Deferred Payment L/C

Deferred Payment L/C is a special type of letter of credit under which the issuing bank, after receiving documents that comply with the terms of the L/C, undertakes to pay on a specified future date rather than at sight. It is commonly used in transactions involving bulk commodities, machinery and equipment, etc. The buyer seeks the financing convenience of deferred payment, while the seller relies on bank credit to reduce the risk of non-payment. Unlike a usance L/C, under a deferred payment L/C the beneficiary is not required to draw a bill of exchange, and therefore cannot discount it, but can avoid bill stamp duty. Use cases include the buyer needing to extend its capital turnover period, or the seller's country having bill laws that restrict the use of bills of exchange. Points to note: the seller needs to assess its own funding pressure, as the inability to discount may affect cash flow; the buyer needs to ensure payment at maturity, otherwise its bank credit will be affected. Compared with a sight L/C, a deferred payment L/C has a delayed payment time, but the bank's payment obligation is the same. Compared with a negotiable L/C, under a deferred payment L/C the bank does not negotiate, and the beneficiary cannot obtain funds in advance. In short, this term balances the funding and risk needs of both buyer and seller, but it must be chosen with caution.