A “Deferred Payment Letter of Credit (DPLC)” is a financial instrument used in international trade transactions, particularly in situations where the buyer and seller agree to defer payment for the goods or services being provided. It operates similarly to a standard letter of credit but with the added feature of deferred payment. It is similar to a sight letter; however, it does not clear all the payments at once. This letter releases a portion of the amount upon receiving the documents. This gives sufficient time for a buyer to find the seller’s fault.

Deferred Payment Letters of Credit are commonly used when the buyer and seller have a strong, trusting relationship but still want to utilize the security of a letter of credit for the transaction. They provide flexibility in payment terms while still offering assurance to both parties that the payment will be made as agreed.

Note: A usance letter of credit and deferred payment letter of credit are essentially the same types of LCs with different names. In both cases, the bank disburses payment to the beneficiary on a predetermined date after the required documents are submitted.