Usance LC Interest Calculator
Calculate the exporter's discount cost and net proceeds when a usance (deferred payment) LC is discounted at sight. Pro-rate reference rates and bank spreads correctly for 2026.
Ensure your usance draft complies with UCP 600 Art. 6, 7 and 12 before presentation.
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Overview & methodology
How usance LC discounting works
Under a usance LC the issuing or confirming bank commits to pay at maturity (e.g., 90 days after BL date). Exporters typically discount the accepted draft to receive cash immediately at a rate of reference + spread, pro-rated on the currency's specific day-count basis (ACT/360 for USD/EUR, ACT/365 for GBP/INR).
Reference rates and spreads
Discount rates are built from two components: a reference rate (currently SOFR for USD, EURIBOR for EUR, SONIA for GBP) plus a bank spread (typically 0.75%–2.5% depending on exporter credit quality). The combined rate is then pro-rated for the tenor using the day-count convention appropriate to the currency.
Day-count conventions matter
Different currencies use different day-count bases. USD and EUR use ACT/360 (Actual/360), meaning interest is accrued on the actual number of days ÷ 360. GBP and INR use ACT/365 (Actual/365), meaning interest accrues ÷ 365. This affects the precision of your discount cost by 1–2%, so always verify your usance LC specifies the correct basis in the LC terms.
Numerical Example: $1M Usance LC (180 Days) - Discount Cost
Net proceeds = $1,000,000 − $32,750 = $967,250. The discount is deducted upfront when the bank buys the draft.
When is discounting used?
Exporters discount usance LCs when they need immediate cash flow instead of waiting 60–180 days for the buyer's payment. A nominated or confirming bank purchases the draft at the discount rate. This is typically cheaper than a short-term loan but ties up the bank's balance sheet. In recent years, supply chain financing platforms (like dynamic discounting) have provided alternatives to traditional LC discounting.
Acceptance vs. negotiation
Acceptance occurs when the drawee bank accepts a time draft, creating a separate obligation to pay at maturity. Negotiation (or purchase) occurs when a nominated bank immediately advances funds against the draft, collecting the discount cost upfront. Most usance exports under an LC are negotiated rather than accepted-and-later-discounted because it's simpler and faster.
Numerical Example: Compare: Negotiation vs. Acceptance
Negotiation is the default under UCP 600 Article 12. Acceptance is rarer because exporters prefer immediate proceeds.
Related tools: Compare against the LC Cost Calculator to model the full borrowing cost of an LC-backed transaction. For non-LC usance scenarios, see the Forfaiting Rate Calculator.
Frequently asked questions
How is usance LC interest calculated?
Interest = Principal × Rate × (Days / Basis). Basis is 360 for USD, EUR, AED, JPY, CHF; 365 for GBP, INR, and most Commonwealth currencies. Days are counted from acceptance (or shipment, depending on the LC wording) to maturity.
Who pays usance interest under an LC?
It depends on Field 71B and 42P/42C of the MT700. Common patterns: 'Interest for account of applicant' (importer pays; the beneficiary receives face value at maturity), 'Interest for account of beneficiary' (exporter discounts and receives net proceeds).