Introduction
In international trade finance, Usance Letters of Credit (LCs) are critical instruments that allow the beneficiary to receive payment at a deferred date, rather than immediately upon presentation of documents.
The MT700 SWIFT message format is commonly used to transmit these LCs, and it includes specific fields that define the deferred payment terms, maturity dates, and beneficiary instructions.
A clear understanding of the structure and key fields of a Usance LC ensures compliance with UCP 600 rules, facilitates smooth trade transactions, and mitigates payment and documentary risks.
Keywords: deferred payment LC, MT700 field 42P, maturity date, payment tenor, beneficiary instructions.
Related terms: UCP 600 compliance, documentary credit, irrevocable LC, payment at maturity.
I. Understanding Usance Letters of Credit
A Usance LC allows the importer/buyer to delay payment to the exporter/beneficiary for a specified period after shipment or document presentation.
This structure supports cash flow management, enabling buyers to finance transactions without immediate cash outflow.
Key Features:
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Deferred Payment: Payment occurs at a fixed tenor (e.g., 30, 60, 90 days) after shipment or acceptance of documents.
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Irrevocable: Most Usance LCs are irrevocable, providing security to the beneficiary.
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UCP 600 Compliance: Must adhere to Uniform Customs and Practice for Documentary Credits standards.
Example:
A 60-day Usance LC allows the buyer to pay the exporter 60 days after the bill of lading date, providing short-term financing flexibility.
II. MT700 Message Structure for Usance LC
The MT700 SWIFT message is the standard format for issuing documentary credits. Specific fields capture the payment tenor, maturity, and instructions for deferred payment.
Key Fields for Usance LCs:
| Field | Description | Usance-Specific Details |
|---|---|---|
| 20 | Transaction Reference Number | Unique identifier for the LC. |
| 31C | Date of Issue | Date the LC is issued by the bank. |
| 40A | Form of Documentary Credit | Typically “Irrevocable”. |
| 31D | Date and Place of Expiry | When the LC expires; must align with maturity and shipment terms. |
| 42P | Deferred Payment Terms | Specifies tenor and payment conditions (e.g., “60 days after sight” or “90 days after BL date”). |
| 43P | Drafts at | Indicates where drafts are to be drawn if required. |
| 44C | Latest Shipment Date | Ensures compliance with shipping obligations. |
| 45A | Description of Goods | Standard trade documentation. |
| 46A | Documents Required | Commercial invoice, bill of lading, packing list, certificate of origin, etc. |
| 47A | Additional Conditions | Includes instructions for deferred payment or acceptance. |
| 71B | Charges | Specifies bank charges responsibility (applicant, beneficiary, or shared). |
| 78 | Instructions to Paying/Accepting Bank | Provides guidance on handling deferred payment and acceptance. |
III. Function of Key Fields in Deferred Payment
1. Field 42P – Deferred Payment Terms
This is the critical field for Usance LCs, defining:
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Tenor: Number of days/weeks/months after shipment or document presentation.
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Payment Conditions: Whether payment is made at sight of documents or after acceptance of drafts.
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Calculation Method: Specifies maturity date determination (e.g., “days after BL date”).
2. Field 31D – Expiry Date
Ensures the LC remains valid for the tenor period, providing enough time for shipment and document submission.
3. Field 78 – Instructions to Paying/Accepting Bank
Directs the bank on payment timing and process, aligning with the deferred payment schedule.
IV. Benefits of Using Usance LCs
1. Buyer Cash Flow Management
Delays outflow of funds, enabling the buyer to manage working capital efficiently.
2. Beneficiary Assurance
Irrevocable nature guarantees that payment will be made at maturity, providing exporters with security.
3. Trade Facilitation
Supports international trade, particularly in commodity exports or capital-intensive transactions, by harmonizing documentary compliance and deferred financing.
4. Compliance with UCP 600
Ensures standardized international practices, minimizing disputes between banks, buyers, and beneficiaries.
V. Best Practices for Usance LC Issuance and Verification
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Accurately Define Field 42P to reflect correct tenor and payment conditions.
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Align Expiry and Shipment Dates to avoid conflict with deferred payment terms.
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Specify Document Requirements Clearly to prevent discrepancies.
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Verify Beneficiary Instructions in Field 78 to ensure smooth acceptance or negotiation.
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Ensure UCP 600 Compliance to maintain legal enforceability and interbank credibility.
VI. Conclusion
The MT700 structure for Usance LCs provides a standardized framework to issue deferred payment instruments in international trade.
By understanding key fields like 42P, 31D, and 78, banks, buyers, and exporters can effectively manage cash flow, ensure compliance, and reduce trade risks.
Properly structured Usance LCs balance buyer flexibility with beneficiary security, making them indispensable tools for global commerce and trade finance operations.
FAQ: Structure and Key Fields of Usance LC in MT700
Q1 — What is a Usance LC?
A Usance LC allows the beneficiary to receive payment at a deferred date, instead of immediately upon document presentation.
Q2 — Which MT700 field specifies deferred payment terms?
Field 42P defines the tenor and conditions for payment at maturity.
Q3 — Is a Usance LC irrevocable?
Typically, yes. Most Usance LCs are irrevocable, providing assurance to exporters.
Q4 — How is the maturity date determined?
The maturity date is calculated based on tenor in Field 42P and the reference date, often the bill of lading or acceptance date.
Q5 — What documents are usually required?
Commercial invoice, bill of lading, packing list, certificate of origin, and any other documents specified in Field 46A.
Q6 — How does UCP 600 compliance impact Usance LCs?
It ensures uniform standards, dispute minimization, and interbank acceptance, maintaining global trade reliability.
