Sight L/C vs Usance L/C: Choosing How and When You Pay for a China Import

When your bank opens a letter of credit for a China purchase, one line on the application decides a great deal about your cash flow: is it payable at sight, or on usance? Sight means the Chinese supplier gets paid as soon as compliant documents reach the bank. Usance means payment is deferred to a fixed number of days later—30, 60, 90, 120 or 180—while you get the goods now and pay later. Both are ordinary, both are widely used, and the right choice depends on your working-capital position, the supplier relationship and the cost of the deferral. This article lays out how each one works and how to decide.

How a sight L/C flows

Under a sight L/C, the sequence is: you apply and place margin, the bank issues the credit, the supplier ships and presents documents (invoice, packing list, bill of lading, certificate of origin and anything else the L/C demands) to the negotiating bank, the documents are checked against the L/C terms, and on a clean presentation the issuing bank pays “at sight”—in practice within a few banking days. Your account is debited then, or your margin plus the balance is settled then. You typically get the shipping documents to clear customs at roughly the same time the payment goes out.

The mechanism is clean and the supplier loves it, because their money is not tied up. For you it means the full cost lands early—before you have sold a single unit—so a sight L/C suits importers with cash to spare or a short sell-through cycle.

How a usance L/C flows

A usance (or deferred payment) L/C runs the same document cycle, but instead of paying on a clean presentation, the issuing bank accepts the documents and undertakes to pay on the maturity date—say 90 days from the bill of lading date. You get the documents, clear the goods and start selling while the clock runs. On maturity, your account is debited. The supplier can wait for that date, or discount the accepted bill with their own bank to get cash immediately, bearing the discount cost themselves.

The tenor is counted from a defined event written into the L/C—most often the shipment date shown on the transport document, sometimes the presentation date. Read that clause carefully, because “90 days from B/L” and “90 days from sight” produce different due dates.

The cost of deferral: who pays for the time

Usance is not free. Someone finances the gap between shipment and payment. If the supplier waits, they price the cost of money into the unit rate—a usance quote is usually a little higher than the same supplier’s sight quote. If the supplier discounts the bill, the discount charge is theirs, but again it tends to show up in pricing. On your side, the bank charges acceptance commission for the usance period and, at maturity, you may be funding the payment from a loan if sales have not covered it.

There is also a variant called UPAS (usance payable at sight): the supplier is paid at sight by a financing bank, while you still pay on the usance maturity date, and the interest for the period is billed to you explicitly. It gives the supplier sight comfort and you deferred settlement, at a stated finance cost. Ask your bank whether UPAS is available and how its all-in rate compares with a plain usance L/C.

A worked comparison

Suppose you import a machine on a 120-day usance L/C. The goods arrive in week three, you clear and install them, and they are earning by week six. Payment falls due at day 120, by which point the equipment has generated enough to cover a large part of the bill. The deferral bought you the ability to pay from the asset’s own output rather than from savings. Now suppose instead you import fast-moving consumer goods on a 60-day usance L/C, but your retail sell-through takes 100 days. The bill matures before the stock converts to cash, and you are borrowing to bridge 40 days. Same instrument, opposite outcome—because the tenor has to match your real cash conversion cycle, not a number that sounds comfortable.

When sight is the better call

• You have the working capital and want the lowest unit price—a sight quote is usually cheaper than the same supplier’s usance quote
• The supplier is new to you and insists on sight for the first few orders
• Your sell-through is fast, so deferral would not buy you much
• You want to keep bank charges minimal and avoid acceptance commission

When usance is the better call

• The purchase is capital equipment or long-cycle stock that earns or sells only after several weeks or months
• Your working capital is tight and the deferral cost is lower than what short-term borrowing would cost you anyway
• You have a trusted supplier relationship and can negotiate a usance rate close to their sight rate
• You are an exporter using a back-to-back structure, where usance is standard—see our guide to the back-to-back L/C

Practical points before you fix the terms

Confirm which event starts the tenor. Check whether your L/C needs an LCA form registered first. Understand that correspondent bank charges apply either way and can reduce what the supplier actually receives. And remember that your authorised dealer bank sets the acceptance commission and any margin—those are bank-specific and change with your credit standing, so ask for a written all-in cost for both a sight and a usance version of your L/C and compare them against the supplier’s two prices.

Discrepancies: a cost that hits both types

Whichever tenor you pick, payment under an L/C depends on the supplier presenting documents that comply exactly with the credit terms. A mismatch—a description that does not match the L/C wording, a late shipment, an expired document, a missing certificate—is a discrepancy, and it stalls things. The issuing bank can refuse to pay on a discrepant presentation until you, the applicant, agree to waive the discrepancy, and banks charge a discrepancy fee for handling it. On a sight L/C this delays the supplier’s money and can sour the relationship. On a usance L/C it can push out the acceptance date, which shifts your maturity date and muddies your cash-flow plan.

The practical defence is to send the supplier a clear, itemised list of exactly what each required document must say, matching the L/C wording word for word, before they ship. It is far cheaper to get the paperwork right once than to process waivers and fees on every shipment. This matters more on usance, where a chain of small delays compounds.

How each option shows up in your accounts

A sight L/C is a clean, early cash outflow: margin at opening, balance at payment, goods and documents at roughly the same time. Your working capital takes the full hit up front, but there is no interest line and the bank charges are minimal—opening commission, SWIFT and handling.

A usance L/C spreads the picture. You book the liability when the bank accepts the documents, you hold the stock as an asset while you sell or use it, and the cash leaves only at maturity. Against that, you carry an acceptance commission for the usance period, and if you use UPAS you carry an explicit interest charge for the days financed. When you compare a supplier’s sight price against their usance price, add your bank’s acceptance commission and any UPAS interest to the usance side before deciding—sometimes the cheaper-looking deferred deal is not cheaper once the finance cost is in.

We do not quote generic interest rates or margin percentages here, because the number that matters is the one your own bank puts in writing for your transaction. If you want help getting matching proforma invoices from Chinese suppliers, structuring the L/C terms, and moving the goods once they ship, contact DE International. Our end-to-end China import service covers sourcing, payment support, inspection and freight, our buying-agent service can act for you on the ground, and you can browse verified suppliers in our catalogue.