A sight letter of credit is a letter of credit that is payable once the beneficiary presents documents that comply with the credit's terms and the paying bank has examined them. There is no deferred period: the issuing or nominated bank pays "at sight", meaning on presentation of compliant documents, rather than at a future date. It is the most common form of commercial credit and the default choice for exporters who want cash on shipment.
Under UCP 600 a sight credit is available either by sight payment, where a named bank pays against the documents, or by negotiation at sight, where a bank buys the documents and the sight draft. Its counterpart is the usance letter of credit, which pays at a fixed future date and so gives the buyer credit; a sight credit gives the buyer none.
Sight letter of credit in plain terms
A sight credit is like a cash-on-delivery arrangement with a referee. The seller ships the goods and hands the paperwork to a bank. The bank checks the paperwork against a list agreed in advance. If everything matches, the bank pays straight away; it does not wait for the buyer to inspect the goods or agree that they are fine.
"At sight" does not mean the very second the papers arrive. The bank is allowed a short time to check them, and the money then has to travel between banks. In practice the seller is paid days after presenting, not months. The buyer pays its own bank at the same time, so a sight credit protects the seller well but offers the buyer no time to pay.
How payment is made
- The importer's issuing bank opens the credit, and an advising bank in the exporter's country authenticates it and passes it to the exporter.
- The exporter ships and assembles the documents, typically the commercial invoice, a full set of the bill of lading, a packing list, insurance and inspection certificates, and a sight draft if required.
- The documents are presented to the nominated bank or directly to the issuing bank. Where original transport documents are involved, UCP 600 requires presentation no later than 21 calendar days after the shipment date, and in any case before expiry.
- Each bank has a maximum of five banking days following the day of presentation to decide whether the presentation complies (UCP 600 Article 14(b)).
- If compliant, the nominated bank pays or negotiates and forwards the documents, and claims from the issuing bank, either directly or through a reimbursing bank under a reimbursement authorization. The issuing bank debits the importer and releases the documents so it can clear the goods.
Discrepancies and refusal
Banks pay against documents, not goods, and examine only whether documents appear on their face to comply, guided by International Standard Banking Practice (ISBP 821, published by the ICC in 2023). A discrepancy, such as a late shipment date, a misspelt name that changes meaning or a missing certificate, lets the bank refuse. If it does, it must send a single notice of refusal listing every discrepancy, within the five-day examination period.
In practice, the issuing bank usually asks the importer whether it will waive the discrepancies. A buyer who still wants the goods will normally accept, but the exporter has lost its guarantee of payment and is effectively on documentary collection terms. Industry surveys have long reported that a large share of first presentations contain discrepancies, which is why exporters invest in document preparation or use banks and freight forwarders to check documents before presentation.
Cost, timing and comparison
For the exporter a sight credit is close to cash in advance in effect, but conditional on shipping correctly. It remains exposed to the issuing bank's credit and country risk, so it may ask a bank in its own country to confirm the credit. For the importer, the bank charges an opening commission and holds the amount against its credit limits from issuance until payment, which ties up working capital and usually means the buyer pays before the goods arrive.
| Point | Sight credit | Usance credit |
|---|---|---|
| When the exporter is paid | After examination of compliant documents | At maturity, or earlier if discounted |
| Credit to the buyer | None | The usance period, e.g. 90 days |
| Draft | Sight draft, if any | Time draft (acceptance) or none (deferred payment) |
Sight credits are common where the buyer is new or in a market with high credit risk, and where exporters must meet export proceeds repatriation deadlines. Every presentation is screened for sanctions before payment, which can add time where a name or vessel produces a match.