What is a sight letter of credit and what is the general application process?

What is a sight letter of credit?
Sight Letter of Credit is a payment method in which the bank pays the beneficiary immediately upon receipt of documents that meet the conditions of the letter of credit. This type of letter of credit is settled instantly, as payment is made immediately upon presentation of qualifying documents without having to wait for a certain period. The following are some of the key features and processes of sight letters of credit:

Immediate payment: When the beneficiary presents documents that meet the conditions of the letter of credit, the bank will immediately pay the amount specified in the letter of credit. This instant payment ensures that beneficiaries receive money quickly after goods are sold or services are rendered.

Eligible documents: Payment under a sight letter of credit depends on whether the documents presented by the beneficiary comply with the conditions stipulated in the letter of credit. These documents may include bills of lading, invoices, shipping documents, etc. Specific requirements will be detailed in the letter of credit.

No waiting period: Unlike the usance letter of credit, the sight letter of credit does not need to wait for a certain period. Once the beneficiary presents the eligible documents, the payment will be made immediately.

Sight letter of credit fee: Banks usually charge a certain fee to process sight letters of credit. These fees may include issuance fees, amendment fees, etc., depending on the terms and conditions of the letter of credit.

Common applications in global trade: Letters of credit at sight are very common in global trade, especially for businesses that need to complete transactions quickly and ensure payment security. It provides an efficient payment and settlement method for trading parties.

General processing procedures for sight letters of credit:

The Sight Letter of Credit process involves several major parties, including the buyer (applicant), the seller (beneficiary) and the letter of credit issuing bank. The following is the general process for sight letter of credit:

Contract conclusion: The trade contract is first reached by the buyer and the seller. In the contract, the two parties agree on the details of the goods or services, including quantity, price, delivery conditions, etc.

Issuance of letter of credit: The buyer negotiates with the issuing bank (bank) and issues an immediate letter of credit. In a letter of credit, the bank promises to pay the seller a specified amount immediately upon receipt of eligible documents. The required documents and conditions are detailed in the letter of credit.

Delivery/Performance: The seller delivers goods or performs services in accordance with the provisions of the contract. At the same time, the seller needs to ensure that the documents comply with the provisions of the letter of credit so that subsequent payment can be smoothly obtained.

Submit documents: The seller submits documents that comply with the provisions of the letter of credit to the letter of credit issuing bank. These documents may include bills of lading, invoices, shipping documents, etc.

Inspection by the L/C issuing bank: The L/C issuing bank will inspect the documents received to ensure that they comply with the provisions of the L/C. If everything meets the conditions, the issuing bank will initiate the payment process.

Immediate payment: After confirming that the documents meet the conditions, the L/C issuing bank will immediately pay the amount specified to the seller. In this way, the seller can receive payment quickly.

Notify the buyer: Once the payment is completed, the L/C issuing bank will notify the buyer that the payment has been completed and provide relevant documents to the buyer.

Settlement and completion of transaction: The buyer can complete the payment through the settlement procedure of the letter of credit issuing bank. In this way, the entire transaction process can be completed smoothly.

The sight letter of credit process focuses on prompt payment and timely performance of contract conditions to ensure the smooth progress of trade transactions. This payment method provides a high degree of credibility and security to both buyers and sellers.