A Sight Letter of Credit (Sight LC) is a special type of Letter of Credit where the payment is made immediately when the required documents are presented to the bank & provided that these documents allow with the terms set high in the LC.
Main Characteristics of A Sight LC:
- Instant Payment: When the supplier presents the necessary documents like commercial invoice, shipping documents, etc. to the bank then payment is made early, typically within a few days.
- Documentary Compliance: The documents presented must match with the terms & conditions of the LC accurately, otherwise payment may be delayed or refused.
- Used in International Trade: It is common in international trade, where the seller wants to ensure the instant payment upon fulfilling the agreement terms.
- Lower Risk for the Seller: It reduces the supplier’s risk because the payment is ensured as long as the necessary documents are shared as per the agreement.
Differentiate with Other Types of LCs:
- Usance LC: Payment under the Usance LC which is made at a future date like a certain period after the documents are submitted, on other hand in a Sight LC the payment is instant.
- Revolving LC: A Sight LC is the one-time payment, while a Revolving LC can be used multiple times for various shipments or transactions.
When to Use:
- For Immediate Payment: If the seller wants payment instantly after the shipment or delivery of goods.
High Assurance: When the seller wants the least amount of risk and the buyer’s ability to pay which is secure.
