Sight LC

A sight letter of credit is a document presented as proof of payment in exchange for goods or services to be released for carriage by the seller. Once the goods or services reach the buyer, the buyer must pay the financial institution that provided the Sight LC.

The process of submitting and verifying the documents is known as the sighting process, after verification the document is called a Sight LC. Banks or financial institutions generally take 5 to 10 business days to process these documents.

1. HOW DOES A SIGHT LC WORK?

Let us understand step-by-step process of how the demand letter of credit or sight LC works:

• A buyer who needs certain goods contacts a supplier and obtains a quote and confirms the deal by sending purchase order and getting proforma invoice from the seller. In some instances the buyer and seller enters into a trade contract.
• The buyer then goes to his bank, usually one that has already extended a line of credit, and asks the bank to issue a sight LC to the supplier.
• Upon analyzing creditworthiness of the buyer, the bank issues a sight LC and sends it to a bank in the exporter’s/supplier’s country.
• The supplier’s bank then informs the buyer and sends the LC along with all the terms and conditions of the transaction.
• Once the supplier is satisfied with the LC, it ships the products and presents the shipping documents to the supplier’s bank.
• After that the bank processes all the documents and sends them to the importer’s/buyer’s bank.
• The bank notifies the buyer that the documents have arrived and needs to make the full payment to collect the documents. The buyer will need these documents to obtain delivery of the product.
• The buyer reviews the documents and pays the LC, after which the buyer’s bank sends the payment to the seller’s bank. The seller is paid the amount, usually long before the merchandise reaches the buyer.

2. LC AT SIGHT – PAYMENT TERMS

• When a bank issues an LC at sight, it acts as a guarantor of payment to the beneficiary. The seller must provide all the shipping documents mentioned in the terms and conditions of the LC to receive payment. Once you submit all the documents and they are verified by the issuing bank, the bank will release the funds. The buyer immediately makes the full payment to the bank upon receipt of the documents.
• In case the supplier cannot provide the documents, the bank is not responsible for releasing the payment. Also, if discrepancies are found in the documentation, the issuing bank may deduct a small penalty from the total payment.