By Justin Pritchard. Banking/Loans Expert
Justin Pritchard helps consumers navigate the world of banking.
An LC at sight is a letter of credit (LC) that is payable immediately – more or less – after the seller meets the requirements of the letter of credit. This type of LC is the quickest form of payment for sellers.
An LC at sight is a specific type of letter of credit. If you’re not sure how letters of credit work, read an overview and come back for the specifics of sight LCs.
What does Immediately Mean?
Although payment with a sight LC is relatively quick, it is not necessarily immediate. The seller’s bank will review the documents submitted to make sure they meet the requirements in the letter of credit. This process may take several business days. In some
cases, the documents might be forwarded to another bank for review.
Once the bank verifies compliance, payment is made – but that almost never happens immediately (so let’s call it about a week).
The Opposite of a Sight LC
To understand how an LC at sight works, it might help to review how it doesn’t work. An alternative form of LC is a deferred payment letter of credit. With deferred payment, payment happens at some future point in time – long after the documents have been submitted (perhaps 30, 90, or 180 days after).
Deferred payment gives the buyer more time to come up with funds.
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It can serve as a form of seller-financing, and it can be an enticement to attract buyers who would otherwise have to pay more quickly.