Usance
Candlefocus EditorUsance is an agreement, between the seller and the buyer, to make payment of the goods on a certain date. This date is generally in the form of a usance letter of credit, usually issued by a bank. It allows the seller to be paid upon receipt of the goods, instead of taking the risk of having to pay up front. The usance period is set by the buyer, depending on the country and its payment practices, but typically ranges from 30-90 days.
Usance is important in international trade, because it allows the seller to receive the payment shortly after shipping the goods, while the buyer can defer payment up to the agreed upon usance period. This allows for smoother and more efficient transactions, enabling a fair balance of payment terms between both parties.
It also aids in mitigating credit risk for the buyer and allows for a more efficient cash flow, as buyers can continue to manage their own liquidity and cash flow needs. By properly managing the usance period, the buyer can ensure that the payment is made on time, thereby avoiding any costly delays or penalties.
Usance also helps to ensure that the seller has funds available to purchase the necessary supplies or materials needed to produce the goods that are being traded. In this way, usance helps sellers maintain a healthy and strong inventory management system.
In addition, usance can also provide an incentive for foreign buyers, as the buyer can secure financing for their purchases for the agreed upon usance period, allowing them to take advantage of a more attractive exchange rate.
Overall, usance helps facilitate transactions between buyers and sellers all over the world in international trade, allowing an extension of credit and providing carefree transactions for all parties involved. In this way, Usance helps maintain healthy relationships and trust between different nations, encouraging further growth in global trade.