Sight Letters of Credit

Sight Letter of Credit is the most direct form of payment under a documentary credit. It requires the issuing, confirming, or nominated bank to pay the beneficiary immediately upon presentation of compliant documents. The term “at sight” means payment is due as soon as the bank verifies that the documents meet the LC’s terms and conditions.

Purpose

A sight credit provides fast access to funds for the exporter and clear control for the buyer. It balances the seller’s need for prompt payment with the buyer’s requirement for proof of shipment.

How It Works

The buyer’s bank issues a sight LC in favour of the exporter.
The exporter ships the goods and submits the required documents to the nominated or confirming bank.
The bank examines the documents within the five banking days allowed under UCP 600.
If the presentation is compliant, the bank pays the exporter immediately.

Payment is made “at sight,” meaning upon presentation, not upon receipt of goods. The issuing bank then recovers the funds from the buyer under the credit terms.

Documents Required

Typical documents under a sight LC include:

Commercial invoice
Bill of lading or airway bill
Packing list
Insurance certificate (if applicable)
Certificate of origin
Any inspection or analysis certificates stated in the LC

All documents must align with the LC’s terms to avoid discrepancies or delays.

Example

A buyer in Spain orders machinery from a supplier in Japan. The issuing bank in Spain opens a sight LC for USD 500,000. Once the Japanese supplier ships the goods and submits compliant documents to the nominated bank, payment is made immediately. The supplier receives funds before the goods arrive in Spain.

Benefits

For the exporter:

Immediate payment after presentation of compliant documents.
Lower credit and payment risk.
Better cash flow and working capital management.

For the importer:

Payment only occurs when shipment documents meet the LC terms.
Assurance that goods have been shipped as contracted.

Risks

For the exporter:

Risk of discrepancy leading to delayed payment.
Courier or communication delays if documents are not presented on time.

For the importer:

Payment made before receiving or inspecting goods.
Dependence on accurate documentation to confirm shipment.

Best Practice

Ensure all document details match the LC terms exactly.
Present documents early to allow time for corrections if needed.
Communicate with the nominated bank before shipment to confirm requirements.
Use secure courier or electronic presentation channels to avoid delays.

Relationship to UCP 600

Under UCP 600, Articles 6(a) and 14(b) define sight payment as due upon presentation of complying documents. Banks must examine and pay within the five-day period. Once compliance is confirmed, payment cannot be withheld.

Summary

A Sight Letter of Credit ensures prompt payment once documents comply. It protects the seller from non-payment and assures the buyer that payment is only made after shipment is proven. Sight credits are widely used in international trade for their speed, simplicity, and reliability.