deferred payment letter of credit (L/C)

  

Definition

A letter of credit that is paid a fixed number of days after shipment or presentation of prescribed documents. It is used where a buyer and a seller have a close working relationship because, in effect, the seller is financing the purchase by allowing the buyer a grace period for payment.

A deferred payment letter of credit differs from a sight draft or time draft in that no drafts are involved but the payment is guaranteed on the stated date. However, there being no draft, the beneficiary party's ability to discount or sell his or her right to payment is restricted. Also called usance letter of credit. See also red clause letter of credit.

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