What is Payment at Sight

Accepting Sight Documents

Unlike most domestic transactions, payment or the start of a credit term in the import / export business usually does not happen at or from the delivery of an order but when documents supporting its shipment are signed for; i.e. "accepted at sight"

As the documents will include one transferring ownership to you (e.g. a bill of lading) and others to enable customs clearance, it will not be possible to take delivery of a shipment untilk that has been done.

In the case of a credit term, the transaction is referred to as documents against acceptance or (D/A). The credit term then runs from acceptance, not the physical delivery of the order. Where no credit term has been agreed this becomes documents against payment (D/P).

Payments by D/P represent paying for goods in advance of receiving them, making them very expensive for cash flow. That in turn makes cash flow forecasting ahead of making committments involving D / P crucial, especially for the average SME.

Click here to view an example of a monthly cash flow and available finance forecast

Your Bank and Documents

An exporter will send documents to the importer's bank for acceptance which will usually arrive before the goods reach them. If the shipment is being made from from a distant port, say from China to the UK, the chances are that the documents will arrive one or two weeks before the shipment does. 

Examples of such documents are pro-forma invoices, packing notes and certificates of origin but the key document is the bill of lading. Acceptance at sight hands the bill of lading over to the importer. That matters as a bill of lading certifies ownership. Once the goods arrive they cannot be released to the importer without it.

Documentary Credits

The two principal payment order forms that can be attached to a set of documents are either letters of credit or bills of exchange: Accepting the documents calls for signing the order form to authorise payment.

The documents and payment order form are presented by your bank, which acts as the agent for the seller's bank. Your bank cannot release the documents to you until you have signed an authorisation to pay. If sight payment (D/P) is called for, your account will be debited with the amount called for at the time of acceptance.

Letters of Credit

Bills of exchange have been largely superseded by letters of credit (L/C) for the purposes of international trade. This is because letters of credit are supported by bank guarantees for settlement on the due date.

Once again any credit term attached to a letter of credit would begin at sight of documents. For the average SME however payment performance will be very different because it is likely your bank would insist on debiting your business account with the value of a letter of credit when it is issued, effectively making the deal one of cash with order.

The bank will not be making any such commitment in the case of bills of exchange though so payment with order does not arise, as long as you can persuade a supplier to deal with you using them.

It is possible to plan and forecast cash flows using Figurewizard to include purchases by letter of credit and to assess how new capital, loans or, if your business sells on open credit, factoring / invoice discounting to further finance them.

To get an idea how this works follow the link to our sample What-If Calculator / Planner.