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What is a 30-day or 60-day Usance Letter of Credit?
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We have a European customer who insists on using a 60-day UsanceLetter of Credit for payment, saying it's their company's financial policy. I've only operated Sight LC before, want to ask: What risks does this Usance LC pose to us exporters? Will it affect our capital turnover? What should be noted in negotiations?
Michael ZhangYears of service：6Customer Rating：5.0
Customs Declaration & Compliance ExpertStart a Chat
The core risks of the 30-day or 60-day Usance LC you encountered lie in payment time difference and bank credit. Unlike Sight LC where payment is made upon presentation，Usance LC pays upon maturity after bank acceptance of the draft，significantly increasing risk exposure during this period. Must focus on checking: 1) Issuing bank credit rating，suggest only accepting banks with international rating A- or above，2) Whether to add confirmation，must require confirmation for banks with average credit，3) You will lose cargo rights after draft acceptance，customer can pick up goods without payment，4) Usance LC in some countries requires filing with Foreign Exchange Administration，potentially facing policy change risks. Operational suggestion: Explicitly stipulate in the contract "If issuing bank refuses payment，buyer shall bear unconditional payment liability"，and consider insuring with export credit insurance.
Lucas LiuYears of service：8Customer Rating：5.0
Senior Operations ConsultantStart a Chat
The key impact of Usance LC on logistics operation is the cargo right release node. Sight LC is "Release Documents upon Payment", Usance LC is "Release Documents upon Acceptance", meaning you haven't received payment when the customer gets the documents. In practice, must: 1) Prioritize Ocean Bill of Lading (B/L) over Air Waybill to maintain cargo right control; 2) Strictly control presentation period within LC stipulated time to avoid refusal of acceptance due to discrepancies; 3) Sign agreement with forwarder ensuring original B/L is not given directly to customer; 4) Consider using "Documents against Payment after Sight" (D/P after sight) as alternative, though risk is still high but more flexible than LC. If cargo value exceeds $50,000, strongly suggest requiring 20% advance TT deposit to reduce risk exposure.
Jason WuYears of service：10Customer Rating：5.0
International Logistics & Supply Chain ManagerStart a Chat
Customer requesting Usance LC is essentially transferring capital cost in negotiation. You can't simply say "No", but turn it into a bargaining chip for value exchange. Specific strategies: 1) Calculate capital cost: 60-day usance equals about 8-12% annualized capital occupation, this part should be factored into unit price; 2) Tiered quotation: One price for Sight LC, +2% for 30-day usance, +4% for 60-day usance, let customer choose; 3) Bundling conditions: Acceptance of Usance LC is premised on increased order volume or higher unit price; 4) Script template: "We value cooperation with your company, but usance payment brings financial pressure. If order volume reaches XX or unit price increases by XX%, we can accept 60-day usance." This shows sincerity in cooperation while holding the bottom line of interests. Remember, payment methods are never fixed, but part of negotiation strategy.