What is LC discounting, and when does it make sense?
How exporters turn a usance letter of credit into cash today, what it costs, and the questions to ask before you discount.
Read · 6 minEvery letter of credit says when the exporter will be paid. That single term shapes your cash flow more than almost anything else in the deal.
Sight LCs
With a sight LC, the bank pays once it has examined the documents and found them compliant. Banks have up to five banking days after presentation to examine documents under UCP 600 Art. 14(b). There is little to discount, because payment comes quickly.
Usance (deferred) LCs
With a usance LC, payment is due at a future date, for example "90 days from bill of lading date". The buyer gets time to sell the goods before paying. The exporter waits, unless they discount.
| Sight LC | Usance LC | |
|---|---|---|
| When you are paid | After documents are examined | At a future date, often 30–180 days |
| Good for | Exporters who need cash at once | Buyers who need credit time |
| Discounting | Rarely needed | Common, to get paid early |
Negotiating the term
Many exporters accept a longer usance to win the order. If you know you can discount the LC at a good rate, you can offer the buyer longer credit and still be paid early.