Forms of Payment

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Article 10 of the UCP No. 500 states that a documentary credit must clearly indicate whether it is available by sight payment (sight documentary credit), by deferred payment (deferred payment documentary credit), by acceptance (acceptance or term documentary credit) or by negotiation (negotiation documentary credit).

Thus a documentary credit may state that payment is to be effected upon presentation of the stipulated documentations and compliance with the terms and conditions of the credit or after a certain period e.g. 60 days from the date of presentation of documents, from date of bill of lading or from the date of invoice.

Sight Documentary Credit

A documentary credit may provide for sight payment (sight documentary credit). This means that the beneficiary may present a sight bill of exchange (called for in the credit) together with the other supporting documentations and payment would accordingly be effected.

Deferred Payment Documentary Credit

A deferred payment documentary credit stipulates that payment will be made at a future date, for example 60 or 90 days from the date of invoice. Generally no bill of exchange is drawn.

Term (Acceptance) Documentary Credit

A term or acceptance documentary credit calls for a tenor bill of exchange e.g. 60 days after sight to be drawn by the beneficiary on the issuing bank, or the confirming bank or any other named drawee.

The bill of exchange is subsequently accepted by the named drawee and payment will only b made on the maturity date. In the meantime, if the beneficiary requires financing, he may discount (that is to sell it, less the interest charge) the bill of exchange with his banker.

Negotiation Documentary Credit

A documentary credit may be available for negotiation. According to Article 10, "negotiation" means giving value of draft/s and/or documents by the authorized to negotiate.

Mere examination of the documentations without giving of value does not constitute a negotiation process.

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