GlossaryEN1 min readUpdated: Jun 26, 2026
Payment clause in a letter of credit
The payment clause within a letter of credit (L/C) defines precisely when and how the beneficiary – typically the exporter – receives payment once the required documents have been presented to the bank.
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Source: https://iccwbo.org/business-solutions/ucp-600-for-documentary-credits/
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Definition & Explanation
The payment clause within a letter of credit (L/C) defines precisely when and how the beneficiary – typically the exporter – receives payment once the required documents have been presented to the bank. Under a sight L/C, funds are released immediately after the nominated bank has verified that the documents comply; under a usance (deferred payment) L/C, payment falls due after an agreed period, effectively granting the buyer trade finance. The key advantage for exporters is that payment risk shifts to the issuing bank, making the buyer's creditworthiness secondary. Because even minor documentary discrepancies can delay or block payment, the payment clause must align precisely with the other L/C conditions, the applicable Incoterm, and the underlying sales contract. L/Cs are governed by the ICC's Uniform Customs and Practice for Documentary Credits (UCP 600).
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