What Is a Usance Letter of Credit?

Symmetry of forward L / C at sight. When the issuing bank or the paying bank receives the documents from the exporting bank, they do not pay immediately, although the documents are approved, but they wait until the due date of the forward payment bill to fulfill the payment letter of credit. It is based on a L / C based on a transaction contract for spot delivery and forward payment, and is characterized by "conformity to review documents and payment due". In the practical application of international trade, forward letters of credit are roughly divided into the following types: (1) Banks accept forward letters of credit. With the issuing bank as the payer of the forward bill, once the review order is in line with the acceptance of the forward bill, it will bear the responsibilities of the due payment to the drawer, endorser, and holder; (2) Commercial letter of credit. The issuing applicant (importer) is the payer of the forward bill. The issuing bank receives the documentary draft review and sends it to the importer for acceptance. The documentary draft after acceptance is still retained at the issuing bank, and the importer repays the redemption note (3) postponed on the due date. Payment letter of credit. The issuing bank stipulates in the issuance clause that "the payment is made several days after the bill of lading" or "the payment is made several days after the issuing bank sees the bill". Generally, the beneficiary (exporter) is not required to issue a draft, even if the draft is submitted It will not be accepted, so it is not easy to discount, so the deferred payment letter of credit is also called no acceptance letter of credit. In contemporary international trade, the use of spot letters of credit is mainly used, supplemented by forward letters of credit, which is also the case in China. ^[1]

Long-term credit

Forward

In international trade

Discounting of drafts under forward letters of credit refers to the acceptance of drafts under forward bills of credit issued by issuing banks or confirming banks or other designated banks at the request of customers (exporters, beneficiaries of letters of credit). , Discount the bill of exchange with recourse. Correspondingly, there are international trade financing business models such as the purchase of receivables under forward letters of credit and the settlement of foreign exchange and factoring. The internationally accepted Forfeiting (originally derived from "a forfait" in French) is similar to discounted bills under forward letters of credit, but with some differences. Taking the forfeiting financing business of the Bank of Montreal in Canada and the Export-Import Bank of China (that is, the non-recourse forward L / C discount business) as examples, the following differences exist:

1. In the business of discounting bills of exchange under letters of credit, banks will require recourse to discount advances; the most prominent feature of Forfaiting is that banks (or professional discounters, the same below) do not require recourse. Rights, that is, "buyouts."

2. The business scope of discount bills under forward letters of credit is often limited to the discounting of bank acceptance bills under documentary letters of credit; the scope of forfaiting financing business can be bills of exchange under letters of credit or bank guarantees. Tickets, the range of acceptable bills is wider.

3. Banks usually pay only 70% -80% of the face value of bills of exchange under the draft L / C. Forfaiting financing business, in addition to the necessary fees, is paid in full on business practices.

4. The bill of exchange discount business under forward letters of credit usually does not have strict requirements on the contract amount and term, which is more of a short-term financing. Forfaiting financing business is suitable for large trade contracts of more than 1 million US dollars, and the bill term is generally 1-5 years (some banks require an amount of more than 500,000 US dollars, and the term of the bill is not less than 180 days), which is a medium and long-term financing.

Usance credit refers to a letter of credit in which an issuing bank or its designated payment bank does not pay immediately after receiving a forwarder's draft from a beneficiary. .

Forward letters of credit can be divided into bank-accepted forward letters of credit and firm-accepted forward letters of credit according to the different acceptors.

Banker's Acceptance Credit refers to a letter of credit with the issuing bank or another bank designated by it as the payer. When such letters of credit are used, the letter of agreement sent to the beneficiary by the negotiating bank in the place of export is generally used.

Review the forward bills and documents stipulated in the L / C, and send them to the issuing bank or its designated paying bank at the branch or agent bank where the negotiating bank is located to request acceptance; if there is no such branch or agent bank, negotiate Banks can also send drafts and documents to the issuing bank or its designated paying bank for acceptance. After acceptance, payment is due. After the issuing bank or its designated paying bank or its branch or agency at the negotiating bank accepts the forward draft, leave the document and return the bill; the beneficiary or the negotiating bank may hold the returned acceptance before the bill is due The bill is discounted to the local discount market, and the interest is immediately deducted from the discount date to the maturity date, and the cash is immediately collected; if there is no local discount market, the bill can be requested from the accepting bank, or the bill can be repaid to the accepting bank when the bill is due.

Trader's Acceptance Credit is a letter of credit with the issuer as the payer of the draft. A forward bill needs to be accepted by the issuer, but the issuing bank is still responsible for the issuer's acceptance and payment due. Commercial acceptance bills can also be discounted, but their discount conditions are worse than bank acceptance bills, so beneficiaries are generally unwilling to accept commercial acceptance letters of credit and require bank acceptance letters of credit.

Both types of acceptance letters of credit can have interest clauses, which is a financial aid facility that the beneficiary gives the issuer.

False forward letter of credit (Usance Credit Payable at Sight) refers to the trade contract signed by the buyer and the seller was originally settled at sight, but the permit requires the exporter to issue a forward bill, and at the same time, it states the forward bill It can be negotiated at sight, and the paying bank is responsible for discounting, and the discount fee and the interest on deferred payment shall be borne by the issuer. This type of letter of credit is still a letter of credit for full payment at the moment for the exporter; but it is a letter of credit for the forward payment for the issuer, so it is also known as "Buyer's Usance" Credit). The importer is willing to use a false forward L / C because: first, he can use the discount market or foreign bank funds to solve the problem of insufficient capital turnover; the second is to get rid of the restrictions of the foreign exchange control laws of the importing country.

As for whether we accept false forward letters of credit from abroad, the key depends on whether the following three items are stated in the incoming letter:

One is that the exporter's forward bill is guaranteed to be discounted by the paying bank;

The second is that the discounter and late payment interest shall be borne by the issuer;

The third is that beneficiaries can receive full payment on time.

Only when these three articles are in place can they be accepted, otherwise they will not be accepted.