Last updated: 29 August, 2026
This article is written by Kazi Suhel Tanvir Mahmud, a trade finance specialist focused on letters of credit, UCP 600, and international trade payment mechanisms.
Deferred Payment LC vs Acceptance (Usance) LC: Key Differences Under UCP 600
What Is a Deferred Payment LC?
A Deferred Payment Letter of Credit (Deferred Payment LC) is a documentary credit under which the beneficiary is entitled to receive payment at a specified future date rather than immediately upon presentation of complying documents.
Under UCP 600, Article 6(b), a credit must state whether it is available by sight payment, deferred payment, acceptance or negotiation. Where the credit is available by deferred payment, the terms of the credit determine when the payment becomes due.
For example, the credit may provide for payment 60 days after the bill of lading date, shipment date, presentation of complying documents, or another clearly determinable event, depending on the wording of the credit.
Where UCP 600 is incorporated into the documentary credit, the issuing bank's undertaking to honour a complying presentation is governed by UCP 600 Article 7. The examination of documents is addressed principally in Article 14.
Unlike an acceptance credit, a deferred payment LC does not necessarily require the beneficiary to draw a bill of exchange. UCP 600 Article 6(b) distinguishes deferred payment from acceptance, while Article 2 provides the relevant definitions.
In simple terms
Deferred Payment LC = Complying presentation + future maturity/payment date determined by the credit.
For example, if an LC specifically provides for payment 60 days after the bill of lading date, the beneficiary must first make a complying presentation in accordance with the credit. Payment then becomes due at the maturity date determined under the terms of the credit and applicable rules.
How Does a Deferred Payment Letter of Credit Work?
A Deferred Payment Letter of Credit (Deferred Payment LC) is a documentary credit under which the beneficiary is entitled to receive payment at a future maturity date, rather than immediately upon presentation of complying documents.
The essential distinction is between presentation and examination of documents and the actual payment date. The beneficiary must comply with the documentary requirements of the credit, but payment takes place at the future maturity date specified or determinable from the terms of the credit.
The transaction can be understood as:
LC Issuance → Shipment → Document Presentation → Document Examination → Complying Presentation → Deferred Payment Undertaking → Maturity → Payment
Step 1 — The Applicant Requests a Deferred Payment LC
The transaction normally begins when the applicant (buyer/importer) asks the issuing bank to issue a documentary credit in favour of the beneficiary (seller/exporter).
The applicant and beneficiary agree the commercial terms, including the period and basis of deferred payment.
For example:
“Available by deferred payment at 60 days after the date of shipment.”
The wording of the credit is important because the maturity date must be clearly determinable.
A deferred payment arrangement is therefore not simply an informal agreement that the buyer may pay later. It is a documentary-credit arrangement under which payment is due according to the terms of the credit.
Step 2 — The Issuing Bank Issues the LC
The issuing bank issues the documentary credit in favour of the beneficiary.
Where UCP 600 applies, the issuing bank's undertaking is governed principally by Article 7.
The credit should clearly state, among other things:
- the amount;
- the beneficiary;
- the expiry date and place;
- how the credit is available;
- the documents required;
- shipment requirements;
- the presentation period, where applicable;
- the deferred-payment tenor; and
- the event or date from which the maturity period is calculated.
Professional Point
The expression “60 days deferred payment” should not be treated as sufficiently precise by itself. The credit should make clear 60 days from what date or event.
Step 3 — The Beneficiary Ships the Goods
The beneficiary ships the goods in accordance with the terms and conditions of the credit.
Depending on the credit, the required documents may include:
- Bill of Lading;
- Commercial Invoice;
- Packing List;
- Certificate of Origin;
- Insurance Document; and
- other documents specifically required by the credit.
The beneficiary must ensure that its presentation complies with the requirements of the credit and the applicable documentary-credit rules.
A deferred payment LC does not reduce the importance of documentary compliance.
The fact that payment will occur in the future does not mean that documentary discrepancies can be ignored.
Step 4 — The Beneficiary Presents the Documents
After shipment, the beneficiary presents the required documents to the appropriate bank within the period permitted by the credit.
Where UCP 600 applies, UCP 600 Article 14 establishes the standard for examination of documents, including the maximum period for determining whether a presentation complies.
The bank examines the documents to determine whether the presentation appears, on its face, to constitute a complying presentation.
The documentary nature of the transaction is important:
The bank examines the presentation on the basis of the documents and the applicable documentary-credit rules; it does not simply wait until the maturity date before examining the documents.
Therefore:
Deferred payment ≠ deferred document examination.
The documents must still be examined when presented.
Step 5 — The Bank Determines Whether the Presentation Complies
The bank examines the presentation against:
- the terms and conditions of the credit;
- the applicable provisions of UCP 600, where incorporated; and
- applicable international standard banking practice.
If the presentation contains discrepancies, the bank must deal with them in accordance with the applicable rules and procedures.
If the presentation is complying, the transaction proceeds according to the deferred-payment terms of the credit.
A key distinction is:
Documentary compliance and the maturity date are separate issues.
A presentation can be complying even though payment is not yet due.
Step 6 — The Deferred Payment Undertaking
UCP 600 recognises several forms of availability, including:
- sight payment;
- deferred payment;
- acceptance; and
- negotiation.
A deferred payment credit is not automatically an acceptance credit.
Under a deferred payment credit, payment can become due at a future date without necessarily requiring a bill of exchange to be drawn and accepted.
The exact obligations depend on the wording of the credit and the bank involved.
Important Banking Distinction
The issuing bank undertakes to honour a complying presentation in accordance with the credit and UCP 600, where applicable.
If the credit is confirmed, the confirming bank adds its own undertaking to that of the issuing bank.
A nominated bank does not automatically assume the issuing bank's undertaking merely because it is nominated.
This distinction is important when analysing documentary credits.
Step 7 — Determining the Maturity Date
The most important practical question is:
When exactly does the deferred payment become due?
The answer depends on the wording of the credit.
For example, a credit may state:
“Payment 60 days after the date of shipment.”
If the relevant shipment date is 1 September 2026, the maturity date is calculated according to the stated tenor and the applicable rules.
Another credit might provide:
“Payment 90 days after presentation of complying documents.”
This would produce a different maturity basis.
Therefore, an examiner should never assume that every “60-day LC” has the same maturity calculation.
The critical question is:
60 days after what?
The maturity basis must be determined from the actual terms of the credit.
Step 8 — Payment at Maturity
When the deferred payment becomes due, payment is made in accordance with the terms of the credit and the applicable banking arrangements.
The beneficiary therefore needs to distinguish between:
Presentation and documentary compliance
and
Payment at maturity
The two events do not necessarily occur on the same date.
The applicant also cannot normally decide unilaterally to change the maturity date simply because it would prefer to pay later. The payment obligation is determined by the terms of the documentary credit and applicable rules.
A Simple Example
Assume an LC states:
“Available with XYZ Bank by deferred payment at 60 days after the date of shipment.”
The beneficiary ships the goods on 1 September 2026 and presents the required documents within the permitted presentation period.
The bank examines the documents and determines that the presentation complies with the credit.
The transaction can then be viewed as:
1 September 2026
↓
Shipment
↓
Documents presented
↓
Documents examined
↓
Complying presentation
↓
Deferred-payment obligation in accordance with the credit
↓
60-day maturity
↓
Payment at maturity
The important point is:
The date of presentation and the date of payment are not necessarily the same date.
The Four Important Dates
When analysing a deferred payment LC, it is useful to distinguish the following dates:
| Event | Meaning |
|---|---|
| Shipment Date | Date relevant to the shipment requirement and, if specified by the credit, potentially relevant to maturity |
| Presentation Date | Date on which the beneficiary presents the documents |
| Examination/Compliance Date | Date on which the bank determines whether the presentation complies |
| Maturity Date | Date on which the deferred payment becomes due |
These dates may occur close together, but they perform different functions.
Important Point
The presentation date does not automatically determine the maturity date.
The maturity date must be determined according to the terms of the credit.
Deferred Payment LC Does Not Mean "Pay Whenever the Applicant Is Ready"
A deferred payment LC is not an unrestricted agreement allowing the applicant to postpone payment whenever it chooses.
The maturity date is determined by the terms of the credit, subject to any applicable amendment or other relevant provisions.
Therefore:
Deferred payment is a defined payment mechanism, not an unrestricted extension of payment time at the applicant's discretion.
Deferred Payment LC vs Acceptance LC
One of the most important distinctions in documentary-credit practice is that deferred payment and acceptance are not synonymous.
A credit available by deferred payment provides for payment at a future date without necessarily requiring a bill of exchange to be accepted.
A credit available by acceptance, on the other hand, involves an acceptance mechanism in accordance with the terms of the credit.
Therefore, when examining an LC, ask:
- How is the credit available?
- Sight payment?
- Deferred payment?
- Acceptance?
- Negotiation?
- What documents are required?
- Does the presentation comply with the credit?
- What event or date determines maturity?
- Which bank has the relevant undertaking?
- When does payment become due?
The wording of the credit is critical to the analysis. For additional practical questions on the four availability methods under UCP 600, see our UCP 600 Questions and Answers, including scenarios involving deferred payment, acceptance and negotiation.
Banking Practice Insight
A useful way to analyse a deferred payment LC is to separate three questions.
Question 1 — Has the beneficiary complied?
This is primarily a document examination question.
Question 2 — Which bank has the relevant payment undertaking?
This is a bank undertaking question.
The answer depends on whether the bank is the issuing bank, confirming bank or nominated bank and on the terms of the credit.
Question 3 — When is payment due?
This is a maturity calculation question.
These three questions should not be treated as one event.
Compliance, bank undertaking and maturity are related, but they are not the same thing.
Examiner's Quick Test
When faced with a deferred payment LC, use this six-question test:
① How is the credit available?
Deferred payment, acceptance, sight payment or negotiation?
② What documents are required?
Examine the documents required by the credit and the applicable rules.
③ Is the presentation complying?
Apply the applicable documentary examination standard.
④ Which bank has the relevant undertaking?
Consider the issuing bank, confirming bank, and nominated bank as applicable.
⑤ What event determines maturity?
For example, shipment or presentation, depending on the actual wording of the credit.
⑥ When is payment actually due?
Calculate the maturity date according to the terms of the credit and applicable rules.
Bottom Line
A Deferred Payment Letter of Credit separates documentary compliance from the actual date of payment.
The beneficiary must make a complying presentation in accordance with the requirements of the credit. The relevant bank's obligation is determined by the terms of the credit and the applicable documentary-credit rules. Payment is then made when the deferred payment becomes due according to the stated maturity terms.
In one sentence:
A Deferred Payment Letter of Credit is a documentary credit under which the beneficiary makes a complying presentation and payment is made at a future maturity date determined by the terms of the credit and applicable rules.
The payment method known as acceptance is similar to deferred payment because both may provide for payment at a future date. The key difference is that, under a credit available by acceptance, the beneficiary presents a term or usance draft (bill of exchange) together with the other documents required by the credit.
If the presentation complies with the credit and the applicable rules, the bank specified in the credit accepts the draft. The accepted draft is then payable at its stated maturity date in accordance with the terms of the credit and applicable rules.
For example, an acceptance credit may require a draft payable at 30 days after sight. In that structure, the draft is accepted by the bank specified in the credit, and its maturity is determined according to the applicable terms and rules.
Are Usance or Acceptance LCs the same?
Not exactly. Usance LC and Acceptance LC are closely related, but they are not necessarily the same thing.
The key distinction
Usance LC describes the timing of payment—payment is made at a future date rather than at sight.
Acceptance LC describes the mechanism of payment—a bill of exchange (draft) is drawn and accepted by the drawee bank or other party specified in the credit, with payment due at maturity.
So:
Usance = deferred/future payment period
Acceptance = future payment + acceptance of a draft
Example
Suppose an LC says:
“Available by acceptance of a draft at 60 days after Bill of Lading date.”
This is an Acceptance LC and also a Usance LC, because payment is deferred for 60 days.
But an LC can provide:
“Available by deferred payment at 60 days after Bill of Lading date.”
This is a Deferred Payment LC, not necessarily an Acceptance LC, because no bill of exchange needs to be accepted.
Simple comparison
| Term | What does it describe? | Bill of exchange required? |
|---|---|---|
| Sight LC | Payment at sight after complying presentation | Not necessarily |
| Deferred Payment LC, | Payment at a future maturity date | No, not necessarily |
| Acceptance LC | Future payment through acceptance of a draft | Yes |
| Usance LC | General commercial term for payment after a period/at maturity | Depends on structure |
Deferred Payment (Deferred Payment Undertaking under a Letter of Credit)
A deferred payment credit is a documentary credit (typically subject to ICC UCP 600) under which the issuing bank (and any confirming bank) undertakes to pay the beneficiary at a future maturity date, provided that the beneficiary makes a complying presentation of the documents required by the credit. The defining feature is that the credit is available “by deferred payment” and does not require presentation of a bill of exchange (draft).
1) Core mechanics
- Trigger: the beneficiary presents the stipulated documents (e.g., transport document, invoice, insurance document, packing list, certificate of origin) within the time limits set by the LC.
- Examination: banks examine documents for compliance with the LC terms and the governing rules (commonly UCP 600). The examination is document-based; banks do not verify the underlying goods.
- Undertaking: if the presentation is complying, the issuing bank’s obligation becomes a commitment to pay on the specified maturity date (the deferred payment undertaking). If the LC is confirmed, the confirming bank has a parallel, independent undertaking to pay at maturity.
2) How maturity is set (determinable future date)
Deferred payment credits typically define maturity using an objectively determinable event date, for example:
- “60 days after bill of lading date”
- “90 days after date of shipment”
- “45 days after invoice date”
- “120 days after acceptance of documents” (less common and should be drafted carefully to avoid ambiguity)
In practice, the maturity date is calculated by the bank based on the date appearing on the relevant document (e.g., the on-board date on the bill of lading).
3) Commercial function
Deferred payment is used to provide the buyer with trade credit (time to sell goods or manage cash flow) while still giving the seller a bank payment undertaking after compliant presentation. It is therefore common in commodity, industrial equipment, and high-volume cross-border trade where payment terms of 30/60/90/120 days are market practice.
4) Risk profile (factual allocation)
Once a complying presentation is made:
- The seller’s primary credit exposure shifts from the buyer to the bank(s) obligated under the LC (issuing bank and, if applicable, confirming bank).
- The seller remains exposed to:
- issuing bank credit risk (probability the bank cannot or will not pay), and
- country/transfer risk in the bank’s jurisdiction (e.g., currency controls, payment moratoria, sovereign actions, sanctions restrictions, or other legal impediments to remittance). This is why exporters often insist on confirmation by a bank in a lower-risk jurisdiction or require issuance by a bank that meets specified credit criteria.
5) Financing and “discounting” (common market practice)
Although payment is contractually due at maturity, sellers frequently seek early payment by:
- Discounting the deferred payment undertaking (the bank advances funds before maturity at a discount/interest charge), or
- Forfaiting (sale of the receivable on a non-recourse basis, commonly for medium- to longer-tenor trade receivables).
Whether discounting is available depends on the quality of the obligated bank, tenor, documentation, and local regulatory constraints.
Acceptance (Usance / Term Draft; Acceptance Credit under a Letter of Credit)
An acceptance credit is an LC available “by acceptance,” meaning the beneficiary must present a time draft (bill of exchange) together with the other required documents. If the presentation complies, the bank specified in the LC (often the issuing bank or a nominated/confirming bank) accepts the draft, thereby undertaking to pay it at maturity.
1) What “acceptance” means in trade finance
To “accept” a draft is to mark/sign the draft as accepted, which creates a primary payment obligation of the accepting bank to pay the draft amount at maturity. In many jurisdictions, an accepted draft is treated as a negotiable instrument, which can facilitate financing and transfer.
2) Core mechanics
- Presentation: beneficiary presents documents plus a draft drawn as required by the LC (e.g., “Drawn on issuing bank,” payable at X days).
- Examination: bank examines documents for compliance.
- Acceptance: if compliant, the bank accepts the draft and returns/holds it as required by banking practice.
- Payment at maturity: the accepting bank pays the holder of the draft at maturity (often the beneficiary unless discounted/endorsed).
3) How maturity is expressed (precise conventions)
Acceptance credits commonly use:
- “X days sight” (e.g., “30 days sight”): maturity is calculated from the “sight” date—commercially understood as the date the bank receives a complying presentation and accepts the draft (subject to the LC’s terms and the bank’s processing timeline).
- “X days after [event date]” (e.g., “60 days after B/L date”): maturity is computed from the event date shown on the relevant document.
Because “sight” can be operationally sensitive, sophisticated drafting often ties maturity to an objective document date to reduce disputes about calculation.
4) Why acceptances are used (practical rationale)
Acceptance structures are used where parties want:
- a formal instrument evidencing the bank’s promise to pay at maturity (the accepted draft), and/or
- a receivable that may be easier to discount in the market, depending on the accepting bank and jurisdiction.
Deferred Payment vs Acceptance — Clear, Factual Comparison
| Feature | Deferred Payment LC | Acceptance LC |
| Draft Required? | No (Relies on documents only) | Yes (Requires a Time Draft) |
| Legal Basis | Bank's "Deferred Payment Undertaking" | Bank’s "Acceptance" of the Draft |
| Maturity Wording | $X$ days after B/L / Invoice / Shipment | $X$ days after sight or B/L date |
| Pre-payment | Discounting of the bank's undertaking | Discounting of the accepted draft |
| Governing Law | UCP 600 only | UCP 600 + Local Bill of Exchange Laws |
Under UCP 600, deferred payment and acceptance are equally valid availability types. The determining factor is whether the credit requires a draft. Absence of a draft does not weaken the bank’s payment obligation once a complying presentation is made.
Practical Risk Points and Controls (Common in Professional Use)
Documentary compliance risk (seller risk):
Payment under an LC depends on documents being compliant. Document Discrepancies can delay payment or allow refusal. Sellers typically mitigate this with pre-checks, document specialists, and aligning LC terms with the sales contract and logistics reality.Bank selection and confirmation: The practical strength of either structure depends on the obligated bank’s credit and ability to remit funds. Confirmation is commonly used to reduce bank/country risk.
Sanctions and legal restrictions: Even where documents comply, payment can be blocked by sanctions laws or regulatory restrictions affecting the bank or currency flows. Parties often address this commercially through bank choice, routing, and compliance screening.
Clarity in maturity calculation: To avoid disputes, sophisticated credits define maturity based on objective document dates and avoid ambiguous triggers (e.g., undefined “approval,” “acceptance of goods,” or vague “sight” mechanics without context).
Actual Banking Examples: How LC Maturity Dates Work
Understanding the maturity date of a deferred-payment Letter of Credit (LC) is essential for exporters, importers, and trade-finance professionals. The starting point is always the exact wording of the LC.
A deferred-payment LC may determine its maturity by reference to the date of shipment, the date of presentation, or another specified date. The course material specifically notes that a maturity date may be specified as a period after shipment, a period after presentation, or as a fixed future date.
Example 1 — 60 Days After Shipment
LC wording:
“Payment at 60 days after the date of shipment.”
Assume:
- Bill of Lading date: 10 September 2026
- LC tenor: 60 days after shipment
- Documents are presented: 15 September 2026
- Documents are found complying: 16 September 2026
The important point is that the presentation and examination dates do not determine the maturity date.
The credit expressly establishes the starting point as the date of shipment. Therefore, the 60-day period runs from the shipment date evidenced by the relevant transport document.
Result: The maturity date is calculated by applying the LC's 60-day tenor to the stipulated shipment date.
In practice, the bank should therefore not calculate the maturity from 15 or 16 September merely because that is when the documents were presented or examined.
The uploaded course material gives the same general principle: a credit's future payment date can be specified by reference to the date of shipment.
Banking lesson:
Always identify the event from which the tenor runs before calculating maturity.
Example 2 — 90 Days After Presentation of Complying Documents
LC wording:
“Payment 90 days after presentation of complying documents.”
Now consider:
- Bill of Lading date: 10 September 2026
- Documents presented: 15 September 2026
- Examination completed and documents determined to constitute a complying presentation: 17 September 2026
- LC tenor: 90 days after presentation of complying documents
This is fundamentally different from Example 1.
The tenor is not linked to the Bill of Lading/shipment date. It is linked to the presentation of the documents in accordance with the credit.
Consequently, the shipment date does not automatically start the 90-day period.
The critical operational question is therefore whether the LC wording establishes the starting point as:
- shipment;
- presentation;
- examination/acceptance of a complying presentation; or
- another expressly identified date.
The course material confirms that an LC may specify maturity by reference to a period after the presentation of documents.
Banking lesson:
A 90-day tenor after presentation is not the same as a 90-day tenor after shipment. The two LCs can involve exactly the same goods and documents but produce different maturity dates.
Example 3 — Deferred Payment Without a Draft
Consider an LC stating:
“Available by deferred payment. Payment at 60 days after shipment. No draft required.”
This is a deferred-payment credit.
There is an important distinction between this arrangement and an acceptance credit.
Under a deferred-payment credit, the bank undertakes to make payment at the specified future maturity date once a complying presentation has been made. No bill of exchange is necessary.
The uploaded course material describes a credit available without drafts and explains that, where the credit is payable at a future date, the relevant bank undertakes to make payment on the maturity date.
By contrast, an LC available by acceptance involves a bill of exchange. The course material defines an acceptance LC as one available by acceptance of a bill of exchange drawn on the issuing bank or another nominated bank.
Feature | Deferred-Payment LC | Acceptance LC |
|---|---|---|
Draft / Bill of Exchange | No draft/bill of exchange is required | A bill of exchange (draft) is required |
Bank's Undertaking | Bank incurs a deferred-payment undertaking | Bank accepts the draft |
Payment | Payment occurs at maturity | Accepted draft is paid at maturity |
Negotiable Instrument | No negotiable instrument is necessarily created | The accepted bill may be a negotiable instrument, where applicable |
Pre-maturity Financing | Beneficiary may seek financing by having the deferred-payment undertaking purchased/prepaid, subject to the banking arrangement | The accepted draft can generally be discounted before maturity |
The distinction is not merely terminology. It affects the documentation, legal instrument, and financing mechanics of the transaction. The parties selected a deferred-payment credit rather than an acceptance or negotiation credit, and consequently no negotiable instrument was involved.
Banking lesson:
“Deferred payment” does not automatically mean “acceptance.” The presence or absence of a bill of exchange is a key distinction.
Example 4 — Conflicting Dates: A Complete Banking Scenario
Consider the following transaction.
LC terms:
“Payment 60 days after Bill of Lading date.”
The transaction develops as follows:
| Event | Date |
|---|---|
| Bill of Lading issued | 10 September 2026 |
| Goods shipped | 10 September 2026 |
| Documents presented to nominated bank | 15 September 2026 |
| Bank completes document examination | 18 September 2026 |
| Documents determined to be complying | 18 September 2026 |
| Deferred-payment period | 60 days after B/L date |
| Maturity | Calculated from 10 September 2026 |
The dates have different functions.
1. Bill of Lading date — 10 September
This is the date from which the 60-day tenor runs because the LC expressly says “60 days after Bill of Lading date.”
2. Presentation date — 15 September
This is when the beneficiary submits the required documents to the bank.
It does not become the maturity starting date merely because the documents arrived at the bank on this date.
3. Examination date — 18 September
The bank completes its examination and determines whether the presentation complies with the LC.
This date is important for determining whether the bank has a complying presentation, but it does not replace the expressly stipulated maturity reference date.
4. Deferred-payment period — 60 days
The bank applies the 60-day tenor to the date specified in the LC.
Because the LC says 60 days after the Bill of Lading date, the calculation begins with 10 September, not 15 or 18 September.
5. Maturity date
The maturity is therefore calculated from the 10 September Bill of Lading date according to the LC's stated tenor.
Why this matters in banking practice
A common operational mistake is to look at the date on which the bank examined the documents and automatically count the deferred-payment period from that date.
That is incorrect where the LC expressly establishes another starting point.
The practical rule is:
Do not calculate maturity from the date that is most convenient to identify. Calculate it from the date/event specified by the LC.
This is why trade-finance staff must distinguish carefully between:
shipment date → presentation date → examination/compliance date → maturity date.
They can all be different dates, and each has a different function.
Professional Case Reference — Banco Santander / Bayfern
A particularly useful real-world banking example appears in the course material.
On 5 June 1998, Banque Paribas issued a Letter of Credit in favour of Bayfern Limited. The credit was available at Banco Santander in London by deferred payment, 180 days after the Bill of Lading, with maturity identified as 27 November.
Bayfern presented the documents to Santander on 15 June. The documents were found on their face to comply, creating an obligation for Paribas and Santander to pay approximately US$20.3 million at maturity on 27 November.
Santander subsequently discounted the documents and credited approximately US$19.6 million to Bayfern on 16 June, well before the contractual maturity date.
The case is particularly valuable because the course material emphasizes that:
- the LC was a deferred-payment credit;
- the parties had chosen it instead of an acceptance or negotiation credit;
- no negotiable instrument was involved; and
- the bank could finance the beneficiary before the maturity date through discounting/prepayment arrangements.
This illustrates an important distinction:
The maturity date is the date on which the bank's deferred-payment obligation becomes payable; it is not necessarily the date on which the exporter must wait to receive funds.
Where the banking arrangement permits it, a nominated/confirming bank may finance the beneficiary before maturity. UCP 600 Article 12(b), as reproduced in the course material, expressly addresses the authorization of a nominated bank to prepay or purchase a deferred-payment undertaking.
Key Professional Takeaway
When reviewing an LC, identify these five items separately:
- What event starts the tenor?
- What document establishes that event?
- When were the documents presented?
- When was the presentation determined to comply?
- What exact date does the LC establish as maturity?
Only after answering those questions should the bank calculate the maturity date.
A deferred-payment LC is therefore not simply “payment later.” It is a bank undertaking linked to a precisely defined future maturity, and the wording of the credit determines how that maturity is established.
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