Definition of Usance
Usance is a term used primarily in international trade and finance to describe the period allowed for the payment of bills of exchange. The duration, often specific to the country or trade agreements, typically spans around 60 days but can vary based on regional financial practices and contractual stipulations.
Examples of Usance
- Import/Export Trade: A U.S. exporter ships goods to a French importer under the terms that the bill of exchange must be paid within 60 days (usance period). The French importer receives the products and agrees to pay within the decided period.
- Historical Context: Historically, usance also referred to the interest rate on borrowed funds, a usage that has since evolved in modern finance.
Frequently Asked Questions (FAQs)
What is the usual usance period for international trade?
The most common usance period is 60 days; however, it can vary based on the country, industry norms, and specific terms of the trade agreement.
How is usance different from credit terms?
Usance refers specifically to the duration for payment of a bill of exchange in international trade, whereas credit terms can apply to various types of transactions and usually denote the time period agreed by parties involved in a transaction for payment.
Can usance periods exceed 60 days?
Yes, usance periods can be negotiated to exceed 60 days depending on the mutual agreement between buyer and seller and the norms of international banking and finance in the respective countries.
Is usance still used to define the rate of interest on loans?
In its historical context, usance described the interest rate on loans. However, in modern finance, this usage is largely obsolete.
Related Terms
- Bill of Exchange: A written, unconditional order directing one party to pay a certain sum of money to another party. Often used in international trade.
- Sight Draft: A type of bill of exchange payable on presentation to the drawee.
- Tenor: The time from the date of a bill until it is due for payment, similar in concept to usance.
- Documentary Credit: A guarantee from a bank ensuring that a seller will receive payment under specified conditions, often used for international transactions.
Online References
- Investopedia - Bill of Exchange
- International Chamber of Commerce - ICC Guide to Documentary Credit Operations
Suggested Books for Further Study
- “Guide to Business and Industrial Finance” by Ralph Estes: Offers a comprehensive understanding of various financial terms, including usance.
- “The Law of International Trade Finance” by Aggarwal: Discusses the various instruments of trade finance, emphasizing the practical applications of terms like usance and bills of exchange.
- “Export-Import Theory, Practices, and Procedures” by Belay Seyoum: Covers comprehensive insights into the mechanisms of international trade, explaining various financial instruments.
Accounting Basics: “Usance” Fundamentals Quiz
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