It is a kind of credit that the announcer bank after observing the carriage documents from the seller and checking all the documents immediately pays the required money.
Opening a Letter of Credit at sight is common practice in the export business. Under sight LC, the payment of export proceeds sent to seller’s bank by buyer’s bank immediately upon receipt of original shipping documents as per the terms and conditions mentioned on LC.
The credit period of LC can be determined my mutually agreed terms and condition by buyer and seller before sales takes place.
Some time, the foreign buyer may demand credit period of 30 days, 60 days, 90 days, 120 days etc. However as per government regulation, the total period of credit should not exceed more than 180 days.
Under LC, bank is guaranteeing the payment. So a margin amount is blocked in your bank account to make the payment under the said letter of credit. The amount of margin is determined on the basis of the credibility between clients and bank.The margin amount can range anything between 1% to 100%, of the amount of LC.