays the seller immediately — the moment compliant documents are presented and examined, payment is due “at sight”. A usance LC (also called a deferred-payment or term LC) pays at a defined future date — typically 30, 60, 90 or 180 days after the bill of lading or after sight — which builds a financing period into the trade itself. Both are documentary credits governed by the same rules; the only structural difference is the payment clock. Choose between them and you are really choosing who finances the gap between shipment and payment: the seller (under sight) or the buyer (under usance). Get that wrong and you either strangle your own working capital or pay for credit you didn’t need.

This guide draws the line precisely, sets out a decision table, and explains the cash-flow trade-off that should actually drive the choice. Both instruments sit under our letter of credit practice, part of the broader corporate finance and debt syndication desk; if you import, the mechanics that matter most to you are on our LC for importers page.

Sight LC: pay on presentation

A sight LC is the cleaner, simpler instrument. The seller ships, assembles the documents the LC demands — bill of lading, commercial invoice, insurance, certificate of origin and so on — and presents them to the nominated or issuing bank. Once those documents comply strictly with the credit’s terms, payment is due at sight: the bank pays, regardless of any side dispute about the underlying goods, because the bank deals in documents, not merchandise.

For the seller, this is the strongest position — money lands almost as soon as goods leave. For the buyer, it is the most demanding, because cash goes out before the goods arrive, clear customs and convert into resale revenue. A sight LC therefore loads the entire shipment-to-payment gap onto the buyer’s own working capital.

LCs are governed internationally by UCP 600 (the ICC’s Uniform Customs and Practice for Documentary Credits, Publication 600), which runs to 39 articles and gives a bank a maximum of five banking days after presentation to examine documents and decide to honour or refuse. That window applies equally to sight and usance credits — the difference is not in how documents are checked, but in what happens after they pass.

Usance LC: pay at a future date

A usance (or deferred-payment) LC introduces a credit period. The documents are still examined the same way and must still comply, but instead of paying at sight, the bank’s obligation matures on a future date — “90 days from bill of lading date” or “60 days after sight” being typical. In the interval, the buyer has received and can sell the goods before having to pay for them. The usance LC is, in effect, a built-in supplier credit guaranteed by a bank.

The seller is not necessarily left waiting. Once the bank accepts the usance documents, the seller holds a bank-backed obligation to pay on a fixed date — and that accepted bill is discountable. The seller can take it to a bank and receive funds now, less a discount, effectively converting the term LC into near-immediate cash while the buyer keeps the credit period. This is where structures like buyer’s credit and supplier’s credit attach to the underlying usance LC. One India-specific point bears repeating across both types: where there is a conflict, RBI and FEMA rules override UCP 600 — the ICC framework does not displace Indian statutory and regulatory law, and cross-border tenor and pricing must respect FEMA trade-credit norms.

The decision table

Read across any row and the logic holds: a sight LC optimises for speed and price; a usance LC optimises for the buyer’s working-capital cycle, with discounting as the seller’s release valve.

The cash-flow trade-off

This is the decision that matters, and it is a working-capital decision, not a paperwork one. A sight LC suits a buyer with comfortable liquidity who can use early payment as a negotiating lever — many suppliers shave the unit price for sight terms because their own cash converts faster. If the price concession beats your cost of funds, paying at sight can be the cheaper outcome overall.

A usance LC suits a buyer whose cash conversion cycle is long — goods that must be imported, cleared, processed or sold before they generate revenue. Here the credit period in the LC matches financing to the cash the goods will eventually throw off, rather than forcing the buyer to bridge the gap from existing limits or a costly overdraft. The cost of that credit is embedded in the supplier’s price or in the discount charge, and the right question is always the same: is the all-in cost of the usance period cheaper than funding the same gap from your own working-capital limits? Sometimes it is; sometimes a plain sight LC plus a well-priced cash-credit line wins. That comparison — not habit — should decide the tenor.

To frame the choice in numbers, current Indian lender rate bands give a useful benchmark for what “the same gap” costs from a fund-based line:

Indicative, dated June 2026 — varies by borrower profile, collateral and ticket size; not a quote.

If the supplier’s premium for usance terms, or the bill-discounting charge, runs below your marginal cost on these lines, the term LC is financing you cheaply. If it runs above, a sight LC funded from your own limit is the disciplined call.

Where the standby LC differs — a quick boundary

Neither a sight nor a usance LC should be confused with a standby letter of credit (SBLC). Both sight and usance LCs are payment instruments — they pay because the deal goes right and documents conform. An SBLC is documentary in form but a default instrument in function: it pays only when the applicant fails, against a statement of default. If your counterparty actually wants a guarantee rather than a payment undertaking, an LC of either tenor is the wrong tool — see our LC vs bank guarantee explainer before you instruct the bank.

Why the tenor decision needs a banker who structures the file

Choosing sight versus usance — and then fixing the tenor, the document set, the confirmation, and whether to layer buyer’s or supplier’s credit on top — is structuring work, not form-filling. The wrong tenor ties up working capital or pays for credit you didn’t need; a document set the seller can never satisfy turns any LC into a dispute. And on cross-border deals, the FEMA trade-credit envelope on tenor and cost has to be respected from the outset.

That is the work we do at Finnova Advisory — CA-led and lender-agnostic, with ₹4,250 Cr+ mobilised across 100+ corporate-finance mandates since 2011, active across PSU banks, private banks, NBFCs and SEBI-registered AIFs. We size the non-fund-based limit, pick the LC tenor that fits your cash conversion cycle, and walk it through to issuance — the right instrument, on the right terms, walked through to the counter. If an import or a supply contract is forcing the sight-versus-usance question, our corporate finance team sets it up correctly the first time. For the full menu of LC variants, see our guide to the types of letter of credit.

Key takeaways

• A sight LC pays on presentation of compliant documents; a usance LC pays at a future date (e.g. 90 days from B/L) and is discountable.
• Sight loads the shipment-to-payment gap on the buyer; usance gives the buyer a credit period and lets the seller discount the accepted bill for cash now.
• The real driver is cash flow: compare the cost of the usance period against funding the same gap from your own working-capital limit (~8.5–14% across PSU/private/NBFC, indicative Jun 2026).
• Both are governed by UCP 600 (5 banking days to examine documents); RBI/FEMA override on conflict — critical on cross-border tenor and pricing.
• Don’t confuse either with an SBLC — that is a default instrument, not a payment one.

FAQ

What is the difference between a sight LC and a usance LC? The payment timing. A sight LC pays the seller immediately on presentation of compliant documents — “at sight”. A usance (deferred-payment) LC pays at a defined future date, such as 90 days from the bill of lading, giving the buyer a credit period. Document examination is identical under UCP 600; only the payment clock differs.

Is a usance LC discountable? Yes. Once the bank accepts compliant documents under a usance LC, the seller holds a bank-backed obligation to be paid on a fixed future date. That accepted bill can be discounted with a bank for funds now, less a discount charge — so the seller can get near-immediate cash while the buyer retains the credit period.

Which is better for an importer, sight or usance? It depends on your cash conversion cycle. If you can sell or convert the goods quickly and a supplier offers a price concession for early payment, a sight LC may be cheaper overall. If the goods take time to clear and sell, a usance LC matches payment to the cash the goods generate — provided its all-in cost is below what the same gap would cost from your working-capital limit.

Does a usance LC cost more than a sight LC? Usually there is a cost to the credit period — embedded in the supplier’s price or in the bill-discounting charge. Whether that is “more expensive” depends on the comparison: if the usance cost runs below your marginal cost of funds on a cash-credit line (~8.5–14% indicative across PSU/private/NBFC in June 2026), the term LC is financing you cheaply.

Do RBI rules affect LC tenor in India? Yes. LCs follow UCP 600 internationally, but RBI and FEMA rules override UCP 600 where they conflict. On cross-border trade, FEMA trade-credit norms govern the permissible tenor and cost of buyer’s and supplier’s credit attached to a usance LC, so the structure must respect Indian regulation from the outset.