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.
Usance LC interest formula
Usance interest = Face value × rate × days ÷ day-count basis
Day-count basis is ACT/360 for USD, EUR, AED and CHF and ACT/365 for GBP, JPY and most Commonwealth currencies. A discount is calculated on the face value at maturity, whereas interest charged upfront is computed on the present value, so the same quoted rate gives a slightly different cash amount.
Worked example: USD 1,000,000 × 5.5% × 90 ÷ 360 = USD 13,750 discount, so net proceeds are USD 986,250. Computed on present value, the charge is 1,000,000 - 1,000,000 ÷ (1 + 0.01375) = USD 13,563.50.
Numerical Example: USD vs GBP Day-Count Basis for 90 Days
For the same principal, rate and actual 90-day tenor, ACT/360 produces about 1.4% more interest than ACT/365. Currency amounts are shown separately and are not converted at an exchange rate.
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Overview & methodology
Day-count convention and typical usance tenor by currency
| Currency | Day-count basis | Common usance tenor | Who normally bears the interest |
|---|---|---|---|
| USD | ACT/360 | 90 to 180 days | Seller if discounted; buyer under a buyer's usance LC |
| EUR | ACT/360 | 60 to 180 days | Seller if discounted; buyer under a buyer's usance LC |
| GBP | ACT/365 | 90 to 180 days | Seller if discounted; buyer under a buyer's usance LC |
| AED | ACT/360 | 90 to 180 days | Seller if discounted; buyer under a buyer's usance LC |
| INR | ACT/365 (MIBOR) | 90 to 180 days | Seller if discounted; buyer under a buyer's usance LC |
| JPY | ACT/365 (TONA) | 90 to 180 days | Seller if discounted; buyer under a buyer's usance LC |
| CHF | ACT/360 | 60 to 180 days | Seller if discounted; buyer under a buyer's usance LC |
| CNY | ACT/360 (SHIBOR) | 90 to 180 days | Seller if discounted; buyer under a buyer's usance LC |
| SAR | ACT/360 | 90 to 180 days | Seller if discounted; buyer under a buyer's usance LC |
Tenors and who bears interest are market norms; the LC terms and the bank's facility letter govern each deal.
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.
ACT/360 vs ACT/365: day-count convention by currency
| Currency | Day-count basis | Interest on 1,000,000 at 6.55% for 90 days |
|---|---|---|
| USD | ACT/360 | 16,375.00 |
| EUR | ACT/360 | 16,375.00 |
| AED | ACT/360 | 16,375.00 |
| CHF | ACT/360 | 16,375.00 |
| GBP | ACT/365 | 16,150.68 |
| INR | ACT/365 | 16,150.68 |
| JPY | ACT/365 | 16,150.68 |
| SGD | ACT/365 | 16,150.68 |
| HKD | ACT/365 | 16,150.68 |
| CAD | ACT/365 | 16,150.68 |
Difference on the 90-day example: 224.32, or about 1.4% of the interest charge. Last reviewed against UCP 600 and ICC market practice, September 2026.
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.
Method note: calculations run in your browser using the formulas and published rule books cited on this page. Results are free estimates for planning, with no login required, and should be confirmed with your bank, broker or the official source before you commit.
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).