What is UPAS Financing?
UPAS Stands for “Usance Payable at Sight” which is the combination of Usance LC and Sight LC. UPAS LC is a Usance LC where payment is made on a sight basis to the exporter (beneficiary) but the payment of the buyer (applicant) will be made to issuing bank at the usance term. Usance Payable at Sight – UPAS. It is an import financing scheme to finance importers for goods, services, and other trade-related transactions. Exporters/sellers will get paid after their shipment and presentation of complied documents while importers can make payment on maturity.
UPAS Benefit:
For importers:
- The interest rate is lower than any other finance.
- It helps to optimize working capital.
- Payment to be deferred up to 360 days.
- It enhances Days Payable Outstanding by providing extended payment terms,
- Purchase goods with deferred payment at the appropriate cost of capital (equivalent to an interest rate of loans in USD).
- Appropriate to customers importing using L/C method.
- It helps to provide an additional source of liquidity.
For exporters:
- Immediately get paid without any extra cost.
- Reduce Days Sales Outstanding with receipt of payment “at sight”
- This LC increases the marketability of products by providing buyers with the incentive of extended payment terms.
- Keeps the integrity of the price, as the seller does not need to build in the cost of covering extended payment terms.
- Maintaining the quality of receivables because payment assurance is still secured through a letter of credit.
Why is this important?
Most companies have limitations over the amount of debt that they can take on, principally imposed on them by their lenders. High levels of debt mean that a company may struggle to borrow and may find that suppliers and lenders are reluctant to deal with them. Most companies have limitations over the amount of debt that they can take on, principally imposed on them by their lenders. High levels of debt mean that a company may struggle to borrow and may find that suppliers and lenders are reluctant to deal with them.