WHAT IS UPAS L/C? PROCESS AND KEY CONSIDERATIONS IN INTERNATIONAL PAYMENT

In international trade, selecting an appropriate payment method directly impacts cash flow, risk exposure, and overall business performance. In addition to familiar instruments such as Sight L/C and Usance L/C, UPAS L/C has increasingly become a preferred choice among import-export enterprises due to its financial flexibility.

What exactly is UPAS L/C, how does it operate, and what should businesses consider when applying this method? The following article provides a comprehensive overview of UPAS L/C, from its definition and key characteristics to its detailed implementation process.

What Is UPAS L/C?

UPAS L/C stands for Usance Payable At Sight Letter of Credit—a deferred payment letter of credit that allows the exporter to receive immediate payment.

In simple terms, it is a hybrid structure combining:

Sight L/C (immediate payment), and
Usance L/C (deferred payment).

Under this arrangement:

The exporter receives payment immediately after presenting compliant documents.
The importer benefits from deferred payment terms as agreed in the L/C.
The bank advances the payment to the exporter and charges financing interest to the importer.

In other words, the bank acts as a temporary financing intermediary, allowing the seller to receive funds early while giving the buyer additional time to manage cash flow.

Thanks to this mechanism, UPAS L/C has become an optimal payment solution for high-value international transactions or transactions requiring extended cash flow flexibility.

Key Features of UPAS L/C

UPAS L/C provides parallel benefits for exporters, importers, and banks.

For Exporters

Immediate payment upon presentation of compliant documents
Reduced risk of delayed payment
Improved business cash flow
Greater flexibility to offer competitive pricing

For Importers

Deferred payment terms of 30, 60, 90 days, or longer
Reduced working capital pressure
Potential to negotiate better purchase prices due to early payment to suppliers
Financing interest rates typically lower than standard commercial loans

For Banks

Income from financing and discounting fees
Expansion of trade finance services

Owing to its flexibility, UPAS L/C is considered one of the safest and most efficient international payment methods available today.

Detailed UPAS L/C Implementation Process

The UPAS L/C process involves multiple parties:

Importer
Exporter
Issuing bank
Advising bank
Reimbursing bank

The standard procedure typically includes the following steps:

Step 1: Signing the Sales Contract

Both parties agree to use UPAS L/C as the payment method.

Step 2: Issuance of UPAS L/C

The importer requests the issuing bank to open a UPAS L/C in accordance with agreed terms.

Step 3: Advising the L/C

The issuing bank transmits the L/C to the advising bank, which then notifies the exporter.

Step 4: Shipment of Goods

The exporter ships the goods in compliance with the contract terms.

Step 5: Presentation of Documents

The exporter prepares and submits the required shipping documents to the advising bank.

Step 6: Discounting of Documents

The reimbursing bank discounts the draft and makes immediate payment to the exporter via the advising bank.

Step 7: Release of Documents to the Importer

The issuing bank examines the documents and releases them to the importer for cargo clearance.

Step 8: Payment at Maturity

On the due date, the issuing bank reimburses the reimbursing bank and subsequently collects the principal and financing charges from the importer.

Important Note:

The issuing bank’s payment obligation to the reimbursing bank is independent of the importer’s obligation. The bank must honor the payment at maturity even if the importer delays or fails to reimburse the bank.

Comparison Between UPAS L/C and Deferred L/C

Seller’s Payment Timing

UPAS L/C: Immediate payment after document presentation
Deferred L/C: Payment received after the agreed deferred period

Financing Interest

UPAS L/C: Interest borne by the importer
Deferred L/C: No financing interest

Exporter’s Cash Flow

UPAS L/C: Immediate cash inflow
Deferred L/C: Capital tied up until maturity

Financial Pressure

UPAS L/C: Primarily on the importer
Deferred L/C: Primarily on the exporter

Flexibility

UPAS L/C: High
Deferred L/C: Moderate

Compared to traditional deferred L/C, UPAS L/C provides a better financial balance for both trading parties.

Important Considerations When Using UPAS L/C

When applying UPAS L/C in international transactions, businesses should:

Select reputable banks with strong trade finance expertise
Clearly negotiate financing interest rates and related fees
Specify deferred payment terms explicitly in the sales contract
Standardize and carefully prepare documentation to avoid discrepancies
Fully understand financial obligations at maturity

Thorough preparation from the outset will ensure a smooth UPAS L/C process and minimize potential risks.

Conclusion

UPAS L/C is a flexible international payment solution that combines the advantages of sight and deferred letters of credit. It enables:

Exporters to receive payment promptly
Importers to optimize cash flow
Banks to manage and control trade finance risks effectively

In today’s increasingly competitive global trade environment, understanding and properly utilizing UPAS L/C can significantly enhance financial efficiency and strengthen a company’s international competitiveness.

If you’re looking for the best import-export solutions, feel free to contact us for detailed consultation. If you need legal support or assistance with customs procedures in import-export activities, please contact Smart Link Logistics for fast and efficient consultation. With over 15 years of experience in the transportation field, we are proud to accompany you throughout your journey.

Hotline: + 84 902 964 982 to know more about our services

If you require assistance with international import and export of goods, please contact our team at Smartlink Logistics. We are available to provide you with professional guidance on our services and the necessary customs procedures.

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