what is the meaning of payment upon presentation

Understanding “At Sight”: Definition, Usage, and Examples

“At Sight” is a term commonly used in trade and finance to describe a payment term or a financial instrument that is payable immediately upon presentation of relevant documents or completion of a transaction. This term is crucial in international trade and banking transactions, where the timing of payments and document handling is critical.

Table of Contents

Key aspects of “at sight”, definition and usage.

“At Sight” refers to a condition where a payment is due immediately upon presentation or at the time of sight, without any delay. This term is often used in the context of:

• Letters of Credit : In international trade, a Letter of Credit may stipulate that payment is to be made “At Sight,” meaning the beneficiary receives payment as soon as the required documents are presented and verified.
• Bills of Exchange : A Bill of Exchange marked “At Sight” indicates that the payer must settle the bill immediately upon presentation.
• Banking Instruments : Certain financial instruments, such as demand drafts or sight drafts, require payment “At Sight” when they are presented to the drawee bank.

Examples and Applications

• Letter of Credit (L/C) :
• Scenario : Company A imports goods from Company B in another country. To ensure payment security, Company B requests an L/C from Company A’s bank, specifying payment “At Sight.”
• Process : Upon shipment, Company B presents the required shipping documents to Company A’s bank. If everything is in order, Company A’s bank immediately releases payment to Company B.
• Bills of Exchange :
• Example : A supplier issues a Bill of Exchange for payment “At Sight” to a buyer upon delivery of goods. The buyer is obligated to pay the supplier immediately upon receipt of the Bill of Exchange.

Understanding the Implications

• Immediate Payment : “At Sight” ensures prompt payment, reducing the risk of non-payment and providing assurance to sellers or beneficiaries.
• Trade Efficiency : Facilitates smooth transactions in international trade by specifying clear terms of payment, enhancing trust between parties involved.
• Financial Security : Provides security to sellers, ensuring they receive payment without delays or uncertainties.

Importance in Trade and Finance

• Risk Mitigation : Helps mitigate payment risks by ensuring that payment is made promptly upon fulfillment of specified conditions.
• Legal Clarity : Defines clear terms of payment in commercial and financial documents, reducing disputes and misunderstandings.
• Global Trade Standard : Widely accepted in international trade practices, ensuring uniformity and predictability in payment processes.

“At Sight” is a fundamental term in trade and finance that denotes immediate payment upon presentation of documents or completion of transactions. It plays a crucial role in international trade, ensuring efficient and secure payment mechanisms between parties involved in cross-border transactions. Understanding “At Sight” is essential for traders, bankers, and financial professionals to navigate the complexities of global commerce, manage financial transactions effectively, and uphold trust and reliability in business relationships. By adhering to “At Sight” payment terms, businesses can enhance their operational efficiency, minimize financial risks, and foster smoother trade interactions on a global scale.

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Dictionary of International Trade

Documentary credit.

Documentary credit means the same thing than “letter of credit”. Traders and bankers in some parts of the world (US, Asia) tend to use the term “letter of credit” or the abbreviation “L/C”, while some bankers (in Europe) prefer to use “documentary credit” or “D/C”. Documentary credits facilitate international payments by providing security for both the exporter and the importer . The seller receives an advance assurance of payment upon presentation of documents conforming to the terms and conditions of the letter of credit, and the buyer is assured that the bank will not pay unless the seller has actually submitted documents strictly complying with the documentary credit. A typical procedure of a documentary credit is as follows:

• The process begins when the exporter and importer agree on a sales contract. Typically, it is the exporter that insists on payment by letter of credit because it does not want to take a credit risk, and cannot get sufficient information about the creditworthiness of the buyer to grant another form of payment.
• The importer then initiates the documentary credit mechanism by going to its bank and requesting it to open the credit.
• Subject to internal credit approval, the importer ´s bank issues the credit (and is hence called the “ issuing bank ”), under which it agrees to pay according to the importer ´s instructions. The credit is sent to the exporter or to the a bank in the exporter´s country (depending of the type of credit).
• Confirmation (optional). Commonly, under the sales contract and/or documentary credit application , the exporter´s bank (or another bank in the exporter´s country) will be requested to confirm the documentary credit, thereby committing itself to pay under the terms of the credit. Exporters may insist on confirmed credits when they want to have a trusted local payment.
• The exporter ( beneficiary ) is notified of the availability of the credit.
• Shipment and presentation of the documents. If the exporter agrees with the terms of the credit, it then proceeds to ship the goods. After shipment , the exporter goes to the bank nominated in the credit to effect payment an presents the documents that the importer has asked for. The exporter usually also presents a bill of exchange or draft , a document representing the bank´s payment obligation.
• Examination of documents/discrepancy/ waiver . The bank examines the documents carefully to ensure that they comply with the terms of the credit. If the documents do not comply, the bank cites a documentary “discrepancy”, notifies the exporter and refuses to pay the credit. The exporter may then either correct the documents or obtain a waiver of the discrepancy from the importer .

International documentary credit practice is governed by a set of rules produced by ICC, the latest version of which is know as UCO 6000 Uniform Customs and Practice for Documentary Credits. See letter of credit. Model of Irrevocable Letter of Credit.

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Deferred Payment Letters of Credit Explained: Navigating Usance LC in International Trade

Deferred Payment Letters of Credit, commonly referred to as Usance LCs, are financial instruments used in international trade to facilitate transactions between exporters and importers. They allow for a deferred payment, where an issuing bank guarantees payment to the exporter on behalf of the importer, but at a later date, which is specified in the terms of the LC. This period of usance provides the importer time to receive and sell the goods before the payment is due, effectively extending credit.

The issuance of a Usance LC involves multiple parties including the buyer, seller, issuing bank, and sometimes a confirming bank, ensuring a layer of security and trust in trade deals. As a key component of trade finance, Usance LCs not only guarantee payment to the exporter but also assure the importer that payment is contingent upon the exporter meeting the specific terms and conditions stipulated in the letter of credit. Due to the nature of international trade, Usance LCs can vary widely in their terms, including the length of the usance period and the required documentation to complete the transaction.

Key Takeaways

• Usance LCs offer a deferred payment option which can ease cash flow for importers.
• They involve multiple parties and add a level of security to international trading.
• There is a variety of Usance LCs which can be tailored to meet specific trade needs.

Understanding Deferred Payment Letters of Credit

A Deferred Payment Letter of Credit , also known as a Usance Letter of Credit , is a financial instrument used in international trade that allows a buyer to purchase goods and defer payment to a later date. It is a bank guarantee that the seller will receive payment, but with the specificity of a delay in payment as agreed upon by both parties.

When a buyer and seller enter into a contract with a deferred payment letter of credit , the issuing bank provides a promise to pay the seller on behalf of the buyer. The payment is made after a predefined period, known as the usance period, which typically extends from 30 to 180 days after the delivery of goods or presentation of shipping documents.

Here are the key components:

• Usance : The time duration agreed for the deferred payment.
• Buyer : The one who purchases, receives the goods, and is required to make the payment after the usance period.
• Seller : The one who ships the goods and expects to receive the payment upon expiry of the usance period.

This payment structure provides several advantages:

• Enhanced cash flow for buyers , as they receive the goods without immediate cash outlay.
• Guaranteed payment for sellers , which reduces the risk of non-payment.

In summary, a deferred letter of credit is an arrangement that grants flexibility to the buyer while offering a level of financial security to the seller . It’s a critical tool for managing cash flow and credit risk in international transactions.

The Role of Usance LC in International Trade

Usance Letters of Credit (LC) serve as a crucial financial instrument, ensuring sellers receive payment after delivering goods within a specified timeframe, while providing buyers the benefit of deferred payment.

Facilitating Trade Transactions

In international trade , a Usance LC acts as a bridge between buyers and sellers, allowing for transactions to proceed smoothly without immediate payment. It provides assurance to the seller that payment for the shipped goods is guaranteed by the buyer’s bank after a set period. This time frame, usually ranging from 30 to 180 days, affords the buyer time to sell the goods and manage cash flow effectively. By offering deferred payment, Usance LCs enable businesses to maintain steady operations without the pressure of immediate financial exchange.

Minimizing Payment Risk

A Usance LC significantly reduces payment risk for both parties involved in a trade transaction . For the seller , it mitigates the risk of non-payment as the issuing bank commits to pay, even if the buyer defaults. For the buyer , it ensures that the goods are shipped and documents are in order before payment is made. This role in trade finance is pivotal, as it instills confidence and security, encouraging businesses to engage in trade with new markets and partners, knowing that their financial interests are safeguarded.

Parties Involved in Issuing Usance LCs

In the process of issuing Usance Letters of Credit (LCs), several entities facilitate the arrangement of credit and assurance between the buyer and seller. Understanding the roles of these parties is crucial in the transaction.

The Issuing Bank

The issuing bank represents the buyer (applicant) and originates the Usance LC. It undertakes the obligation to pay the seller (beneficiary) the amount specified in the Usance LC, provided that the terms and conditions of the credit are fully met. This payment is made on a predetermined future date after submission of the required documents.

The Confirming Bank

A confirming bank , often involved in international transactions, adds an extra layer of guarantee on the Usance LC. It confirms the credit issued by the issuing bank, thereby undertaking a commitment to the beneficiary that payment will be made in accordance with the terms of the credit, subject to the presentation of compliant documents.

The Advising Bank

The advising bank acts primarily as an intermediary and is responsible for notifying the beneficiary that the Usance LC has been opened in their favor. Although they advise the credit, they are not responsible for the payment unless they also act as the confirming bank.

The Applicant

The applicant for the Usance LC is usually the buyer or importer. They request the issuing bank to open a Usance LC in favor of the seller. The applicant is ultimately responsible for reimbursing the bank for the credit extended once payment is made to the beneficiary.

The Beneficiary

The beneficiary is the seller or exporter who is entitled to payment under the Usance LC. They must comply with all the terms and conditions of the letter of credit to receive payment. Once they present the requisite documents evidencing shipment or delivery of goods as stipulated in the LC, they can expect payment on the date agreed upon in the Usance terms.

Process of Usance Letters of Credit

The process of Usance Letters of Credit involves a series of steps orchestrated between the importer, the issuing bank, and the exporter to facilitate the time-bound payment mechanism of the transaction.

Presentation

The exporter makes a presentation of the required documents to the nominated bank. This documentary credit ensures that all the conditions outlined in the Usance Letter of Credit are met: commercial invoices, shipping documents, and any other specified papers proving the shipment of goods.

Compliance Verification

Upon receipt, the nominated bank undertakes a compliance verification process. They scrutinize the documents to ensure a complying presentation . The documents must match exactly with the terms and conditions set forth in the Usance Letter of Credit for the payment to be honored at a later date.

Once the verifying bank confirms compliance, it issues an acceptance notice. This formally acknowledges that the documents are in order and payment is due at the predetermined future date, according to the usance terms (which is typically 30, 60, 90, or more days after document presentation).

Reimbursement

Finally, reimbursement occurs at the maturity date. The importer’s bank settles the payment with the exporter’s bank. The nominated bank will follow the instructions as laid out in the Letter of Credit regarding negotiation of the specific terms of payment, thereby completing the transaction loop.

Terms and Conditions of Usance LC

Usance Letters of Credit are crucial in facilitating international trade by allowing deferred payment. They set clear terms and conditions to ensure certainty and trust between the buyer and seller.

Credit Period

The credit period in a Usance Letter of Credit is a crucial term that dictates the time interval post-shipment within which the buyer is obligated to make the payment. Generally, this period is agreed upon by both parties and is clearly stated in the credit documentation to avoid any ambiguity. Typically, it extends up to 90 days from the date on the bill of lading , ensuring the buyer has sufficient time to clear the goods and manage funds.

Maturity Date Specification

For the maturity date , a Usance LC must specify the exact due date for payment. This date directly correlates with the credit period; for instance, if the credit term is 60 days, the maturity date would be 60 days after the submission of necessary documents or the bill of lading. Adherence to the Uniform Customs and Practice for Documentary Credits (UCP 600) is standard, ensuring a globally recognized framework governs the maturity terms.

Payment Terms

The payment terms outlined within a Usance LC delineate the conditions under which the payment will be released. This includes the agreed currency, amount, and any interest or fees applicable if payment is delayed beyond the specified maturity date. Payment is to be made at the end of the credit period, which is typically within the stipulated 90 days following the date indicated on the bill of lading, thus offering a well-defined schedule for financial planning.

Types of Letters of Credit and Usance LC Comparison

When dealing with international trade, understanding the nuances of different types of letters of credit (LC) is critical. This section contrasts types like Sight LC and Usance LC, along with examining both Revocable and Irrevocable LCs, finally making a comparison between Standby LCs and Commercial LCs.

Sight vs. Deferred LC

Sight Letters of Credit necessitate that payment is made immediately upon presentation and verification of shipping documents. In contrast, Deferred Payment Letters of Credit , also known as Usance LCs, allow for payment to be postponed for a specified period after the documents are presented.

• Sight LC : Immediate payment on document presentation.
• Usance LC (Deferred Payment LC) : Payment delayed as agreed by both parties.

Revocable vs. Irrevocable LC

Revocable Letters of Credit grant the issuer the right to make amendments or cancellation without the beneficiary’s consent. However, due to the lack of security, they are seldom used. The Irrevocable Letter of Credit is more common and cannot be modified or annulled without agreement from all involved parties, offering greater assurance to the beneficiary.

• Revocable LC : Can be altered or cancelled unilaterally.
• Irrevocable LC : Cannot be changed without everyone’s approval.

Standby LC vs. Commercial LC

A Standby Letter of Credit functions as a guarantee of payment, invoked only if the applicant fails to fulfill the contractual obligations. It’s mostly used in the US as a support for payment security. Conversely, a Commercial Letter of Credit , also referred to as a Documentary Credit, directly facilitates trade transactions by ensuring payment once the selling party meets the terms of the LC.

• Standby LC : Payment guarantee, activated upon default.
• Commercial LC (Documentary Credit) : Facilitates payment upon compliance with LC terms.

Each letter of credit mechanism serves distinct roles in trade finance, with the choice depending on the level of risk distribution and trust desired by the parties involved.

Financial Implications of Using Usance LCs

Deferred Payment Letters of Credit, commonly known as Usance LCs, offer significant financial implications for businesses engaged in trade finance. They directly impact a company’s financing and cash flow, the time value of money, and open up short-term financing opportunities.

Financing and Cash Flow

Usance LCs provide businesses with the ability to manage their cash flow more efficiently by allowing a delay in payment after the delivery of goods. This postponement offers buyers time to generate revenue from the sales before settling the cost of the products, thereby improving their working capital management. Sellers also benefit from a secure payment option , ensuring that they will receive the payment on a future date as specified in the conditions of the LC.

Time Value of Money

The time value of money is an integral consideration with Usance LCs, as the deferred payment period reflects a cost of financing. Money that is to be received in the future is discounted back to its present value, which should be factored into the cost of the transaction. By deferring payment, the buyer effectively receives a short-term financing benefit, but this comes at the cost of potential interest foregone on the amount due until the payment is finally made.

Short-Term Financing Opportunities

Usance LCs are often utilized as instruments for short-term financing in international trade. The seller extends credit to the buyer, which can be more favorable than traditional bank loans, depending on the agreement’s interest rate and terms. This extended period before payment also permits buyers to use the goods received to produce and sell products, potentially creating earnings that can be used to fulfill the obligation under the Usance LC, thus turning over the funds without an initial capital outlay.

Risks and Mitigation in Usance LC Transactions

When dealing with deferred payment letters of credit (Usance LC) , participants face several risks associated with non-payment , non-delivery , and documentary compliance . These can be mitigated through meticulous management of counterparty risks , addressing compliance and discrepancy issues , and ensuring both delivery and payment.

Counterparty Risks

In Usance LC transactions, counterparty risk is the danger that the other party may fail to fulfill their contractual obligations. This type of risk is particularly prevalent when the buyer and seller have not previously done business together. To mitigate these risks, companies may obtain credit insurance or perform enhanced due diligence on their counterparts, such as checking credit ratings and past transaction history.

Compliance and Discrepancy Issues

Compliance with Usance LC terms is vital. Discrepant documents can lead to non-payment, so entities must ensure all documents are accurate and strictly conform to the credit terms. They should also be aware that even minor discrepancies can cause rejection of documents by banks. Regular training on LC terms and compliance for staff, along with meticulous document checks, are essential practices to minimize these compliance risks .

Non-Delivery and Non-Payment

The risks of non-delivery and non-payment are intrinsic to Usance LCs. These risks manifest when a seller does not ship the goods as per the contract, or the buyer fails to make payment at maturity. Utilizing secure tracking methods for shipments, ensuring robust contract terms, and employing independent inspection agencies to verify the goods before shipment can reduce the risk of non-delivery. To mitigate payment risk, sellers may request an advance payment guarantee or seek financing solutions that provide payment assurance against the Usance LC.

Documentation Required for Usance LCs

When it comes to Usance Letters of Credit, specific documentation is critical for the fulfillment of the contractual agreement between buyers and sellers. These documents serve as proof of shipment, agreement terms, and insurance coverage to secure the deferred payment agreement.

Bill of Lading Requirements

The Bill of Lading (B/L) is a fundamental component for Usance LCs as it serves as evidence that the goods have been shipped. It must:

• Clearly list the consignee , consignor , and shipment details , including the vessel’s name and voyage number.
• State the number of containers or packages, weight , and measurements .
• Be issued in a full set, typically a negotiable set, and marked “ clean on board .”

Sales and Purchase Agreements

The sales contract underscores the agreement details between the buyer and seller. It must:

• Outline all relevant trade terms , including price, quality, and quantity of the goods.
• Include a valid date and signatures from both parties.

Insurance and Other Supporting Documents

Insuring goods during transit is an essential step secured through insurance documents . They should:

• Certify that the cover aligns with the terms of the sales agreement .
• Be complemented by other relevant documents, such as quality certificates , packing lists , and any additional requirements stipulated in the documentary letter of credit .

Advantages of Deferred Payment LCs for Exporters and Importers

Deferred payment Letters of Credit, commonly known as Usance LCs, offer substantial benefits for both parties in a trade transaction.

For exporters, deferred payment provides a guaranteed payment . Once they fulfill their part of the trade agreement, they are assured to receive payment from the importing party at a later specified date. This allows exporters to manage cash flow more effectively and plan their financial operations with greater certainty. Moreover, the use of Usance LCs can enhance creditworthiness since banks only issue them when they are confident in the buyer’s ability to pay at the set future date, as explained in the Trade Finance Global article .

Importers benefit from Usance LCs by getting the flexibility to defer payment until they have sold the goods or turned them into profit, which is particularly helpful in managing their own liquidity and cash flow . This deferred payment term allows importers to avoid having to tie up capital right at the time of shipment. Instead, they can better align their payment outflows with their revenue inflows.

Both exporters and importers enjoy a reduced risk of non-payment as the banks become intermediaries, which gives the transaction a layer of security . It also allows for strengthening of business relationships as both parties can rely on the LC terms for consistent and transparent dealings.

In essence, Usance LCs are financial instruments that create a win-win situation for both buyers and sellers in international trade by aligning payment schedules with business capacity and cash flow requirements.

Frequently Asked Questions

This section addresses common inquiries regarding Deferred Payment Letters of Credit, providing precise insights into their interest rates, differences from Sight LCs, associated risks, impact on trade costs, typical usage, and comparison with Bank Acceptance LCs.

How is the interest rate calculated for Usance LCs?

The interest rate for Usance Letters of Credit is determined by the issuing bank and is generally influenced by the tenor of deferment, market interest rates, and the risk profile of the transaction. The interest compensates the bank for the deferred payment period granted to the buyer.

What are the key differences between Usance and Sight LCs?

Usance LCs and Sight LCs mainly differ in terms of payment timing. Sight LCs require payment to be made immediately upon presentation of the required documents, whereas Usance LCs provide a deferred payment option, allowing the buyer to make payment at a later date.

What are the risks associated with using a Usance LC and how can they be mitigated?

The primary risk of a Usance LC is the credit risk of the buyer defaulting on the payment. This can be mitigated through thorough credit checks, secure trading terms, and hedging strategies like obtaining insurance or guarantees from reputable institutions.

How does the period of deferral in a Usance LC typically affect the cost of trade?

A longer period of deferral on a Usance LC typically increases the cost of trade for the buyer due to higher interest charges. For the seller, it might result in a better price for the goods sold, as the credit period is often a part of the sales negotiations.

In what circumstances is a Deferred Payment Letter of Credit typically used?

A Deferred Payment Letter of Credit is typically used in international trade when buyers and sellers seek to establish trust during a transaction. It is particularly valuable when buyers need time to generate funds from sales of the shipped goods before paying the sellers.

How does a Deferred Payment LC differ from a Bank Acceptance LC?

A Deferred Payment LC involves the bank paying the beneficiary after a set time without needing any further acceptance, while a Bank Acceptance LC requires the bank to accept drafts drawn by the beneficiary and then pay at maturity, either from buyer’s funds or from a bank loan granted to the buyer.

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Invoice payment terms: a guide to get paid faster.

When a business sends out an invoice, it should include clear payment terms that outline how and when the customer needs to pay. Setting expectations for timely payments ensures customers understand their responsibilities for payment, reducing the risk of miscommunication and delayed payments.

Payment terms also help businesses manage their cash flow, follow up on late or unpaid invoices, and find legal recourse in the event of refusal to pay. 

We’ll explore common types of payment terms, methods for choosing your payment options and terms, and best practices to help you create your small business invoices.

Key Takeaways

• Payment terms outline payment due dates, payment methods, and late payment fees. 
• Every invoice should include clear payment terms.
• Researching your industry can help you determine common invoice payment terms.
• Payment terms specify payment due date and may also include incentives, interest, and fees.

Table of Contents

What Are Payment Terms on an Invoice?

21 types of payment terms, invoice payment terms example, when are payment terms created and updated, how to choose invoice terms and conditions, 14 best practices for invoice payment terms, use freshbooks to ensure timely payments.

Payment terms on an invoice let clients know when they’re expected to pay the invoice and what methods they can use to submit payment. There are a range of payment terms businesses can choose to include on their invoices.

Explore common payment terms and their meanings to discover the right fit for your next invoice.

1. CIA (Cash in Advance)

Cash in Advance requires the client to make a full payment before goods or services are provided. It’s popular for transactions that require delivery of goods but can be used for any business interaction.

2. CBS (Cash Before Shipment)

Cash Before Shipment is similar to CIA in that it requires the client to make a full or partial payment in advance. However, while the CIA can apply to goods or services, CBS is used for business transactions that require a shipment.

3. CND (Cash Next Delivery)

If a customer is receiving multiple deliveries of goods or services, Cash Next Delivery details the amount they have to pay on or before the next delivery date. This term is common for subscription shipment services.

4. COD (Cash on Delivery)

Cash on Delivery, also called Immediate Payment or Payment on Receipt, means that payment is due when the project is delivered to the client. This may allow for same-day payment processing or require immediate payment for work done on-site.

5. CWO (Cash with Order)

Cash with Order requires the customer to pay when they first place the order. Payment must be approved and fully processed before goods or services are produced or delivered to the client.

6. EOM (End of Month)

End of Month means that the customer must pay on or before the end of the month in which the invoice is delivered. This specifies payment in relation to the invoice date rather than the delivery of the product or service.

7. PIA (Payment in Advance)

Payment in Advance is any type of payment made prior to work. This can include a full payment, but may also be partial payments such as down payments or payments to cover the cost of materials and other expenses.

8. PPD (Prompt Payment Discount)

A Prompt Payment Discount confirms that the customer can receive a discount on their order if they pay within a specified time frame. This discount can be added in addition to other payment terms on an invoice.

9. CAD (Cash Against Documents)

Cash Against Documents is used for international shipping transactions between importers and exporters. The importer must provide full payment before the exporter will release the required shipping documents that allow for the importer to receive the goods.

10. MFI (Month Following Invoice)

Month Following Invoice stipulates that the customer must pay their invoice in the month following the invoice delivery. Typically, the payment is due on the 15th or the 30th of the month.

11. Net 7/10/30/60/90

Net Payment terms outline the amount of time a client has to make a payment—for example, 7, 10, 30, 60, or 90 days. Clients are welcome to pay sooner, but the net payment day is the latest allowable payment day.

12. 2/10 Net 30

2/10 Net 30 is a variation on Net 30, where the customer receives a 2% discount if they make the full payment within ten days of receiving the invoice. Payment is still required within 30 days.

13. Interest Invoice

An Interest Invoice is an invoice that contains all of the relevant interest charges for a customer. This is sent in addition to a standard invoice if the customer owes interest on one or more unpaid invoices.

14. Early Payment

Early Payment is a payment term that specifies a discount if the customer pays the invoice before the due date. The exact time and early payment discounts amount vary, and can be included on any type of invoice.

15. Contra Payment

Contra Payments are used when the customer is providing supplies for the good or service they have purchased. The contra payment is offset against the value of the supplies provided.

16. Terms of Sale

Terms of Sale are a part of the business contract that outlines the buyer’s and seller’s responsibilities for a business transaction. This can include things like delivery dates, payment dates, and obligations in case of late payment. 

17. Payment Plan Details

Payment plan details outline the payment process for an individual contract. This typically includes a payment schedule, for example weekly, bi-monthly, or monthly payments. Payment plan details may also include payment methods.

18. Payment Method

Payment Method specifies what methods the customer can use to pay their invoice. Common payment methods include e-transfer, cash, credit card, online payment, and check. Businesses may offer one or more payment methods.

19. Shorten Payment Periods

Shorten Payment Periods refers to a business decreasing the length of time that a customer has to pay their invoice. This is often used to provide a warning for changes in payment terms, for example from 90 days to 30 days.

20. Upfront

An Upfront payment is a type of advance payment where the customer pays before work begins. Upfront payments may be a flat rate per job or may be a percentage of the total invoice amount.

21. Overdue Fees

Overdue Fees details the amount that a client must pay if they fail to pay by the due date specified on the invoice. Overdue fees may be charged as a percentage or a flat rate per day, week, or month.

The example invoice below shows payment terms outlined in the bottom left-hand corner. This invoice includes a Net 30 payment term that specifies payment is due 30 days from the invoice date. It also outlines the fee structure for late payment. Including clear payment terms and specifying consequences for delayed payment can encourage customers to pay on time.

Payment terms are created before the invoice is sent and may be updated if a business’s payment structures change. Payment terms cannot usually be changed after an invoice is delivered. It’s generally recommended to maintain consistent payment terms and accepted payment methods so customers know what to expect when they place an order with your business.

Assessing your business needs, customer reliability, and project demands can help you choose the best terms and conditions for a particular invoice.

Monitor Cash Flow

Setting the right payment terms can ensure your business receives cash when you need it. For example, if you’re regularly running short on cash at the end of the month, consider payment terms that specify payment on the 15th to provide smoother cash flow.

Consider Industry Standards

Most industries have payment terms that are commonly accepted. Aligning your terms with the industry standard ensures customers know what to expect from your invoice. Do some research to learn which payment terms are most common in your industry, then decide which of those aligns best with your needs.

Review Client History

While it’s generally recommended to maintain consistent payment terms, you may want to modify terms for certain customers. If a customer is regularly behind on payments, consider including stricter payment terms or late fees. Conversely, you may choose to offer discounts for reliable customers who always pay promptly.

Implement Late Fees and Interest Terms

Late fees and interest terms can motivate clients to pay on time and are also important in case you need to pursue legal recourse for late or unpaid invoices. Make sure to outline all payment terms, including how much interest to charge on overdue invoices , on your contract in addition to on the invoice.

Assess Invoice Size

Some projects incur a larger financial risk for small businesses, especially if the project requires a large amount of time and resources. On major projects with large invoices, you may want to consider payment terms that include a deposit or partial payment to minimize your financial risk.

Browse best practices for creating your invoice payment terms, including methods for automated reminders, effective payment periods, and professional invoice wording.

1. Automate Invoicing

Automating invoicing is an easy, efficient way to send invoices, prompt reminders, and organize payments. FreshBooks invoicing software lets you customize your payment terms, generate professional invoices in minutes, and automate your payment reminders. You can also track invoices and payments to streamline your organization and ensure you never miss an invoice.

2. Add Late Fees

Late fees are an important motivator to encourage clients to pay on time. Even if you expect the customer to adhere to payment terms, clearly outlining your late fees can provide a valuable legal recourse in the event of an unexpected delay.

3. Incentivize Early Payments

In addition to outlining the consequences of late payment, you can also choose to incentivize early payment with a flat rate or percentage discount for paying by a certain date. Offering a small discount for prompt payments can encourage punctuality and help improve your business’s cash flow. 

4. Shorten Payment Periods

If you’re running into cash flow issues or noticing that clients are delaying payments until the last possible date, it may be an indication that you should shorten your payment period. Many businesses choose to switch from Net 60/90 to Net 30 to address this issue.

5. Offer Flexible Payment Methods

Offering multiple ways to pay makes it easier for customers to find a method that works for them. FreshBooks Payments lets customers pay online directly from their invoice with payment links for your business, making it a breeze to pay in minutes. Acceptable payment methods like online payment, credit card, and mobile payments offer extra flexibility. 

6. Due Date

Make sure that you set a clear due date so clients know exactly when they have to pay. You may choose to outline an exact date—for example, the 15th or 30th of the month—or you may specify a certain number of days from the invoice date.

7. Set Specific Deadlines

In addition to the invoice due date, you can outline additional payment deadlines that may apply in case of late or non-payment. This can include the date on which interest or late payments apply, and the date after which legal recourse may be pursued.

8. Total Invoice Amount Due

Ensure that customers understand how much they owe by including the total invoice amount due. While it’s also important to include a breakdown of costs, concluding the invoice with a total amount due encourages customers to pay the full amount on time.

9. Be Flexible

Some flexibility is important when creating invoices so that customers feel they have a convenient and reasonable way to pay. One option for including flexibility is to offer multiple payment methods. This enables customers to choose the method that works best for them, reducing the likelihood of delayed payments.

10. Invoice as Early as Possible

Sending prompt invoices ensures that your work remains fresh in the customer’s mind. It also gives them time to review the invoice and address any concerns that may arise. Aim to send out your invoices immediately after work is done, ideally the day of the order, job, or delivery.

11. Make Payment Easy for Customers

Encourage customers to pay on time by making the process as easy as possible. Offer multiple payment methods, clearly state the total amount, and outline the due date and payment process. Make sure your contact information is readily available so customers can reach out with any questions.

12. Politely Word Your Invoice Payment Terms

Maintaining a positive relationship with your customers is essential to getting paid. Make sure all your payment terms are worded in polite and professional language. You may also choose to omit harsher terms like legal recourse dates and simply outline basic incentives and late fees.

13. Use Simple Language

Make payments easier for your customers by using simple, clear language. Be direct and to the point—specify the amount due, when they need to pay, and how they can pay. Avoid abbreviations and technical terms; instead, use complete language and common names for all payment terms.

14. Follow Up

Remember to follow up with customers and gently encourage them to pay. You may employ different follow–up reminders depending on the customer’s payment history. For example, a customer who regularly pays at the last minute may benefit from a reminder the week before the payment due date. 

Creating effective invoices is essential to creating a positive customer experience and getting paid on time. Choosing the right payment terms and conditions helps improve cash flow, build strong customer relationships, and reduce the risk of late payment.

FreshBooks invoicing software offers an efficient way to create professional invoices for your small business. Browse invoice templates , customize your payment terms, send automated reminders, and let customers pay directly from their invoices. Try FreshBooks for free to discover how the right invoicing software can help you get paid and grow your business today.

Michelle Payne, CPA

About the author

Michelle Payne has 15 years of experience as a Certified Public Accountant with a strong background in audit, tax, and consulting services. Michelle earned a Bachelor’s of Science and Accounting from Minnesota State University and has provided accounting support across a variety of industries, including retail, manufacturing, higher education, and professional services. She has more than five years of experience working with non-profit organizations in a finance capacity. Keep up with Michelle’s CPA career — and ultramarathoning endeavors — on LinkedIn.

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Due Upon Receipt, What Does It Mean and Should You Use It?

Are you self-employed as a freelancer or run a small company? If so, you might sometimes feel that your entire work life is about invoices . You're always making them and sending them to your clients once you've finished the work. Though you are prompt at your end, the client might take forever to pay you.

There is absolutely nothing worse than when you finish a job and then must wait a few weeks to get paid. Your bills don’t stop, and you should know when that money is going to come in and be ready to spend.

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Ultimately, the best way to avoid such a situation is to set up terms of payment, as well as conditions before you agree to work for someone. Those who want to get paid quickly should put a label on their invoice, which uses the phrase ‘due upon receipt’—a reference to the invoice payment terms.

What Does Due Upon Receipt Mean?

The term 'due on receipt' is straightforward: it refers to when payment is due for an invoice . Therefore, when you include it on your invoice payment terms, it means the client must pay you for your work as soon as he or she receives the invoice .

When you use the term you are effectively being upfront and demanding that the client have the payment ready to pay as soon as possible. Ideally, you want your money that same day, but the term usually means they can pay you the next business day. Getting paid is always your topmost priority, especially if you provided quality work. Therefore, these pay terms are critical for managing your cash flow .

Why You Should Mark Your Invoices with This Term of Payment

Naturally, most people see the term and believe it to be life-changing. You receive the money fast from your payments. Terms like this, though, aren’t often used for each job you take. Generally, there are just a handful of situations where the payment due upon receive term is utilized.

It usually works best when you’ve got a new client who wants you to work on a single job. They don’t want any repeat business and only desire your services one time. Therefore, when you label the invoice with the payment terms of due upon receipt, you make sure that the money you’ve earned gets to you fast so that you both can move on with your life.

Technically there’s nothing to stop you from adding this terminology to every invoice you create. However, it’s not always going to be beneficial. To have a better understanding of the due upon receipt meaning, you should understand the benefits and drawbacks of these terms. Payment due upon receipt can be a good or bad thing, depending on the situation.

Advantages of Using the Term Due Upon Receipt

Clearly, you can see the biggest advantage of using this term on your invoice. Payment is needed as soon as possible, which is often the next business day. Clients can use these payment terms along with the method they choose to pay the bill when they get the invoice. They might make a bank transfer or a credit card payment—regardless of the method, a speedy payment is to be expected.

With quick payments, you don’t worry about getting to your next payday. If you need to be paid for your work because of your bills or because other payments are due, this is essential. One of the biggest issues with sending an invoice and not getting paid fast is because you could forget to request the payment after a while. Some clients can take months before they pay, which means you might forget you sent the invoice at all.

Of course, will leave you with a gap in your books when you realize things weren’t paid. Then it can take a lot of time to go through documents and emails to find the right invoice and determine how much you’re owed. Now you’ve got to contact the client and discuss the payment terms, reminding them and proving that you never got paid.

With the due on receipt option, you don’t have this problem. Money comes to you within a single business day, so your accounts are accurate. Plus, you don’t have to worry about the client not getting the receipt. Invoices can be sent automatically, and the client then knows that payment is due immediately.

Disadvantages of Using the Term Due Upon Receipt

Unfortunately, there are also a few drawbacks of using the due upon receipt payment term. For one, you can’t always guarantee that your client is going to pay you the next day. If you send the invoice with the due on receipt claim, they could be waiting until they get paid. They literally cannot make the payment, so you've got to wait until they can.

One way around this, though, is to ensure that both parties know about the disclaimer of due on receipt. Invoices are going to be sent out when the project is complete, and you expect payment immediately. Then you don’t run into such an issue. However, you should be prepared for some clients not to agree to use your services because they cannot agree to such payment terms.

Another aspect to consider is that the client might want to review your work before paying you. Invoice payment immediately isn’t fair to the client if you perform work that isn’t up to par. They can’t know this, especially if they’ve never worked with you before. Therefore, you might want to give them a few days to read through the article or look at the work before they are required to pay the invoice.

You should, of course, have clauses in place that require the client to request amendments and look things over in a timely fashion. Some clients may wait months before even reading the piece and then demand a rewrite. If you both agree to the invoice being due on receipt, they are more inclined to go through everything and approve it quickly.

More on Payment Deadlines

Sometimes called Net D, this is the amount of time the client has to pay you and is shown on the invoice. Generally, if you don't use the due on receipt label, the invoice has to be paid within a specific amount of days. Most people use the Net 30 connotation, which means the client has 30 days to look over the work and render payment.

Should You Use Due Upon Receipt in Invoice Payment Terms?

Due upon receipt invoices can be a good thing, but some people may still wonder if it’s right for them. There may be a secret to knowing when to use it on your invoice. If you’ve got a one-time job coming up, this term can help you. Freelancers like to have their money immediately or by a specific date. The due on receipt label ensures that small businesses can manage their accounts. The one-time client can make payment for the work you do, and everything is complete.

As a small business owner, you have the right to get paid for the work you do. The invoice is your proof that the work was completed, and payment should be rendered. However, it is up to you to ensure that the invoice is complete and sent promptly.

FAQs on Due Upon Receipt Invoicing

What does due upon receipt mean.

‘Due upon receipt’ in the payment terms of an invoice means that the sender of the invoice expects the client/recipient to pay as soon as they receive the invoice.

When should an invoice be due?

The payment terms of an invoice depends on your payment expectations. ‘Due upon receipt’ requires immediate payment; ‘Net 7’, ‘Net 14’, ‘Net 30’ etc., mean that the payment is due the specified number of days from the date of the invoice.

Is COD the same as due upon receipt?

‘Cash on Delivery’ (COD) or ‘Payable on Receipt,’ means that the payment is due at the same time a product or service is delivered. This is different from the ‘due upon receipt’ method, which requires the payment when the receipt invoice for that product or service has been delivered.

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Between Curdbee & their new version, Hiveage, I’ve brought in more than $310,000 than I would otherwise not have . If I ever need to send an invoice, I know it’s gonna work, and I know they’re gonna get it, and I’ll know when they’ve seen it and paid or not paid it. At least if everything else gets hard, I know I’ve got a system there that’ll let me get paid. Micah Rich Creative Director and Owner, www.weareagoodcompany.com

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Sight Draft

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

Dheeraj Vaidya

What Is A Sight Draft?

A Sight Draft refers to a bill of exchange in international trade, where the purchaser is obligated to pay the seller immediately upon the presentation or sight of the draft. It ensures the buyer pays before taking possession, securing the goods in international trade.

Typically, the seller creates this instrument and includes it with other shipping documents. It is then presented to the purchaser's bank. Once the buyer pays the bank, the shipping documents are released, allowing the buyer to take possession of the goods. Letters of credit and sight drafts are often utilized in tandem for secure and efficient international trade transactions.

Table of contents

Sight draft explained.

• Advantages and disadvantages

Sight Draft vs Time Draft

Frequently asked questions (faqs), recommended articles.

• A sight draft definition states it as a bill of exchange that requires the buyer to pay the seller right away after receiving the goods in international trade.
• It guarantees that buyer ownership does not occur prior to seller payment and facilitates the safe transfer of products in international trade.
• It protects buyers and sellers alike, but it needs to provide the buyer with more flexibility.
• A time draft postpones payment until a predetermined date in the future, but a sight draft demands payment right once upon sight.

A sight draft is defined as a negotiable instrument that obliges the buyer to pay the seller upon the receipt of goods, with the presentation of the draft serving as a means to claim ownership of the goods from the seller. International traders commonly utilize this instrument for various payment transactions in import - export agreements. Following the shipment of the product, the seller prepares this instrument for presentation to the bank and subsequently forwards it to the buyer's bank after receiving confirmation.

Upon the goods reaching the buyer's destination, the buyer's bank presents this instrument to the buyer for payment. Once the buyer's bank receives the payment, it releases the goods to the buyer. Subsequently, the payment is forwarded to the seller's bank for reimbursement . Importantly, along with letters of credit or bills of lading, this instrument is typically presented together, assuring payment to the exporter.

Sight drafts offer security and prompt payments to both the seller and the buyer, thereby reducing credit risk . To prevent delays and streamline the process for both the exporter and the recipient, the exporter meticulously checks paperwork to ensure alignment with customer expectations and order agreements. This diligence fosters trust between the buyer and seller and results in a faster transaction. These are commonly employed in documentary collections for all international trade transactions.

This instrument has become a convenient choice for businesses engaged in international trade , ensuring the accurate delivery of goods to the importer before any payment is made. Additionally, the sight draft can facilitate an auto loan and serve as a payment check in certain countries. Consequently, it has contributed to increased global financial transactions , fostering global growth and revenue generation for companies involved in international trade.

Let us use a few examples to understand the topic.

Suppose Captain Amelia Silver, the famed explorer, obtains a sight draft template in the bustling city of Arcadia from Mr. Orion Blackwood, a mysterious businessman. The template details a transaction involving a trunk filled with exotic spices from the fictional country of Marakanda, traded for the legendary Sunstone of Eldoria. The delivery of the sight draft is witnessed by the supposed Dragon Empire Ambassador Li Wei, a renowned diplomat.

Acting as the interim issuing party, Silver Star Enterprises, a reputed trade corporation, embellishes the template with elaborate seals and signatures, symbolizing peaceful cooperation and fostering trade and cross-cultural interaction. As Captain Silver embarks on a new journey, the template serves as a representation of trust and prosperity, vividly illustrating the interconnectedness of the globe.

Sight draft, or demand draft in India, has come to the fore. Securities and Exchange Board of India (SEBI) announced that it would no longer accept a demand draft for fees associated with its Informal Guidance Scheme. It added that the payments for requests for informal counsel must now be submitted directly to Sebi's bank account, using NEFT, RTGS, IMPS, or the Sebi payment channel, for a maximum of  ₹25,000 .

This modification is in line with Sebi's determination to remove demand drafts as a method of payment for requesting regulatory compliance advice. Under the amended Informal Guidance Scheme, the emphasis is now on direct credit mechanisms for meeting fee commitments.

Advantages And Disadvantages

Sight draft has several benefits but also has many demerits. Hence, it is necessary to know the advantages and disadvantages using the table below:

Both are an integral part of international trade. Let us understand the differences from the table shown below.

When a buyer accepts shipping goods, the seller is entitled to immediate payment from the buyer using a sight draft, a payment document employed in international trade. A letter of credit, on the other hand, is a document that confirms the payment for goods or services and is payable after it is submitted with the required paperwork.

To write a sight draft for a letter of credit, as the beneficiary formally requests payment from the issuing bank in accordance with the letter of credit terms. Include all necessary details, and upon presentation, the sight draft will be expeditiously processed for immediate payment.

A sight draft requires immediate payment upon presentation, ensuring swift transactions in international trade. In contrast, a usance draft allows deferred payment, with the buyer settling the amount at a predetermined future date, providing flexibility but extending the payment timeline.

This article has been a guide to what is a Sight Draft. Here, we explain the concept along with its examples, comparison with time draft, advantages & disadvantages. You may also find some useful articles here -

• Bills of Exchange
• Documents Against Payment

At Sight Transactions: What It Is, Examples, and Optimization

Last updated 03/20/2024 by

Fact checked by

Sight transactions

Importance of documentation, at sight vs. upfront payments, example of at sight, understanding letters of credit, exploring related concepts: time drafts and bank drafts.

• Provides seller advantage for interest reasons
• Clear provisions for payment and delivery
• Ties up money while goods are in transit
• Exposes transactions to currency fluctuations during transport

Exploring at sight in different industries

Automotive sector, technology and electronics, optimizing at sight transactions for efficiency, utilizing electronic documentation, implementing blockchain technology, frequently asked questions, what are the typical conditions for payment release in at sight transactions, how do at sight transactions differ from other payment methods in international trade, what are the benefits of utilizing electronic documentation in at sight transactions, how can businesses mitigate risks associated with at sight transactions, what role does blockchain technology play in optimizing at sight transactions, are there any regulatory requirements or compliance considerations for at sight transactions, key takeaways.

• At sight transactions ensure immediate payment upon meeting predetermined conditions, commonly employed in international trade.
• Documentation plays a crucial role in facilitating timely payment release in at sight transactions.
• Advantages of at sight transactions include interest benefits for sellers and clear provisions for payment and delivery, while drawbacks include tied-up funds during transit and exposure to currency fluctuations.
• At sight differs from upfront payments, which entail immediate fund transfer at the time of purchase.
• Related concepts such as letters of credit, time drafts, and bank drafts offer further insights into international trade finance mechanisms.

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What you need to know about payment terms

Payment terms regulate the payment that customers must make to a company for a delivery or service. Companies have a great deal of freedom in the design of their payment terms. However, it makes sense to stick to common formulations in order to avoid misunderstandings. We will show you here what this can look like with the help of a few examples.

Payment terms on an invoice in the UK - What are they and why are they important?

In the payment terms, a company specifies which conditions apply to its customers when paying their invoices . For example, when customers place an order in an online shop, they accept the seller's payment terms. If they do not, no business contract is concluded.

Payment terms apply wherever money is exchanged for goods or services. Payment can be made in various ways, e.g. by advance payment, payment on receipt of goods, or payment on account after receipt of goods.

The payment terms in the form of payment deadlines or payment periods are stated on the invoice, indicating the latest date by which the invoice must be paid. It may also indicate that a discount may be deducted for early payment.

What are normal payment terms?

Companies in the UK often choose the standard payment term of 30 days for their payment terms on invoices. This corresponds to the legal payment term. However, any other payment term can be chosen.

However, it must be ensured that customers can also meet these deadlines. Less than 7 working days is therefore unusual.

What are the best payment terms?

It is in a company's interest to be paid as early as possible. This means that up-front payment is best. Customers then pay the full amount or a partial amount before the company provides the service or delivery.

However, up-front payment is not always possible or can lead to customers choosing another company where they can pay on account. To avoid this, a compromise can be made: Offering discounts for earlier payment.

Customers receive an invoice upon delivery, which is payable in 30 days, for example. However, if they pay within 7 days, they can deduct a certain percentage (discount rate) from the invoice amount. This reduces the company's profit, but ensures a faster cash flow.

Payment terms: Examples

To illustrate the payment terms, we present some common situations from practice.

Upfront payment terms

If a company wants to be paid in advance for its service or delivery, this must be communicated to the customer when the sales contract is concluded. The amount to be paid in advance can be the full invoice amount or only a part of it.

Upfront payment terms look like this, for example: "Please find attached the invoice 12345 for our delivery/service. The total amount is £2,000, with an upfront deposit of £200 due by xx/yy/zzzz.

Our bank account details can be found below. Thank you very much"

30 days payment terms

30 days payment terms are often referred to as net 30 on invoices. This means that customers are granted a payment period of 30 calendar days (not working days).

The shortest form on a bill looks like this: "Payment terms: net 30"

Instead of 30 days, you can also give your customers a shorter or longer payment term, for example net 14 or net 60. However, to avoid confusion, we recommend that you emphasise the payment term even more clearly, because some customers do not know what the term net xy means. You can then formulate the payment terms like this:

• Payment terms: Payment is due within 30 days of invoice date
• Payment terms: Payment due 15 June, 2022

Discount rates

If you grant your customers a discount for earlier payment, you can also choose a short form, for example:

• 2/10 net 30: 2% discount when paid within 10 days; later payment: full amount
• 4/14 net 60: 4% discount when paid within 14 days; later payment: full amount You can also write out the short form:
• Payment terms: 2% discount for payments made within 20 days; 30-day due date

Payment terms for immediate payments

Immediate payment is referred to on an invoice as payment due upon receipt. This means that the invoice must be paid immediately upon receipt. Please note, however, that it may still take a few days before the transaction is credited to your account. We therefore recommend that you specify a clear date or deadline instead of immediate payment:

"Payment terms: Payment is due within 7 days of invoice date".

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Mastering International Trade Payments - A Guide to T/T, L/C, D/P, D/A, and O/A Methods

When engaging in international trade, one of the critical aspects to consider is the payment process. It sets the foundation for successful transactions and ensures that both parties involved are protected.

Throughout this article, we will delve into the intricacies of various common payment methods, including T/T (Telegraphic Transfer), L/C (Letter of Credit), D/P (Documents against Payment), D/A (Documents against Acceptance), and O/A (Open Account). By exploring these methods in detail, we aim to provide you with a comprehensive understanding of their features, benefits, and potential challenges that may arise during international trade transactions.

T/T (Telegraphic Transfer)

T/T, also known as Telegraphic Transfer, is a widely used method of remittance. In this process, the remitter sends a message via telex or telefax to a branch or correspondent bank located in another country (known as the remitting bank), instructing them to transfer a specific amount to the recipient.

T/T transactions are settled in foreign currency. Your customer will remit the payment to your company’s designated foreign exchange bank account. T/T falls under the category of commercial credit. Once the goods are ready, if the customer intends to make full payment, you can directly send the documents to the customer without involving the bank.

There are two types of T/T wire transfers. The first type requires the consignor to receive 100% of the purchase price before shipping the goods. This method is considered the most secure for sellers in international trade, as they bear no risk. Shipment is only made once the payment is received. This payment method can also be flexible, with options ranging from a 20% to 40% deposit, followed by the remaining 80% to 60% before shipment. The specific proportion varies based on different circumstances and flexibility requirements.

The second type involves shipping the goods first and then having the buyer pay the balance. The balance payment is typically made upon presentation of the copy of the Bill of Lading (B/L). This payment method offers more flexibility, with the common practice being a 30% deposit from the customer and the remaining 70% paid after reviewing the B/L. Some variations include a 40% deposit with the remaining 60% paid upon seeing the B/L.

Common challenges associated with T/T payments

Incorrect recipient information leading to pending accounts: Many customers tend to be careless when providing recipient information. Errors such as misspelled names or exceeding the remittance space restrictions can hinder the release of funds. Typically, it takes around 15 days (or as per the bank’s policy) to resolve such issues. If no solution is found within the given timeframe, the money will be returned to the original source. To address this, it is crucial to inform customers to make amendments to their information and emphasize that without the correct details, the funds cannot be collected, and the order cannot be executed. In cases where the company name is too long, it is advisable to communicate with the customer and suggest writing the abbreviated portion of the name in the address field to ensure a smooth transaction.

Customer defaulting on final payment: Some customers may delay the final payment, causing inconvenience. To prevent this, it is essential to clearly specify the final payment deadline in the contract. For instance, including terms such as “payment to be made within 3-5 working days upon receipt of the B/L copy” can help avoid delays in receiving the final payment. Additionally, conducting thorough customer analysis and risk assessment beforehand can contribute to proactive risk mitigation strategies.

By understanding the intricacies of T/T payments and being aware of potential challenges, you can navigate international trade transactions more effectively and ensure smoother financial processes.

L/C (Letter of Credit)

To begin with, it’s important to note that a letter of credit operates independently from the underlying contract of sale and purchase. The bank places great emphasis on the written form of authentication of the letter of credit, separate from the actual trade transaction, when reviewing the documents.

Secondly, a letter of credit is primarily a documentary transaction, meaning that payment is based solely on the compliance of the presented documents. The focus is not on the physical goods themselves. As long as the documents meet the agreed-upon criteria, the issuing bank is obligated to make payment unconditionally.

Furthermore, a letter of credit serves as a form of bank credit and functions as a guarantee document. The issuing bank assumes the primary responsibility for payment, ensuring that the beneficiary receives the agreed-upon funds.

Understanding the Different Classifications of Letters of Credit

Letters of credit (LC) play a crucial role in international trade, providing a secure payment method for exporters and importers. They can be classified in various ways, depending on the documents involved or the specific requirements outlined in the LC itself. Let’s explore some common classifications:

Classification Based on Document Requirements:

Confirmed Letter of Credit: In a confirmed LC, the issuing bank engages a confirming bank to add its guarantee to the payment. This provides an additional layer of security for the beneficiary, as the confirming bank becomes liable for payment if the issuing bank fails to fulfill its obligations.

Unconfirmed Letter of Credit: An unconfirmed LC is solely backed by the issuing bank, without the involvement of a confirming bank. The payment guarantee relies solely on the issuing bank’s creditworthiness.

Classification Based on Time of Payment:

Sight Letter of Credit: A sight LC requires the issuing bank or the paying bank to fulfill the payment obligation immediately upon receiving the compliant shipping documents or draft. This means that the beneficiary will receive payment promptly upon submission of the required documents.

Usance Letter of Credit: In a usance LC, the issuing bank or the paying bank fulfills the payment obligation within a specified period after receiving the LC documents. This allows for deferred payment, giving the buyer more time to arrange for funds.

Revolving Letter of Credit: A revolving LC is designed for multiple shipments over a specific period. After each shipment, the LC, whether fully or partially utilized, is restored to its original amount and can be used again until the specified limit is reached. This type of LC is commonly used for regular and uniform batch deliveries.

Back-to-Back Letter of Credit:

A back-to-back LC, also known as a transferable LC, involves the beneficiary requesting the notifying bank or other banks to open a new LC with similar content based on the original LC. This allows the beneficiary to use the original LC as collateral to obtain financing or facilitate the purchase of goods from another supplier.

Anticipatory Credit/Packing Credit:

Anticipatory credit, also referred to as packing credit, is when the issuing bank authorizes a representative bank (notifying bank) to prepay all or part of the LC amount to the beneficiary. The issuing bank guarantees repayment and bears the interest. This arrangement enables the beneficiary to receive payment before the goods are delivered, with the paying bank deducting the interest on the advance payment when settling the remaining amount.

Standby Credit:

A standby LC, also known as a commercial paper credit, is a commitment from the issuing bank to assume a certain obligation on behalf of the applicant. It serves as a guarantee that if the applicant fails to fulfill their obligations, the beneficiary can seek reimbursement from the issuing bank by providing proof of default. This type of LC is commonly used in situations where the beneficiary requires assurance of payment if the applicant fails to meet their contractual obligations.

The Letter of Credit Process:

Understanding the process of a letter of credit is essential for both exporters and importers. Here is a step-by-step overview:

Application: The applicant fills out an application for the issuance of the LC, providing necessary information and paying a deposit or offering other forms of guarantees.

Issuance: The issuing bank reviews the application and issues the LC to the beneficiary based on the provided details. The LC is then sent to the notifying bank located at the exporter’s location.

Notification: The notifying bank verifies the authenticity of the LC seal and delivers the LC to the beneficiary.

Shipment and Documentation: The beneficiary carefully reviews the LC and contract terms, proceeds with shipping the goods, prepares the required documents, and issues a bill of exchange in accordance with the LC provisions. The beneficiary then submits these documents to the negotiating bank for payment within the LC’s validity period.

Negotiation: The negotiating bank reviews the submitted documents and, if compliant with the LC terms, advances payment to the beneficiary as per the LC provisions.

Presentation to the Issuing Bank: The negotiating bank sends the draft and shipping documents to the issuing bank or its designated paying bank for claim.

Verification and Payment: The issuing bank thoroughly examines the documents to ensure their accuracy and compliance with the LC terms. If everything is in order, the issuing bank makes the payment to the negotiating bank.

Redemption: The issuing bank notifies the applicant of the payment made for redemption.

This comprehensive understanding of the different classifications of letters of credit and the LC process is vital for businesses engaged in international trade. By utilizing letters of credit effectively, companies can mitigate risks and ensure smooth transactions in the global marketplace.

D/P (Documents against Payment)

D/P, which stands for Documents against Payment, is a settlement method in which the importer must make full payment to the collection bank before receiving the commercial (freight) documents from the exporting party.

There are two types of D/P transactions:

D/P Sight: In this scenario, the exporting party issues a demand draft, which is sent by the collection bank to the importing party. The importing party must pay the bill upon seeing the documents, enabling them to take possession of the goods along with the freight documents.

D/P after Sight or after Date: In this case, the exporting party issues a forward bill of exchange, which is sent by the collection bank to the importing party. The importing party accepts the bill of exchange and pays it either on or before the due date.

Risks Associated with D/P

When engaging in D/P transactions, it is important to be aware of the risks involved. The bank does not examine the content of the documents and does not assume any payment obligations. Instead, the bank provides services such as forwarding documents, prompting payment on behalf of the bank, and facilitating fund transfers. Exporters involved in D/P transactions should consider the following key points:

Credibility of the Importer: In D/P transactions, the exporter’s guarantee of receiving payment relies on the importer’s ability to pay and their business reputation. Assessing the importer’s financial capacity and reputation is crucial before proceeding with the transaction.

Document Control: After delivering the goods, it is essential to maintain control over the documents until the importer makes the payment. Controlling the flow of documents ensures that the goods are not released before payment is received.

Handover Points: Problems often arise during the handover of documents at various points, including the handover from the exporter to the bank, from the seller’s bank to the buyer’s bank, and from the buyer’s bank to the importer. It is important to have control over these handover points and ensure that the documents follow the standard flow.

Bill of Lading: Utilizing a bill of lading can provide additional control over the goods. By managing the bill of lading, exporters can exercise control over the shipment.

Although both cases of D/P involve the importer making payment before receiving the documents, there are different risks faced in commercial practice. Specifically, the risk of prompt payment is greater when the exporter directly prompts payment from the buyer’s designated bank. According to the International Chamber of Commerce’s “Uniform Rules for Collection,” the usual practice is for the exporting company to entrust its correspondent bank (the collection bank) to handle the collection process. The collection bank may then entrust the importer’s correspondent bank or the bank named by the importer to prompt payment. However, the collecting bank is not obligated to accept the exporter’s commission and has the right to refuse handling the collection instructions. In such cases, the exporter may choose to utilize their own correspondent bank for collection, and the collection bank will arrange for the collection bank (regardless of whether it is named by the importer or the importer’s correspondent bank) to handle the prompt payment and collection on behalf of the importer.

By understanding the risks and intricacies associated with D/P transactions, exporters can navigate the process more effectively and mitigate potential challenges.

D/A (Documents Against Acceptance)

Documents against Acceptance (D/A) is a payment method in international trade where the exporter delivers the documents to the importer on the condition of accepting the bill of exchange. This means that after shipping the goods, the exporter issues a forward bill of exchange along with commercial documents through the bank to the importer. Upon acceptance of the bill of exchange, the receiving bank will release the commercial documents to the importer, who is then obligated to fulfill the payment obligations when the bill of exchange matures. The acceptance of the bill of exchange allows the importer to obtain the commercial documents and subsequently extract the goods. It is important to note that the delivery method of the promissory note is only applicable to forward bills of exchange for collection purposes.

Acceptance delivery is a widely used payment method in international trade. The exporter provides instructions to the collecting bank to issue the title and other shipping documents to the importer once the importer accepts the bill of exchange. However, it is crucial to acknowledge that the exporter assumes the risk of the importer not settling the bill as scheduled.

The term “acceptance” refers to the act of recognition of the bill of exchange by the payer (the importer) at the collection bank. The acceptance procedure involves the payer signing on the bill of exchange, endorsing the word “accept,” and indicating the date of acceptance before returning the bill of exchange to the holder. Regardless of the number of times the bill of exchange has been transferred, the payer is obligated to pay with the bill of exchange on the due date. This ensures that the payment is made in a timely manner and allows for a smooth transaction between the exporter and the importer.

D/A provides benefits for both the exporter and the importer. For the exporter, it offers the security of receiving payment through the acceptance of the bill of exchange. By holding the commercial documents until the bill of exchange is accepted, the exporter maintains control over the goods and reduces the risk of non-payment. On the other hand, the importer benefits from D/A by gaining access to the commercial documents necessary for taking possession of the goods upon accepting the bill of exchange.

However, it is important to note that D/A transactions carry certain risks. The exporter must carefully assess the creditworthiness and reputation of the importer before engaging in this payment method. There is always a possibility that the importer may default on the payment, leading to potential financial losses for the exporter. Therefore, conducting thorough due diligence and establishing a level of trust with the importer is crucial when utilizing D/A as a payment method.

In conclusion, D/A is a widely used payment method in international trade that allows for the delivery of commercial documents to the importer upon accepting the bill of exchange. This method provides a level of security for the exporter while granting the importer access to the necessary documents for taking possession of the goods. However, it is important to carefully assess the risks involved and establish a level of trust with the importer to ensure a successful transaction.

O/A (Open Account)

Open Account is a payment method in international trade where the buyer receives the goods from the exporter and pays at the end of the agreed credit period. The credit period can be a fixed duration, such as 30 days, 60 days, 90 days, or as mutually agreed upon. This payment method involves a time gap between the receipt of the purchase order and the receipt of payment, with various activities such as production and transportation taking place in between.

While the Open Account method offers flexibility and convenience for the importer, it can place a burden on the exporter’s working capital position. However, exporters may still choose this method if the importer is a strong player with the potential for a significant number of future transactions. Additionally, if there is an established relationship of trust between the parties or if the amount involved is relatively small, exporters may agree to provide goods on credit.

It is important for exporters to carefully assess the creditworthiness and financial stability of the importer before engaging in an Open Account arrangement. Conducting thorough credit checks and establishing clear credit terms can help mitigate the risk of non-payment.

To protect their interests, exporters can also consider implementing risk management strategies such as credit insurance or requesting additional security measures, such as bank guarantees or letters of credit. These measures provide an added layer of protection and help ensure timely payment.

Maintaining open communication and regular follow-ups with the importer throughout the credit period is crucial. This allows both parties to address any issues or concerns promptly and maintain a positive working relationship.

In conclusion, Open Account is a payment method in international trade that allows buyers to receive goods and make payment at a later agreed-upon date. While it offers convenience for the importer, it can pose challenges for the exporter’s working capital. Careful assessment of the importer’s creditworthiness, implementing risk management strategies, and maintaining open communication are essential to mitigate risks and ensure a successful transaction.

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Invoice payment terms – UK edition 2022 [+ Net calculator]

Invoice payment terms in the UK tell clients when they are expected to pay an invoice and the methods they should use to submit the payments. There are many different terms of payment that businesses use on their invoices.

Having the correct payment terms in place will go a long way towards formalising credit conditions and payments for the customers. They also help improve the company’s payment stats for any aged debt.

Now, unless you have agreed on different invoice payment terms, the law in the UK states that customers must pay all invoices within 30 days of receiving the invoice or goods.

Table of content (o/c)

Why invoice terms matter.

There’s plenty at stake when it comes to choosing the right payment terms. This is because they set the tone for your future relationship with the customer, and they also affect your business financially.

You must weigh the standard invoice payment terms in your particular industry and also consider the client’s payment history, plus the potential revenue the job will bring.

Therefore, invoice payment terms wordings are extremely important, and they impact your business significantly. According to QuickBooks, you should be super concerned about payment terms due to the following information:[ 1 ]

What are invoice payment terms?

Invoice payment terms refer to contractually agreed-upon terms between a business and its customer. They commonly refer to payment terms for when payment is due, relative to the date when the goods or services are delivered or when the Invoice was sent.

How do you calculate net terms? (use the calculator provided)

NET terms refer to the total amount of money that needs to be paid within a specific period. They can either be NET 30, 60, or 90.

When the payment terms are 2/10 net 30, this means that you would have to divide the 20 days with 360 days, which will give you 18 days.

Begin counting days from the day after the invoice date.

Example of payment terms on an invoice (design only)

What are common payment terms & their meaning.

As mentioned above, these are the contractually agreed-upon terms for payment between businesses, and they must be included in any contract drawn between you and your customers. They should also be visible on all invoices you send.

The terms you outline should include:

Terms of payments explained:

Discount payment terms explained:

Sometimes you may wish to give your client a discount for early payments, and a common way of expressing this is 2/10 net 30 days, and this means that you will give a 2% discount to the client if they pay the Invoice within the next ten days, even though the Invoice should be paid in 30 days.

How do you write invoice terms & conditions?

These include:

The terms of sale

There should be a clear distinction of the terms of sales that will wipe out any chances of disagreement or misunderstanding of both parties. Therefore, it is of utmost importance to mention the sale terms, including cost, single unit cost, quantity, date and time of delivery, payment method, etc.

Advance payment

Mostly, businesses practice this to avoid any out-of-pocket expenses that may be needed to finish the project.

Usually, they are written as PIA and must be incorporated and followed by the business. The client must, however, look out for such things on the contract terms.

Instant payment

Net 7, or net 10 or net 30.

These are explained above, and they refer to advance payments when the client has been offered some credit, and they clearly show when the payment should be expected.

Warranty terms

Replacement or return policy.

For any business, there must be a return policy. This is especially if they deal with retail, and the number of returns they have per product will determine how popular the product or service is.

Penalties for late payments

You must educate your customer about late invoice payments and the consequences thereof. There is no harm in letting them know your late payment conditions, and these may include:

How to choose suitable payment terms for your clients?

This places a considerable strain on businesses as the income needed to run the business is then delayed.

To safeguard this cash flow issue, you should check up on your customers by using the information you receive from credit agencies and analyzing company accounts.

Here’s how you can best choose the payment terms for your clients:

Start by looking through the client’s history

The client’s history will tell you about their payment habits, and you can easily find this out through previous relationships the customer has had and their credit information.

In the beginning, you may also want to require them to pay upfront or at least 50% of the cost to show their commitment.

Size of invoice

A longer deadline is necessary for the larger invoices so the client can come up with the funds. In case you have a new client, asking for upfront payment or deposit is advisable, so you can reduce any risk of non-payment.

Late fees and interest costs

This is the fee charged for any late or overdue invoices.

Invoice payment terms – examples for SMEs & freelancers

If your business falls into an industry where the terms are Net 30, you do not have any flexibility on that.

The main categories that businesses fall into when it comes to setting the payment terms include the following:

What are terms of payment?

This refers to the most common terms that are used by freelancers when they are dealing with their clients:

Late payment terms

Payment due dates.

Every invoice you send must have a due date, so your client knows when they are supposed to make payment. Some of the most common due dates have been explained above, and they include such terms as; Net 7, Net 15, Net 30, Due on receipt, Or advance payment.

Payment methods

Of course, they choose the most convenient way of receiving payment that is also hassle-free for both them and their clients. Ensure to outline this in the invoice and let your client know which method you accept.

Discounts offered

It is quite common for companies to offer discounts to their customers and sometimes discounts help you get paid earlier and it also encourages a full payment. Certain discounts encourage networking among your clients and could land you a bigger contract.

As a business, you probably have clients who are in other countries, and as such, their currencies are, of course, different. In this case, you must ensure to give them the right currency, which you expect to be paid.

This is an important payment term that must be outlined when setting up the contract. For example, if you wish your client to pay the invoice amount upfront, you will need to tell them way in advance, even before signing the contract.

Where to include payment terms on invoice?

In the quotes.

In the quotes, you do not have to spell out all the details of payment, such as the exact amounts or due dates, and they can cover some basics such as;

Include them in the contracts

The contract should be where you specify all of the payment terms in great detail. If you have used an online template, you can create a contract and then look at which payment terms to include and then adjust them as needed.

Add them to the invoice

So, similar to quotes, the invoice does not have to include the nitty-gritty details of the payment terms, but it should have the following information:

How strict should you be regarding payment terms?

VERY. There is no point in coming up with payment terms if you will not stick by them. As a business owner, you rely on prompt payments to keep your business running, and as such, payment terms are paramount to this.

Whenever a client goes against these terms, such as paying for goods and services late or even using a different method that is not your preferred method, you do not have to get accusatory or aggressive.

How to negotiate better invoice terms with clients and suppliers?

Here are a few ways of ensuring that you come up with better payment terms with your clients:

Talk to you clients

Of course, not all of your clients will agree to new payment terms. You must be extra careful when dealing with the existing clients, although new clients are easy as you do not have a pre-existing contract.

Another way you can go about this is by offering them incentives such as discounts for early payments and free delivery, among others.

Come up with shorter payment agreements

If that is unacceptable to you, you will have to decide whether you will continue with the client or not, although the large companies tend to have the biggest orders that will change the status of your business.

Learn to be honest

Be willing to compromise.

Remember that you are still a business person, and you need your clients at the end of the day to buy your products and give you money.

Be open to talks and listen to your clients to have an agreement to proceed with the business.

For example, if you are dealing with a start-up, be willing to compromise as they are just getting their foot off the ground, and this means that they do not have as much cash flow as you would expect or that they depend on sales to make money.

Do adequate research of the clients

You must ask yourself how many credit facilities they have already taken, so you can understand their credit position.

How to encourage clients to abide by payment terms?

Most clients will do all sorts of things to make sure that their clients pay on time. Yet, despite all of this, they still have lots of unpaid invoices waiting for them to follow up.

Here are a few ways you can use to encourage your clients to abide to the payment terms:

Allow them to pay in instalments

In the invoicing world, NET is another word for full payment, and most customers will insist on either net 30 or Net 60; this is way too long for any business to accept, and condensing the timeframe and requiring them to pay after a project is completed, or goods are delivered will help you get paid faster.

Come up with a late payment fee

In this case, you have to be strict, and the best way to go about this is through threatening them with charges and late payment fees for late payments.

Keep updated on your invoices

This means that you should monitor and track all invoices to identify the customers who haven’t paid. This can either be done manually, or you could automate the process and put up alarms when due dates come around.

There are plenty of web-based systems such as accounting software that can be used for this purpose. Regularly reminding clients of payments, they should make could be the push they need to make the payment.

Keep in touch with your clients

Give them incentives.

Offer your clients incentives for early and prompt payments, such as offering them discounts. This is great for them as it will save them some money.

Additionally, it helps you because you will have cash at hand and keep your books accurate.

Accept different payment methods

Make it easy for your clients to order and pay.

Adopt a system of ordering and paying for goods and services that is easy on your customers. There are many dedicated ordering platforms that you can use from a single dashboard, and these will keep track of all the clients and their orders plus payments.

How to improve invoice payment terms to aid business cash flow?

Shorten net days.

As we have already explained, Net days refer to the total amount of money that should be paid within a specified number of days after the invoice has been sent. The standard days are either 30, 60, or 90.

Define the number of days

When setting the deadline, use the number of days you want to be paid and not the distinct due date.

When this is done, the customer is likely to mark this on their calendar to forget. Customers do not like to pay early but rather on the due date.

Use of a clear language

Communicate clearly when it comes to payment terms and ensure that your customers understand these terms well. Let them know when the payment is expected, the late payment fees, and the consequences of non-payment.

Ensure that the payment terms are in writing

Let all the payment details be written out and discussed with the customer. Also include all the information needed, such as the customer’s address, their scope of work, and the invoice number. This information will come in handy in case there are disputes.

Give them incentives

There are numerous incentives you can offer your clients, but one that is sure to work anytime is giving them discounts for early payments, which motivates them to play faster and early.

Data based on millions of UK invoices sent over Xero .

Typical invoice terms by industry

Here are some of the typical invoice payment terms by industry:

Construction

This causes considerable costs to the business and the research further showed that construction companies incur almost $40 billion per year on expenses trying to cover up the cash flow problems.

Transportation

Another company, the Kellogg company, a very large manufacturing corporation, implemented its 120-day policy.

Foundation and building exterior contractors

Average number of days – 68 days .

Auto repair

If you currently run a repair shop, you expect your clients to pay you as soon as the work on their cars is completed. However, the bills run into thousands of dollars in most instances, and the clients may not afford everything at once.

You could also choose to link up with a bank or creditor who would be willing to offer loans or credit to pay for the repair work. This means that you will get your money immediately and not have to wait for three months or so to get paid.

Janitorial and cleaning

This is an industry with ongoing services, and for the one-off services, you may want to ask for a deposit before the work starts. Still, for the ongoing services, whenever a job is complete, especially if it is a big one, you will have to wait for payment.

Landscaping

This could be a percentage of the total amount paid as a whole or on a milestone basis.

Food and beverage

If you have a restaurant, then a significant portion of your sales will have to be cash. This helps you improve your cash flow and liquidity and gives you the money needed to pay your suppliers and meet other expenses.

A huge portion of the retailer’s sales is either card or cash, and therefore more payments will be received within three days.

Agriculture

Hospitality and leisure.

In the hospitality and leisure industry, most payments are made by cash or through credit cards. The total amount due is received in a matter of days, but credit card fraud is a common worry.

Professional services

According to a survey by  Sageworks , (now abrigo.com) found that firms that offer engineering, architectural and other related services received their payments after 74 days.

Real estate broker

Payment terms: Immediate

Typical invoice terms by country

The Australian government has also committed itself to pay all e-invoices within the first five days and all other smaller suppliers within 20 days.

The grain financial protection program in Canada states that all owners and producers must make payments for sales delivery within ten days.

New Zealand

For all supply contracts, the maximum terms is 60 days and a default allowed for 30 days, in cases where the terms are not specified in the contract.

South Africa

United states.

10 days are for perishables and dairy, 7 days for poultry and meat, and then there is 15 days for all SMEs.

California – the food and Agriculture code states that no payment period that is agreed on the contract for the producer and dealer on farm products should exceed 30 days from the date of delivery.

Minnesota – The law in this case states that all of the gain purchases should be paid by the end of day the following day after delivery. This is roughly 48 hours.

Nebraska State – the law states that grain purchases to be paid within 30 days after delivery. Additionally, the Federal Milk Marketing Order has set out the payment procedures for timeliness when it comes to milk associations across all of US.

Frequently asked questions:

What are standard invoice payment terms.

This refers to the time given to a buyer to pay the amount due. It may be an upfront deposit, a deferred payment, or COD, or more. The most common terms are Net 30, which means that the payment should be made in the next 30 days of the invoice.

What terms should I put on an invoice?

What are 30-day payment terms.

30-day payment terms, commonly abbreviated as NET 30, refer to the fact that the payment for goods delivered should be made after 30 business days, which should be after billing has been made.

What are invoice payment terms 14 days?

What do payment terms net 45 days mean, why are payment terms 90 days, what does 15- or 45-days eom mean.

EOM stands for End of Month, and 15 days says that the invoice is due and payable the 15th day of the next month after the due date.

How is EOM (End of Month) calculated?

Invoice payment terms are used to spell out the relationship between a supplier and their customer.

About the Author: Thomas Minarik

Related posts, how to improve and maintain your cash flow, how to follow up on payments over the phone, why you should pay your invoices on time, apology letter for late payment to supplier [with examples], why freelancers should issue late fees to clients, simplified guide to the late payment directive [eu/uk edition], subscribe to receive the latest updates.

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What is the meaning of LC at sight?

How does a sight lc work, lc at sight - payment terms, usance lc - payment terms, difference between sight lc and usance lc, what is the meaning of usance lc , an example explaining sight lc, sight lc - format.

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20 December 2020

LC at Sight | Meaning & Complete process

A letter of credit (LC) is a financial document wherein banks act as an intermediary between a buyer and a seller to ensure the fulfillment of the transaction. The buyer asks his bank to issue a letter of credit to the seller or the beneficiary. The seller’s bank verifies the LC before he ships the goods. The seller ships the products and furnishes the necessary documents to the bank, upon which the bank pays the seller the full amount mentioned in LC.

There is a significant gap between the seller furnishing the documents to the bank and the bank processing the payment. This is because these documents are sent to the buyer’s bank and verified again. The buyer pays his bank within a grace period of 30, 60, or 90 days, based on the terms and conditions mentioned in the LC.

As the seller has to wait for 30-90 days to receive its payment, such transactions increase the risk for the business. However, with the help of LC at sight or Sight LC, he can avoid the payment default risk.

A sight letter of credit is a document which stands as a proof of payment in return of the goods or services to be released for the transportation by the seller. Once the goods or services reach the buyer, the buyer has to pay the financial institution that provided the Sight LC.

The process of submitting and verifying the documents is known as the sighting process, after verification the document is called the Sight LC . The banks or financial institutions generally take between 5 to 10 business days to process these documents.

Here is a step by step process of how sight letter of credit works:

A buyer who needs certain goods contacts a supplier and gets a quote for the requirement, and confirms the deal.

The buyer then goes to his bank, generally, one that has already extended him a line of credit, and asks the bank to issue a sight LC towards the supplier.

After having looked at the creditworthiness of the buyer, the bank issues a sight LC and sends it to a bank in the supplier’s country.

The supplier’s bank then informs the buyer and sends them the LC along with all the terms and conditions of the trade.

Once the supplier is happy with the LC, he ships the products and submits the shipping documents to the supplier’s bank.

The bank processes the documents and sends them to the buyer’s bank.

The buyer is alerted by the bank that the documents have arrived, and he needs to make the full payment to collect the documents. The buyer will need these documents to get the delivery of the product.

The buyer inspects the documents and pays for the LC, after which the buyer’s bank sends the payment to the seller’s bank. The seller is paid for the amount, generally much before the goods reach the buyer.

When a bank issues a sight LC, it acts as a guarantor of payment to the beneficiary. The seller has to furnish all the shipping documents mentioned under the terms and conditions in the LC to receive the payment. Once you submit all the documents and the issuing bank verifies the same, the bank releases the funds. The buyer immediately makes the full payment to the bank upon the receipt of documents.

In case the supplier is not able to provide the documents, the bank is not liable to release the payment. Furthermore, if there are any discrepancies found in the paperwork, the issuing bank can deduct a small fine from the total payment.

By now you'd have come to the realization that trade finance is a complicated subject that exporters/importers have to deal with on a regular basis simply due to the complexities involved with international trade.

At Drip Capital, we understand the plight that most importers are faced with and our competitive exporters finance products & buyer's credit products are best suited to facilitate hassle-free international transactions so you can focus on scaling your business.

In 4 short years, we've helped 2,000 + traders by disbursing more than $1 Billion of affordable credit with hassle-free documentation.

In the case of Usance LCs, also known as deferred payment LCs, the buyer is given a grace period of 30, 60, 90, or 120 days after receiving the documents to make the payment. This is known as LC 30 days, LC 60 days, LC 90 days, and LC 120 days.

A usance letter of credit is a type of LC wherein the buyer is allowed to make the payment after the delivery, within a stipulated grace period. Unlike with sight LCs, the buyer doesn’t have to make payment immediately to receive the documents. Usance LCs generally provide a buffer of 30, 60, 90, or 120 days to make the payment. A usance LC is also known as a deferred payment LC, or a term LC.

A Usance or a Deferred Letter of Credit; means that even after the buyer has received the goods or services the buyer gets a grace period to do the payment to the financial institution or the bank i.e 30, 60, 90 or more days as per agreed during the process.

A cold drink company called A in the US wants to buy one million bottles for their product. They identify a manufacturing company B in Singapore and contact them with their requirements. The manufacturer gives them the total cost and upon agreement, asks the buyer to make an advance payment as security before beginning production. However, the buyer does not want to take the risk of paying in advance and then not receiving the goods.

In such a scenario, both parties agree to hedge the risk via the ‘sight letter of credit’ payment method . The parties agree to all the terms and conditions under which the trade is to take place. Company A goes to his bank, which is a well-known financial institution in the US and asks them to issue a sight LC to the supplier -- company B in Singapore. The LC should contain all the agreed-upon terms and conditions.

The buyer’s bank issues the sight LC and sends it to the supplier bank in Singapore. Then the bank sends the LC to the supplier, who further examines the document and starts the production process. Once the production is complete, the supplier ships it and submits the shipping documents like the bill of lading and packing bill to the bank in Singapore for examination. The bank checks the documents for any discrepancies and forwards them to the buyer’s bank in the US.

The buyer’s bank checks the documents, and once they are satisfied, it asks the buyer to pay the LC amount at sight to collect the document. Since the bank has issued a sight LC, the buyer, i.e. company A, cannot collect the documents without paying the LC amount upfront. Without it, the buyer cannot receive the goods shipped by the supplier. Once the buyer pays the amount and collects the documents, the bank sends the money to the nominated bank in Singapore. The bank in Singapore eventually transfers the money to the beneficiary.

FAQs on Sight LC

1. what is lc margin.

When a bank issues an LC, it asks for collateral that is worth some fraction of the actual LC amount. This percentage is known as LC margin.

2. Is LC at sight safe?

A sight LC is one of the safest modes of transactions as the issuing bank and the confirming bank both act as a guarantor to honor the agreement.

3. How are the LC opening charges calculated?

Opening charges are generally 0.125% of the total value of the LC. They are levied from the date of issuance until the LC expires or is paid for.

4. Can sight LC be discounted?

Sight letters of credit should not require any discount mechanism as issuing banks or confirming banks must honor at sight credits as soon as they determine that the beneficiary’s presentation is complying.

5. What is the maturity date for Sight LC?

Sight LC matures on the date on which the documents are submitted to the bank by the beneficiary.

6. Can sight LC be negotiated?

Yes, both- sight, as well as usance LCs, can be negotiated.

7. What is the limit of LC at sight?

Sight LCs are cleared by the bank within 5 to 10 working days.

8. Can sight LC be confirmed?

Sight LCs are confirmed both by the issuing bank (buyer’s bank) and confirming bank (seller’s bank). Both the banks have to honour or negotiate the LC, once they receive the documents.

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Avani Ghangurde

Senior associate, public relations at drip capital.

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What Is a Letter of Credit?

How a letter of credit works, types of letters of credit, example of a letter of credit.

• Applying for a Letter of Credit
• Advantages and Disadvantages
• Letter of Credit FAQs

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• Personal Finance

Letter of Credit: What It Is, Examples, and How One Is Used

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Jessica Olah / Investopedia

A letter of credit, or a credit letter, is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. If the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. It may be offered as a facility (financial assistance that is essentially a loan).

Due to the nature of international dealings, including factors such as distance, differing laws in each country, and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade to protect buyers and sellers.

Key Takeaways

• A letter of credit is a document sent from a bank or financial institution that guarantees that a seller will receive a buyer’s payment on time and for the full amount.
• Letters of credit are often used within the international trade industry.
• There are many different letters of credit, including one called a revolving letter of credit.
• Banks collect a fee for issuing a letter of credit.

Buyers of major purchases may need a letter of credit to assure the seller that the payment will be made. A bank issues a letter of credit to guarantee the payment to the seller, essentially assuming the responsibility of ensuring the seller is paid. A buyer must prove to the bank that they have enough assets or a sufficient line of credit to pay before the bank will guarantee the payment to the seller.

Banks typically require a pledge of securities or cash as collateral for issuing a letter of credit.

Because a letter of credit is typically a negotiable instrument , the issuing bank pays the beneficiary or any bank nominated by the beneficiary. If a letter of credit is transferable , the beneficiary may assign another entity , such as a corporate parent or a third party, the right to draw.

The International Chamber of Commerce’s Uniform Customs and Practice for Documentary Credits oversees letters of credit used in international transactions.

How Much a Letter of Credit Costs

Banks usually charge a fee for a letter of credit, which can be a percentage of the total credit they are backing. The cost of a letter of credit will vary by bank and the size of the letter of credit. For example, the bank may charge 0.75% of the amount that it's guaranteeing.

Fees can also depend on the type of letter. In an import-export situation, an unconfirmed letter of credit is less costly. A confirmed letter of credit may have higher fees attached based on the issuing bank's credit strength.

The types of letters of credit include a commercial letter of credit, a revolving letter of credit, a traveler’s letter of credit, a confirmed letter of credit, and a standby letter of credit. International trade will also sometimes use an unsecured—also called a red clause —letter of credit.

Commercial Letter of Credit

This is a direct payment method in which the issuing bank makes the payments to the beneficiary. In contrast, a standby letter of credit is a secondary payment method in which the bank pays the beneficiary only when the holder cannot.

Revolving Letter of Credit

This kind of letter allows a customer to make any number of draws within a certain limit during a specific period. It can be useful if there are frequent merchandise shipments, for example, and you don't want to redraft or edit letters of credit each time.

Traveler’s Letter of Credit

For those going abroad, this letter will guarantee that issuing banks will honor drafts made at certain foreign banks.

Confirmed Letter of Credit

A confirmed letter of credit involves a bank other than the issuing bank guaranteeing the letter of credit. The second bank is the confirming bank, typically the seller’s bank. The confirming bank ensures payment under the letter of credit if the holder and the issuing bank default . The issuing bank in international transactions typically requests this arrangement.

Standby Letter of Credit

A standby letter of credit provides payment if something does not occur, which is the opposite of how other types of letters of credit are structured. So, instead of facilitating a transaction with funding, a standby letter of credit is like an insurance contract. It protects and compensates one party (the beneficiary) if the other party named in the agreement fails to perform the stated duty or meets certain service level agreements outlined in the letter of credit.

Citibank offers letters of credit for buyers in Latin America, Africa, Eastern Europe, Asia, and the Middle East, who may have difficulty obtaining international credit on their own. Citibank’s letters of credit help exporters minimize the importer’s country risk and the issuing bank’s commercial credit risk.

Letters of credit are typically provided within two business days, guaranteeing payment by the confirming Citibank branch. This benefit is especially valuable when a client is located in a potentially unstable economic environment.

How to Apply for a Letter of Credit

Letters of Credit are best prepared by trained professionals, as mistakes in the detailed documents required can lead to payment delays and fees. Due to industry variations and types of letters of credit, each may be approached differently.

Here's an import-export example.

• The importer's bank credit must satisfy the exporter and their bank. The exporter and importer complete a sales agreement.
• Using the sales agreement's terms and conditions, the importer's bank drafts the letter of credit; this letter is sent to the exporter's bank. The exporter's bank reviews the letter of credit and sends it to the exporter after approval.
• The exporter ships the goods as the letter of credit describes. Any required documentation is submitted to the exporter's bank.
• The exporter's bank reviews documentation to ensure letter of credit terms and conditions were met. If approved, the exporter's bank submits documents to the importer's bank.
• The importer's bank sends payment to the exporter's bank. The importer can now claim the goods sent.

Advantages and Disadvantages of a Letter of Credit

Obtaining letters of credit may be necessary in certain situations. However, like anything else related to banking, trade, and business, there are some pros and cons to acknowledge.

Can create security and build mutual trust for buyers and sellers in trade transactions.

Makes it easier to define the specifics of when and how transactions are to be completed between involved parties.

Letters of credit can be personalized with terms that are tailored to the circumstances of each transaction.

Can make the transfer of funds more efficient and streamlined.

Buyers typically bear the costs of obtaining a letter of credit.

Letters of credit may not cover every detail of the transaction, potentially leaving room for error.

Establishing a letter of credit may be tedious or time-consuming for all parties involved.

The terms of a letter of credit may not account for unexpected changes in the political or economic landscape.

How Does a Letter of Credit Work?

Often, in international trade, a letter of credit is used to signify that a payment will be made to the seller on time and in full, as guaranteed by a bank or financial institution. After sending a letter of credit, the bank will charge a fee, typically a percentage of the letter of credit, in addition to requiring collateral from the buyer. Among the various types of letters of credit are a revolving letter of credit, a commercial letter of credit, and a confirmed letter of credit.

What Is an Example of a Letter of Credit?

Consider an exporter in an unstable economic climate, where credit may be more difficult to obtain. A bank could offer a buyer a letter of credit, available within two business days, in which the purchase would be guaranteed by the bank's branch. Because the bank and the exporter have an existing relationship, the bank is knowledgeable of the buyer's creditworthiness , assets, and financial status. 

What Is the Difference Between a Commercial Letter of Credit and a Revolving Letter of Credit?

As one of the most common forms of letters of credit, commercial letters of credit are when the bank makes payment directly to the beneficiary or seller. Revolving letters of credit, by contrast, can be used for multiple payments within a specific time frame. Typically, these are used for businesses that have an ongoing relationship, with the time limit of the arrangement usually spanning one year.

When Does Payment Occur With a Letter of Credit?

A letter of credit is like an escrow account in that payment to the beneficiary only happens when the other party performs a specific act or meets other performance criteria spelled out in the letter of credit agreement.

Letters of credit can play an important part in trade transactions. There are different types of letters of credit that may be used, depending on the circumstances. If you need a letter of credit for a business transaction, your current bank may be the best place to begin your search. However, you may need to expand the net to include larger banks if you maintain accounts at a smaller financial institution.

International Trade Administration. " What Is a Letter of Credit? "

International Chamber of Commerce. “ Global Rules .”

Export-Import Bank of the United States. " To Confirm or Not to Confirm (Letters of Credit) ."

Cornell Law School. " 12 CFR § 208.24 - Letters of credit and acceptances. "

USAID. " Letters of Credit and Trade Finance ," p.106.

FDIC. " Off-Balance Sheet Activities ," p.2

Columbia Bank. " Letters of Credit. "

Citi. “ International Trade .”

Citi. “ Products and Services .”

International Trade Administration. " Letter of Credit. "

International Trade Administration. " Trade Finance Guide ," Page 7.

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1) A demand for payment of a promissory note when it is due. The Uniform Commercial Code § 3-501 defines Presentment as: “a demand made by or on behalf of a person entitled to enforce an instrument (i) to pay the instrument made to the drawee or a party obliged to pay the instrument or, in the case of a note or accepted draft payable at a bank, to the bank, or (ii) to accept a draft made to the drawee.”

2) A formal written accusation to a court by a grand jury , made on its own initiative without a request or presentation of evidence by the local prosecutor. For example, in the 2013 Florida case State v. Womack , the District Court of Appeal held that each comment made by the grand jury in a presentment, which alleged wrongdoing by public officials, with a factual foundation that was germane to the scope of the inquiry was necessarily proper and in turn could not be repressed or expunged.

[Last updated in November of 2020 by the Wex Definitions Team ]

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Furthermore, electrophysiological responses in NCM decrease following repeated presentation of a given stimulus, and vigorous responding occurs upon presentation of a novel song [12].

All new charges not covered by the original contract (library fines, lab breakage, etc). should be paid directly to JHU upon receipt of an invoice , separately from your monthly payment plan installments.

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Fundamentals of Payments and Payment Systems

I- introduction to fundamental concepts in payments.

If you are starting in the payment industry and want to learn the basic concepts, where should you begin? In today’s article, we look at fundamental concepts in payments: payment instruments, payment systems and their modeling. What we will see applies to all kinds of payment instruments. So follow me till the end. If you want to watch the video version of this article, you can do it right here .

I have over 17 years of experience in the payment industry, and I am still in love. But things have not always been that easy and lovely for me. It took me about 4 years to really understand domestic payments. So, the information that I am going to share with you is precious. If you follow me until the end, you will be able to understand fundamental concepts, and that will enable you to grow your skills faster. 

II – What is a payment?

Let’s begin with the definition of payment. What is a payment? 

According to the Bank of International Settlement, a payment is the payer’s transfer of a monetary claim on a party acceptable to the payee. Typically, claims take the form of cash or deposit balances held at a financial institution or at a central bank. Put simply, a payment is a transfer of value from one party to another. The value transferred can be monetary like 10 units of currency. Or it can be of digital form like a cryptocurrency. 

A payment transaction involves two end parties: On one side, the debtor or payer who sends the funds, and on the other side, the creditor or payee who receives the funds.  

An end party can be the sender or receiver of the payment. It is a party involved in any side of a payment transaction. Payments are generally made in exchange for the provision of goods or services between end parties, or to meet legal obligations. 

III- What is a payment instrument?

Closely related to payments is the concept of payment instrument. In the expression “payment instruments”, the word instrument is added to the payment. Let’s look at its definition and see how it combines with payment. An instrument is defined as a means whereby something is achieved, performed, or furthered. It can be compared to a tool that facilitates the execution of a task. Tools make things very easy. You can do gardening or cooking without tools. You would spend a huge amount of time and energy to eventually achieve pretty limited results.  

But how easy things are when you have the proper tools. That is why humans are tool builders. Likewise, payment instruments facilitate payments and make fund transfers easy between the end parties involved. Payments instruments are tools to move value or money fast. 

Without payment instruments, paying would be very cumbersome. We learn in economic history that before creating payment instruments, people relied on barter to exchange value. But barter has many disadvantages and is not practical at all. Without payment instruments, e-commerce would not be possible. Many things that we take for granted today would simply not exist. Payments instruments are without a doubt a great invention. Cash payment instruments are Banknotes and coins. Non-cash payment instruments are Cheques, Cards, Credit Transfers, Cryptocurrencies, and so on. 

IV- What is a payment system?

Payment instruments are the raw materials of payment systems. A payment system consists of a set of instruments, banking procedures, and typically, interbank funds transfer systems that ensure the circulation of monetary or numeric value. A payment system requires four things: 

One. A payment instrument, like cash, cheque, credit transfer, or a debit card. 

Two. The scheme rules that define the procedures, practices, and standards agreed upon between the payment services providers that join the system. 

Three. A transfer mechanism to move the funds from one party to another. 

And finally Four. A legal framework to guarantee irrevocable and unconditional finality, that is the discharge of the obligation between the debtor and the creditor. 

V- The two models of payments systems

Payments systems operate essentially on two types of models: Open loop models and Closed loop models. In open-loop models, there are intermediaries between the end parties and the payments system. So, in open loop models, the End parties access the payment system through intermediaries. Things are different in closed-loop models. Because in closed-loop models, there are no intermediaries between the end parties and the payments system. So, in closed-loop models, the End parties access the payments system directly. 

Let us consider closed-loop models first:

This is what a closed-loop model looks like. A closed loop system is directly connected to end parties, the senders and receivers of funds.  

As we can see, there is no intermediary between the end users and the payments system. End parties establish a direct connection to the payments system. And it is not possible to join the payments system as an intermediary. This is the major difference between open and closed-loop systems. 

In open-loop systems, end parties access the payment systems through intermediaries. In closed-loop systems, the end parties have a business relationship and transact directly with the payments system. 

End parties are companies, merchants, and individuals that join the system either as buyers or sellers of goods and services. Examples of closed-loop systems are the traditional network of American Express, Paypal and Bitcoin. Merchants and consumers join these systems directly. And they don’t need to go through an intermediary to transact with each other. 

Things are different for open-loop models. Here you see what an open loop model looks like:

An open-loop system is usually compared to a hub-and-spoke model. 

The system is connected to Banks, Payments Services Providers, or similar institutions which act as intermediaries. Banks are one type of Payments Services Providers. In many regions of the world, it is possible for non-bank entities to provide payment services. 

As we see in this model, the banks or Payment Service Providers are connected to end parties, the senders and receivers of funds. Only the intermediaries, Banks and other Payments Services Providers, can become members or participants of the payment systems. Open loop models yield the great advantage of allowing banks to transact with each other without direct relationships.  

When a new intermediary joins the system, it can exchange transactions with all the banks that are already in the system and vice versa. This allows open-loop systems to scale rapidly. All end parties are in a way connected to each other through the payments system and the intermediary banks. 

VI- The anatomy of a payment system  

Now you may wonder what is inside the payments system. Here you see the generic model of a payment system at the level of a country:

Payment systems are composed of many interbank systems and central bank systems in the middle. 

Central bank systems are at the heart of the system and play a key role. The interbank systems are connected to the central bank systems. 

Payments Services Providers, generally banks, can become participants of one or many interbank exchange systems. It is not mandatory for a bank to join all the interbank systems. They may not become members of certain interbank exchange systems. 

But Banks must have an account with the central bank and join interbank systems or central bank systems as direct or indirect participants. 

A payment transaction begins and ends with end parties and the funds transfer happens through banks and other intermediaries which are connected through interbank and central bank systems. 

So, at the country level, payment systems are generally modeled as a network composed of banks and similar financial institutions, of interbank clearing systems, that are generally called ACH or Automated Clearing House, and of the central bank systems. 

Interbank transfer systems usually implement a clearing mechanism and are connected to the central bank systems. They are referred to as ancillary systems in contrary to central systems operated by the central bank. 

Central bank systems implement the settlement mechanism. Now, why do we need clearing and settlement systems? For cost reduction, effectiveness and risk management. 

To understand what clearing and settlement mechanisms are, I refer you to the Paymerix channel. There you will find videos where we explain these key concepts in a very simple manner. 

VII- Payments systems in the USA  

Now let’s consider core non-cash payments systems in one country to illustrate what we just said. 

We will look at the payment market infrastructures for the US Dollar, so the payment systems in the United States:

The overall structure looks like the generic model we consider before. Isn’t that interesting? 

In the middle, we see Fedwire, the system operated by the central bank in the USA that is called the Federal reserve bank or simply the Fed. Around Fedwire, we see the interbank clearing systems in the United States. There are called ancillary systems while Fedwire is called Central System. All interbank systems must use Fedwire to settle their transactions.  

There are two high-value payment systems in the USA: Fedwire, the RTGS system and CHIPS. CHIPS is a large value payment system that implements continuous net settlement. CHIPS stands for Clearing House Interbank Payments System. It is owned by the financial institutions that use it. 

The Federal Reserve bank also operates the National Settlement Service which is used for the settlement of ACH transactions after netting in the different regional systems. ACH stands for Automated Clearing House. It is a generic name for clearing systems used for low-value or retail payments. 

There is another ACH system called EPN or Electronic Payments Network. It is operated by a private-sector operator, the Clearing House Payments Company. 

Other market infrastructures in the USA are the Cheques Clearing system and the card networks. 

The cheque-clearing systems are used for the interbank transmission and clearing of cheques, bills of exchange, and promissory notes. These instruments are all settled in Fedwire through the National Settlement Service system. The card networks are of multiple types. We have not represented all of them so as not to make the diagram more cumbersome. There are Visa and MasterCard for debit and credit cards and there are closed-loop networks like Discovery and American Express. Closed loop networks are not connected directly to central systems. They rely on settlement banks, which are participants in Fedwire, for the settlement of their transactions. 

Finally, we see the CLS system that is used to process Dollar-leg of Foreign Exchange transactions. 

The Continuous Linked Settlement system is used for the settlement of FX transactions in central bank money. CLS was created to eliminate the risk associated with foreign exchange settlement across time zones. 

Cross-border payments go through SWIFT or the card networks. With such a model, isn’t it simple to understand and study payment systems? Please post a comment below and tell me what you think about it. The great thing is you can use this model to easily identify the key market infrastructures in any country in the world. 

VIII- Payments systems in France

Here is a similar model for France:

We have Central Bank systems in the middle TARGET2 and TIPS, that are operated by the European central bank. TARGET2 is used for Large value and urgent Transfers between Banks. And TIPS is used for the settlement of instant payments.  

Around the central bank systems, we see the interbank clearing systems used for the clearing of domestic payment instruments like cheques, credit transfers and direct debit. It is the same structure, and this shows that this model is really powerful.  

Let’s again consider the generic model of payment systems at the level of country level:

This is really a powerful model that you can use to identify and study the payment market infrastructures of any country. Why not begin with the country where you live? With the help of this model, can you describe your country’s payments market infrastructures? Please do so and tell us how it was by posting a comment below. 

In the next article, you will get a secret, a very powerful tool that can help you to study any domestic payment system, anywhere in the world. 

To finish this article, I want to remember you that the Payment Mastering Program 2022 will close in a few days. Register now before it is too late. It is a limited-time offer. Do not waste time and click here to learn everything you need to know about the content of the PMP. If you join the program, you will make staggering progress and that will create many opportunities and possibilities for your career. See you in the next article. 

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Effects of pecha kucha presentation pedagogy on nursing students’ presentation skills: a quasi-experimental study in Tanzania

• Setberth Jonas Haramba 1 ,
• Walter C. Millanzi 1 &
• Saada A. Seif 2  

BMC Medical Education volume  24 , Article number:  952 ( 2024 ) Cite this article

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Introduction

Ineffective and non-interactive learning among nursing students limits opportunities for students’ classroom presentation skills, creativity, and innovation upon completion of their classroom learning activities. Pecha Kucha presentation is the new promising pedagogy that engages students in learning and improves students’ speaking skills and other survival skills. It involves the use of 20 slides, each covering 20 seconds of its presentation. The current study examined the effect of Pecha Kucha’s presentation pedagogy on presentation skills among nursing students in Tanzania.

The aim of this study was to establish comparative nursing student’s presentation skills between exposure to the traditional PowerPoint presentations and Pecha Kucha presentations.

The study employed an uncontrolled quasi-experimental design (pre-post) using a quantitative research approach among 230 randomly selected nursing students at the respective training institution. An interviewer-administered structured questionnaire adopted from previous studies to measure presentation skills between June and July 2023 was used. The study involved the training of research assistants, pre-assessment of presentation skills, training of participants, assigning topics to participants, classroom presentations, and post-intervention assessment. A linear regression analysis model was used to determine the effect of the intervention on nursing students’ presentation skills using Statistical Package for Social Solution (SPSS) version 26, set at a 95% confidence interval and 5% significance level.

Findings revealed that 63 (70.87%) participants were aged ≤ 23 years, of which 151 (65.65%) and 189 (82.17%) of them were males and undergraduate students, respectively. Post-test findings showed a significant mean score change in participants’ presentation skills between baseline (M = 4.07 ± SD = 0.56) and end-line (M = 4.54 ± SD = 0.59) that accounted for 0.4717 ± 0.7793; p  < .0001(95%CI) presentation skills mean score change with a medium effect size of 0.78. An increase in participants’ knowledge of Pecha Kucha presentation was associated with a 0.0239 ( p  < .0001) increase in presentation skills.

Pecha Kucha presentations have a significant effect on nursing students’ presentation skills as they enhance inquiry and mastery of their learning content before classroom presentations. The pedagogical approach appeared to enhance nursing students’ confidence during the classroom presentation. Therefore, there is a need to incorporate Pecha Kucha presentation pedagogy into nursing curricula and nursing education at large to promote student-centered teaching and learning activities and the development of survival skills.

Trial registration

It was not applicable as it was a quasi-experimental study.

Peer Review reports

The nursing students need to have different skills acquired during the learning process in order to enable them to provide quality nursing care and management in the society [ 1 ]. The referred nursing care and management practices include identifying, analyzing, synthesizing, and effective communication within and between healthcare professionals [ 1 ]. Given an increasing global economy and international competition for jobs and opportunities, the current traditional classroom learning methods are insufficient to meet such 21st - century challenges and demands [ 2 ]. The integration of presentation skills, creativity, innovation, collaboration, information, and media literacy skills helps to overcome the noted challenges among students [ 2 , 3 , 4 ]. The skills in question constitute the survival skills that help the students not only for career development and success but also for their personal, social and public quality of life as they enable students to overcome 21st challenges upon graduation [ 2 ].

To enhance the nursing students’ participation in learning, stimulating their presentation skills, critical thinking, creativity, and innovation, a combination of teaching and learning pedagogy should be employed [ 5 , 6 , 7 , 8 ]. Among others, classroom presentations, group discussions, problem-based learning, demonstrations, reflection, and role-play are commonly used for those purposes [ 5 ]. However, ineffective and non-interactive learning which contribute to limited presentation skills, creativity, and innovation, have been reported by several scholars [ 9 , 10 , 11 ]. For example, poor use and design of student PowerPoint presentations led to confusing graphics due to the many texts in the slides and the reading of about 80 slides [ 12 , 13 , 14 ]. Indeed, such non-interactive learning becomes boring and tiresome among the learners, and it is usually evidenced by glazing eyes, long yawning, occasional snoring, the use of a phone and frequent trips to the bathroom [ 12 , 14 ].

With an increasing number of nursing students in higher education institutions in Tanzania, the students’ traditional presentation pedagogy is insufficient to stimulate their presentation skills. They limit nursing student innovation, creativity, critical thinking, and meaningful learning in an attempt to solve health challenges [ 15 , 16 ].These hinder nursing students ability to communicate effectively by being able to demonstrate their knowledge and mastery of learning content [ 17 , 18 ]. Furthermore, it affects their future careers by not being able to demonstrate and express their expertise clearly in a variety of workplace settings, such as being able to present at scientific conferences, participating in job interviews, giving clinic case reports, handover reports, and giving feedback to clients [ 17 , 18 , 19 ].

Pecha Kucha presentation is a new promising approach for students’ learning in the classroom context as it motivates learners’ self-directed and collaborative learning, learner creativity, and presentation skills [ 20 , 21 , 22 ]. It encourages students to read more materials, enhances cooperative learning among learners, and is interesting and enjoyable among students [ 23 ].

Pecha Kucha presentation originated from the Japanese word “ chit chat , ” which represents the fast-paced presentation used in different fields, including teaching, marketing, advertising, and designing [ 24 , 25 , 26 ]. It involves 20 slides, where each slide covers 20 s, thus making a total of 6 min and 40 s for the whole presentation [ 22 ]. For effective learning through Pecha Kucha presentations, the design and format of the presentation should be meaningfully limited to 20 slides and targeted at 20 s for each slide, rich in content of the presented topic using high-quality images or pictures attuned to the content knowledge and message to be delivered to the target audiences [ 14 , 16 ]. Each slide should contain a primordial message with well-balanced information. In other words, the message should be simple in the sense that each slide should contain only one concept or idea with neither too much nor too little information, thus making it easy to be grasped by the audience [ 14 , 17 , 19 ].

The “true spirit” of Pecha Kucha is that it mostly consists of powerful images and meaningful specific text rather than the text that is being read by the presenter from the slides, an image, and short phrases that should communicate the core idea while the speaker offers well-rehearsed and elaborated comments [ 22 , 28 ]. The presenter should master the subject matter and incorporate the necessary information from classwork [ 14 , 20 ]. The audience’s engagement in learning by paying attention and actively listening to the Pecha Kucha presentation was higher compared with that in traditional PowerPoint presentations [ 29 ]. The creativity and collaboration during designing and selecting the appropriate images and contents, rehearsal before the presentation, and discussion after each presentation made students satisfied by enjoying Pecha Kucha presentations compared with traditional presentations [ 21 , 22 ]. Time management and students’ self-regulation were found to be significant through the Pecha Kucha presentation among the students and teachers or instructors who could appropriately plan the time for classroom instruction [ 22 , 23 ].

However, little is known about Pecha Kucha presentation in nursing education in Sub-Saharan African countries, including Tanzania, since there is insufficient evidence for the research(s) that have been published on the description of its effects on enhancing students’ presentation skills. Thus, this study assessed the effect of Pecha Kucha’s presentation pedagogy on enhancing presentation skills among nursing students. In particular, the study largely focused on nursing students’ presentation skills during the preparation and presentation of the students’ assignments, project works, case reports, or field reports.

The study answered the null hypothesis H 0  = H 1, which hypothesized that there is no significant difference in nursing students’ classroom presentation skills scores between the baseline and end-line assessments. The association between nursing students’ presentation skills and participants’ sociodemographic characteristics was formulated and analyzed before and after the intervention. This study forms the basis for developing new presentation pedagogy among nursing students in order to stimulate effective learning and the development of presentation skills during the teaching and learning process and the acquisition of 21st - century skills, which are characterized by an increased competitive knowledge-based society due to changing nature and technological eruptions.

The current study also forms the basis for re-defining classroom practices in an attempt to enhance and transform nursing students’ learning experiences. This will cultivate the production of graduates nurses who will share their expertise and practical skills in the health care team by attending scientific conferences, clinical case presentations, and job interviews in the global health market. To achieve this, the study determined the baseline and end-line nursing students’ presentation skills during the preparation and presentation of classroom assignments using the traditional PowerPoint presentation and Pecha Kucha presentation format.

Methods and materials

This study was conducted in health training institutions in Tanzania. Tanzania has a total of 47 registered public and private universities and university colleges that offer health programs ranging from certificate to doctorate degrees [ 24 , 25 ]. A total of seven [ 7 ] out of 47 universities offer a bachelor of science in nursing, and four [ 4 ] universities offer master’s to doctorate degree programs in nursing and midwifery sciences [ 24 , 26 ]. To enhance the representation of nursing students in Tanzania, this study was conducted in Dodoma Municipal Council, which is one of Tanzania’s 30 administrative regions [ 33 ]. Dodoma Region has two [ 2 ] universities that offer nursing programs at diploma and degree levels [ 34 ]. The referred universities host a large number of nursing students compared to the other five [ 5 ] universities in Tanzania, with traditional students’ presentation approaches predominating nursing students’ teaching and learning processes [ 7 , 32 , 35 ].

The two universities under study include the University of Dodoma and St. John’s University of Tanzania, which are located in Dodoma Urban District. The University of Dodoma is a public university that provides 142 training programs at the diploma, bachelor degree, and master’s degree levels with about 28,225 undergraduate students and 724 postgraduate students [ 26 , 27 ]. The University of Dodoma also has 1,031 nursing students pursuing a Bachelor of Science in Nursing and 335 nursing students pursuing a Diploma in Nursing in the academic year 2022–2023 [ 33 ]. The St. John’s University of Tanzania is a non-profit private university that is legally connected with the Christian-Anglican Church [ 36 ]. It has student enrollment ranging from 5000 to 5999 and it provides training programs leading to higher education degrees in a variety of fields, including diplomas, bachelor degrees, and master’s degrees [ 37 ]. It hosts 766 nursing students pursuing a Bachelor of Science in Nursing and 113 nursing students pursuing a Diploma in Nursing in the academic year 2022–2023 [ 30 , 31 ].

Study design and approach

An uncontrolled quasi-experimental design with a quantitative research approach was used to establish quantifiable data on the participants’ socio-demographic profiles and outcome variables under study. The design involved pre- and post-tests to determine the effects of the intervention on the aforementioned outcome variable. The design involved three phases, namely the baseline data collection process (pre-test via a cross-sectional survey), implementation of the intervention (process), and end-line assessment (post-test), as shown in Fig.  1 [ 7 ].

A flow pattern of study design and approach

Target population

The study involved nursing students pursuing a Diploma in nursing and a bachelor of science in nursing in Tanzania. The population was highly expected to demonstrate competences and mastery of different survival and life skills in order to enable them to work independent at various levels of health facilities within and outside Tanzania. This cohort of undergraduate nursing students also involved adult learners who can set goals, develop strategies to achieve their goals, and hence achieve positive professional behavioral outcomes [ 7 ]. Moreover, as per annual data, the average number of graduate nursing students ranges from 3,500 to 4,000 from all colleges and universities in the country [ 38 ].

Study population

The study involved first- and third-year nursing students pursuing a Diploma in Nursing and first-, second-, and third-year nursing students pursuing a Bachelor of Science in Nursing at the University of Dodoma. The population had a large number of enrolled undergraduate nursing students, thus making it an ideal population for intervention, and it approximately served as a good representation of the universities offering nursing programs [ 11 , 29 ].

Inclusion criteria

The study included male and female nursing students pursuing a Diploma in nursing and a bachelor of science in nursing at the University of Dodoma. The referred students included those who were registered at the University of Dodoma during the time of study. Such students live on or off campus, and they were not exposed to PK training despite having regular classroom attendance. This enhanced enrollment of adequate study samples from each study program, monitoring of study intervention, and easy control of con-founders.

Exclusion criteria

All students recruited in the study were assessed at baseline, exposed to a training package and obtained their post-intervention learning experience. None of the study participants, who either dropped out of the study or failed to meet the recruitment criteria.

Sample size determination

A quasi-experimental study on Pecha Kucha as an alternative to traditional PowerPoint presentations at Worcester University, United States of America, reported significant student engagement during Pecha Kucha presentations compared with traditional PowerPoint presentations [ 29 ]. The mean score for the classroom with the traditional PowerPoint presentation was 2.63, while the mean score for the Pecha Kucha presentation was 4.08. This study adopted the formula that was used to calculate the required sample size for an uncontrolled quasi-experimental study among pre-scholars [ 39 ]. The formula is stated as:

Where: Zα was set at 1.96 from the normal distribution table.

Zβ was set at 0.80 power of the study.

Mean zero (π0) was the mean score of audiences’ engagement in using PowerPoint presentation = 2.63.

Mean one (π1) was the mean score of audience’s engagement in using Pecha Kucha presentation = 4.08.

Sampling technique

Given the availability of higher-training institutions in the study area that offer undergraduate nursing programs, a simple random sampling technique was used, whereby two cards, one labelled “University of Dodoma” and the other being labelled “St. Johns University of Tanzania,” were prepared and put in the first pot. The other two cards, one labelled “yes” to represent the study setting and the other being labelled “No” to represent the absence of study setting, were put in the second pot. Two research assistants were asked to select a card from each pot, and consequently, the University of Dodoma was selected as the study setting.

To obtain the target population, the study employed purposive sampling techniques to select the school of nursing and public health at the University of Dodoma. Upon arriving at the School of Nursing and Public Health of the University of Dodoma, the convenience sampling technique was employed to obtain the number of classes for undergraduate nursing students pursuing a Diploma in Nursing and a Bachelor of Science in Nursing. The study sample comprised the students who were available at the time of study. A total of five [ 5 ] classes of Diploma in Nursing first-, second-, and third-years and Bachelor of Science in Nursing first-, second-, and third-years were obtained.

To establish the representation for a minimum sample from each class, the number of students by sex was obtained from each classroom list using the proportionate stratified sampling technique (sample size/population size× stratum size) as recommended by scholars [ 40 ]. To recruit the required sample size from each class by gender, a simple random sampling technique through the lottery method was employed to obtain the required sample size from each stratum. During this phase, the student lists by gender from each class were obtained, and cards with code numbers, which were mixed with empty cards depending on the strata size, were allocated for each class and strata. Both labeled and empty cards were put into different pots, which were labeled appropriately by their class and strata names. Upon arriving at the specific classroom and after the introduction, the research assistant asked each nursing student to pick one card from the respective strata pot. Those who selected cards with code numbers were recruited in the study with their code numbers as their participation identity numbers. The process continued for each class until the required sample size was obtained.

To ensure the effective participation of nursing students in the study, the research assistant worked hand in hand with the facilitators and lecturers of the respective classrooms, the head of the department, and class representatives. The importance, advantages, and disadvantages of participating in the study were given to study participants during the recruitment process in order to create awareness and remove possible fears. During the intervention, study participants were also given pens and notebooks in an attempt to enable them to take notes. Moreover, the bites were provided during the training sessions. The number of participants from each classroom and the sampling process are shown in Fig.  2 [ 7 ].

Flow pattern of participants sampling procedures

Data collection tools

The study adapted and modified the students’ questionnaire on presentation skills from scholars [ 20 , 23 , 26 , 27 , 28 , 29 ]. The modification involved rephrasing the question statement, breaking down items into specific questions, deleting repeated items that were found to measure the same variables, and improving language to meet the literacy level and cultural norms of study participants.

The data collection tool consisted of 68 question items that assessed the socio-demographic characteristics of the study participants and 33 question items rated on a five-point Likert scale, which ranges from 5 = strongly agree, 4 = agree, 3 = not sure, 2 = disagree, and 1 = strongly disagree. The referred tool was used to assess the students’ skills during the preparation and presentation of the assignments using the traditional PowerPoint presentation and Pecha Kucha presentation formats.

The students’ assessment specifically focused on the students’ ability to prepare the presentation content, master the learning content, share presentation materials, and communicate their understanding to audiences in the classroom context.

Validity and reliability of research instruments

Validity of the research instrument refers to whether the instrument measures the behaviors or qualities that are intended to be measured, and it is a measure of how well the measuring instrument performs its function [ 41 ]. The structured questionnaire, which intends to assess the participants’ presentation skills was validated for face and content validity. The principal investigator initially adapted the question items for different domains of students’ learning when preparing and presenting their assignment in the classroom.

The items were shared and discussed by two [ 2 ] educationists, two [ 2 ] research experts, one [ 1 ] statistician, and supervisors in order to ensure clarity, appropriateness, adequacy, and coverage of the presentation skills using Pecha Kucha presentation format. The content validity test was used until the saturation of experts’ opinions and inputs was achieved. The inter-observer rating scale on a five-point Likert scale ranging from 5-points = very relevant to 1-point = not relevant was also used.

The process involved addition, input deletion, correction, and editing for relevance, appropriateness, and scope of the content for the study participants. Some of the question items were broken down into more specific questions, and new domains evolved. Other question items that were found to measure the same variables were also deleted to ease the data collection and analysis. Moreover, the grammar and language issues were improved for clarity based on the literacy level of the study participants.

Reliability of the research instruments refers to the ability of the research instruments or tools to provide similar and consistent results when applied at different times and circumstances [ 41 ]. This study adapted the tools and question items used by different scholars to assess the impact of PKP on student learning [ 12 , 15 , 18 ].

To ensure the reliability of the tools, a pilot study was conducted in one of the nursing training institutions in order to assess the complexity, readability, clarity, completeness, length, and duration of the tool. Ambiguous and difficult (left unanswered) items were modified or deleted based on the consensus that was reached with the consulted experts and supervisor before subjecting the questionnaires to a pre-test.

The study involved 10% of undergraduate nursing students from an independent geographical location for a pilot study. The findings from the pilot study were subjected to explanatory factor analysis (Set a ≥ 0.3) and scale analysis in order to determine the internal consistency of the tools using the Cronbach alpha of ≥ 0.7, which was considered reliable [ 42 , 43 , 44 ]. Furthermore, after the data collection, the scale analysis was computed in an attempt to assess their internal consistency using SPPSS version 26, whereby the Cronbach alpha for question items that assessed the participants’ presentation skills was 0.965.

Data collection method

The study used the researcher-administered questionnaire to collect the participants’ socio-demographic information, co-related factors, and presentation skills as nursing students prepare and present their assignments in the classroom. This enhanced the clarity and participants’ understanding of all question items before providing the appropriate responses. The data were collected by the research assistants in the classroom with the study participants sitting distantly to ensure privacy, confidentiality, and the quality of the information that was provided by the research participants. The research assistant guided and led the study participants to answer the questions and fill in information in the questionnaire for each section, domain, and question item. The research assistant also collected the baseline information (pre-test) before the intervention, which was then compared with the post-intervention information. This was done in the first week of June 2023, after training and orientation of the research assistant on the data collection tools and recruitment of the study participants.

Using the researcher-administered questionnaire, the research assistant also collected the participants’ information related to presentation skills as they prepared and presented their given assignments after the intervention during the second week of July 2023. The participants submitted their presentations to the principle investigator and research assistant to assess the organization, visual appeal and creativity, content knowledge, and adherence to Pecha Kucha presentation requirements. Furthermore, the evaluation of the participants’ ability to share and communicate the given assignment was observed in the classroom presentation using the Pecha Kucha presentation format.

Definitions of variables

Pecha kucha presentation.

It refers to a specific style of presentation whereby the presenter delivers the content using 20 slides that are dominated by images, pictures, tables, or figures. Each slide is displayed for 20 s, thus making a total of 400 s (6 min and 40 s) for the whole presentation.

Presentation skills in this study

This involved students’ ability to plan, prepare, master learning content, create presentation materials, and share them with peers or the audience in the classroom. They constitute the learning activities that stimulate creativity, innovation, critical thinking, and problem-solving skills.

Measurement of pecha kucha preparation and presentation skills

The students’ presentation skills were measured using the four [ 4 ] learning domains. The first domain constituted the students’ ability to plan and prepare the presentation content. It consisted of 17 question items that assessed the students’ ability to gather and select information, search for specific content to be presented in the classroom, find out the learning content from different resources, and search for literature materials for the preparation of the assignment using traditional PowerPoint presentations and Pecha Kucha formats. It also aimed to ascertain a deeper understanding of the contents or topic, learning ownership and motivation to learn the topics with clear understanding and the ability to identify the relevant audience, segregate, and remove unnecessary contents using the Pecha Kucha format.

The second domain constituted the students’ mastery of learning during the preparation and presentation of their assignment before the audience in the classroom. It consisted of six [ 6 ] question items that measured the students’ ability to read several times, rehearse before the classroom presentation, and practice the assignment and presentation harder. It also measures the students’ ability to evaluate the selected information and content before their actual presentation and make revisions to the selected information and content before the presentation using the Pecha Kucha format.

The third domain constituted the students’ ability to prepare the presentation materials. It consisted of six [ 6 ] question items that measured the students’ ability to organize the information and contents, prepare the classroom presentation, revise and edit presentation resources, materials, and contents, and think about the audience and classroom design. The fourth domain constituted the students’ ability to share their learning. It consisted of four [ 4 ] question items that measured the students’ ability to communicate their learning with the audience, present a new understanding to the audience, transfer the learning to the audience, and answer the questions about the topic or assignment given. The variable was measured using a 5-point Likert scale. The average scores were computed for each domain, and an overall mean score was calculated across all domains. Additionally, an encompassing skills score was derived from the cumulative scores of all four domains, thus providing a comprehensive evaluation of the overall skills level.

Implementation of intervention

The implementation of the study involved the training of research assistants, sampling of the study participants, setting of the venue, pre-assessment of the students’ presentation skills using traditional PowerPoint presentations, training and demonstration of Pecha Kucha presentations to study participants, and assigning the topics to study participants. The implementation of the study also involved the participants’ submission of their assignments to the Principal Investigator for evaluation, the participants’ presentation of their assigned topic using the Pecha Kucha format, post-intervention assessment of the students’ presentation skills, data analysis, and reporting [ 7 ]. The intervention involved Principal Investigator and two [ 2 ] trained research assistants. The intervention in question was based on the concept of multimedia theory of cognitive learning (MTCL) for enhancing effective leaning in 21st century.

Training of research assistants

Two research assistants were trained with regard to the principles, characteristics, and format of Pecha Kucha presentations using the curriculum from the official Pecha Kucha website. Also, research assistants were oriented to the data collection tools and methods in an attempt to guarantee the relevancy and appropriate collection of the participants’ information.

Schedule and duration of training among research assistants

The PI prepared the training schedule and venue after negotiation and consensus with the research assistants. Moreover, the Principle Investigator trained the research assistants to assess the learning, learn how to collect the data using the questionnaire, and maintain the privacy and confidentiality of the study participants.

Descriptions of interventions

The intervention was conducted among the nursing students at the University of Dodoma, which is located in Dodoma Region, Tanzania Mainland, after obtaining their consent. The participants were trained regarding the concepts, principles, and characteristics of Pecha Kucha presentations and how to prepare and present their assignments using the Pecha Kucha presentation format. The study participants were also trained regarding the advantages and disadvantages of Pecha Kucha presentations. The training was accompanied by one example of an ideal Pecha Kucha presentation on the concepts of pressure ulcers. The teaching methods included lecturing, brainstorming, and small group discussion. After the training session, the evaluation was conducted to assess the participants’ understanding of the Pecha Kucha conceptualization, its characteristics, and its principles.

Each participant was given a topic as an assignment from the fundamentals of nursing, medical nursing, surgical nursing, community health nursing, mental health nursing, emergency critical care, pediatric, reproductive, and child health, midwifery, communicable diseases, non-communicable diseases, orthopedics and cross-cutting issues in nursing as recommended by scholars [ 21 , 38 ]. The study participants were given 14 days for preparation, rehearsal of their presentation using the Pecha Kucha presentation format, and submission of the prepared slides to the research assistant and principle investigator for evaluation and arrangement before the actual classroom presentation. The evaluation of the participants’ assignments involved the number of slides, quality of images used, number of words, organization of content and messages to be delivered, slide transition, duration of presentation, flow, and organization of slides.

Afterwards, each participant was given 6 min and 40 s for the presentation and 5 min to 10 min for answering the questions on the topic presented as raised by other participants. An average of 4 participants obtained the opportunity to present their assignments in the classroom every hour. After the completion of all presentations, the research assistants assessed the participant’s presentation skills using the researcher-administered questionnaire. The collected data were entered in SPSS version 26 and analyzed in an attempt to compare the mean score of participants’ presentation skills with the baseline mean score. The intervention sessions were conducted in the selected classrooms, which were able to accommodate all participants at the time that was arranged by the participant’s coordinators, institution administrators, and subject facilitators of the University of Dodoma, as described in Table  1 [ 7 ].

Evaluation of intervention

During the classroom presentation, there were 5 to 10 min for classroom discussion and reflection on the content presented, which was guided by the research assistant. During this time, the participants were given the opportunity to ask the questions, get clarification from the presenter, and provide their opinion on how the instructional messages were presented, content coverage, areas of strength and weakness for improvement, and academic growth. After the completion of the presentation sessions, the research assistant provided the questionnaire to participants in order to determine their presentation skills during the preparation of their assignments and classroom presentations using the Pecha Kucha presentation format.

Data analysis

The findings from this study were analyzed using the Statistical Package for Social Science (SPSS) computer software program version 26. The percentages, frequencies, frequency distributions, means, standard deviations, skewness, and kurtosis were calculated, and the results were presented using the figures, tables, and graphs. The mean score analysis was computed, and descriptive statistical analysis was used to analyze the demographic information of the participants in an attempt to determine the frequencies, percentages, and mean scores of their distributions. A paired sample t-test was used to compare the mean score differences of the presentation skills within the groups before and after the intervention. The mean score differences were determined based on the baseline scores against the post-intervention scores in order to establish any change in terms of presentation skills among the study participants.

The association between the Pecha Kucha presentation and the development of participants’ presentation skills was established using linear regression analysis set at a 95% confidence interval and 5% (≤ 0.05) significance level in an attempt to accept or reject the null hypothesis.

However, N-1 dummy variables were formed for the categorical independent variables so as to run the linear regression for the factors associated with the presentation skills. The linear regression equation with dummy variables is presented as follows:

Β 0 is the intercept.

Β 1 , Β 2 , …. Β k-1 are the coefficients which correspond to the dummy variables representing the levels of X 1 .

Β k is the coefficient which corresponds to the dummy variable representing the levels of X 2 .

Β k+1 is the coefficient which corresponds to the continuous predictor X 3 .

X 1,1 , X 1,2 ,……. X 1,k-1 are the dummy variables corresponding to the different levels of X 1 .

ε represents the error term.

The coefficients B1, B2… Bk indicate the change in the expected value of Y for each category relative to the reference category. If the Beta estimate is positive for the categorical or dummy variables, it means that the corresponding covariate has a positive impact on the outcome variable compared to reference category. However, if the beta estimate is positive for the case of continuous covariates, it means that the corresponding covariate has direct proportion effect on the outcome variables.

The distribution of the outcome variables was approximately normally distributed since the normality of the data is one of the requirements for parametric analysis. A paired t test was performed to compare the presentation skills of nursing students before and after the intervention.

Social-demographic characteristics of the study participants

The study involved a total of 230 nursing students, of whom 151 (65.65%) were male and the rest were female. The mean age of study participants was 23.03 ± 2.69, with the minimum age being 19 and the maximum age being 37. The total of 163 (70.87%) students, which comprised a large proportion of respondents, were aged less than or equal to 23, 215 (93.48%) participants were living on campus, and 216 (93.91) participants were exposed to social media.

A large number of study participants (82.17%) were pursuing a bachelor of Science in Nursing, with the majority being first-year students (30.87%). The total of 213 (92.61%) study participants had Form Six education as their entry qualification, with 176 (76.52%) participants being the product of public secondary schools and interested in the nursing profession. Lastly, the total of 121 (52.61%) study participants had never been exposed to any presentation training; 215 (93.48%) students had access to individual classroom presentations; and 227 (98.70%) study participants had access to group presentations during their learning process. The detailed findings for the participants’ social demographic information are indicated in Table  2 [ 46 ].

Baseline nursing students’ presentation skills using traditional powerPoint presentations

The current study assessed the participant’s presentation skills when preparing and presenting the materials before the audience using traditional PowerPoint presentations. The study revealed that the overall mean score of the participants’ presentation skills was 4.07 ± 0.56, including a mean score of 3.98 ± 0.62 for the participants’ presentation skills during the preparation of presentation content before the classroom presentation and a mean score of 4.18 ± 0.78 for the participants’ mastery of learning content before the classroom presentation. Moreover, the study revealed a mean score of 4.07 ± 0.71 for participants’ ability to prepare presentation materials for classroom presentations and a mean score of 4.04 ± 0.76 for participants’ ability to share the presentation materials in the classroom, as indicated in Table  3 [ 46 ].

Factors Associated with participants’ presentation skills through traditional powerPoint presentation

The current study revealed that the participants’ study program has a significant effect on their presentation skills, whereby being the bachelor of science in nursing was associated with a 0.37561 (P value < 0.027) increase in the participants’ presentation skills.The year of study also had significant effects on the participants’ presentation skills, whereby being a second-year bachelor student was associated with a 0.34771 (P value < 0.0022) increase in the participants’ presentation skills compared to first-year bachelor students and diploma students. Depending on loans as a source of student income retards presentation skills by 0.24663 (P value < 0.0272) compared to those who do not depend on loans as the source of income. Furthermore, exposure to individual presentations has significant effects on the participants’ presentation skills, whereby obtaining an opportunity for individual presentations was associated with a 0.33732 (P value 0.0272) increase in presentation skills through traditional PowerPoint presentations as shown in Table  4 [ 46 ].

Nursing student presentation skills through pecha kucha presentations

The current study assessed the participant’s presentation skills when preparing and presenting the materials before the audience using Pecha Kucha presentations. The study revealed that the overall mean score and standard deviation of participants’ presentation skills using the Pecha Kucha presentation format were 4.54 ± 0.59, including a mean score of 4.49 ± 0.66 for participant’s presentation skills during preparation of the content before classroom presentation and a mean score of 4.58 ± 0.65 for participants’ mastery of learning content before classroom presentation. Moreover, the study revealed a mean score of 4.58 ± 0.67 for participants ability to prepare the presentation materials for classroom presentation and a mean score of 4.51 ± 0.72 for participants ability to share the presentation materials in the classroom using Pecha Kucha presentation format as indicated in Table  5 [ 46 ].

Comparing Mean scores of participants’ presentation skills between traditional PowerPoint presentation and pecha kucha Presentation

The current study computed a paired t-test to compare and determine the mean change, effect size, and significance associated with the participants’ presentation skills when using the traditional PowerPoint presentation and Pecha Kucha presentation formats. The study revealed that the mean score of the participants’ presentation skills through the Pecha Kucha presentation was 4.54 ± 0.59 (p value < 0.0001) compared to the mean score of 4.07 ± 0.56 for the participants’ presentation skills using the traditional power point presentation with an effect change of 0.78. With regard to the presentation skills during the preparation of presentation content before the classroom presentation, the mean score was 4.49 ± 0.66 using the Pecha Kucha presentation compared to the mean score of 3.98 ± 0.62 for the traditional PowerPoint presentation. Its mean change was 0.51 ± 0.84 ( p  < .0001) with an effect size of 0.61.

Regarding the participants’ mastery of learning content before the classroom presentation, the mean score was 4.58 ± 0.65 when using the Pecha Kucha presentation format, compared to the mean score of 4.18 ± 0.78 when using the traditional power point presentation. Its mean change was 0.40 ± 0.27 ( p  < .0001) with an effect size of 1.48. Regarding the ability of the participants to prepare the presentation materials for classroom presentations, the mean score was 4.58 ± 0.67 when using the Pecha Kucha presentation format, compared to 4.07 ± 0.71 when using the traditional PowerPoint presentation. Its mean change was 0.51 ± 0.96 ( p  < .0001) with an effect size of 0.53.

Regarding the participants’ presentation skills when sharing the presentation material in the classroom, the mean score was 4.51 ± 0.72 when using the Pecha Kucha presentation format, compared to 4.04 ± 0.76 when using the traditional PowerPoint presentations. Its mean change was 0.47 ± 0.10, with a large effect size of 4.7. Therefore, Pecha Kucha presentation pedagogy has a significant effect on the participants’ presentation skills than the traditional PowerPoint presentation as shown in Table  6 [ 46 ].

Factors associated with presentation skills among nursing students through pecha kucha presentation

The current study revealed that the participant’s presentation skills using the Pecha Kucha presentation format were significantly associated with knowledge of the Pecha Kucha presentation format, whereby increase in knowledge was associated with a 0.0239 ( p  < .0001) increase in presentation skills. Moreover, the current study revealed that the presentation through the Pecha Kucha presentation format was not influenced by the year of study, whereby being a second-year student could retard the presentation skills by 0.23093 (p 0.039) compared to a traditional PowerPoint presentation. Other factors are shown in Table  7 [ 46 ].

Social-demographic characteristics profiles of participants

The proportion of male participants was larger than the proportion of female participants in the current study. This was attributable to the distribution of sex across the nursing students at the university understudy, whose number of male nursing students enrolled was higher than female students. This demonstrates the high rate of male nursing students’ enrolment in higher training institutions to pursue nursing and midwifery education programs. Different from the previous years, the nursing training institutions were predominantly comprised of female students and female nurses in different settings. This significant increase in male nursing students’ enrollment in nursing training institutions predicts a significant increase in the male nursing workforce in the future in different settings.

These findings on Pecha Kucha as an alternative to PowerPoint presentations in Massachusetts, where the proportion of female participants was large as compared to male participants, are different from the experimental study among English language students [ 29 ]. The referred findings are different from the results of the randomized control study among the nursing students in Anakara, Turkey, where a large proportion of participants were female nursing students [ 47 ]. This difference in participants’ sex may be associated with the difference in socio-cultural beliefs of the study settings, country’s socio-economic status, which influence the participants to join the nursing profession on the basis of securing employment easily, an opportunity abroad, or pressure from peers and parents. Nevertheless, such differences account for the decreased stereotypes towards male nurses in the community and the better performance of male students in science subjects compared to female students in the country.

The mean age of the study participants was predominantly young adults with advanced secondary education. Their ages reflect adherence to national education policy by considering the appropriate age of enrollment of the pupils in primary and secondary schools, which comprise the industries for students at higher training institutions. This age range of the participants in the current study suits the cognitive capability expected from the participants in order to demonstrate different survival and life skills by being able to set learning goals and develop strategies to achieve their goals according to Jean Piaget’s theory of cognitive learning [ 41 , 42 ].

Similar age groups were noted in the study among nursing students in a randomized control study in Anakara Turkey where the average age was 19.05 ± 0.2 [ 47 ]. A similar age group was also found in a randomized control study among liberal arts students in Anakara, Turkey, on differences in instructor, presenter, and audience ratings of Pecha Kucha presentations and traditional student presentations where the ages of the participants ranged between 19 and 22 years [ 49 ].

Lastly, a large proportion of the study participants had the opportunity for individual and group presentations in the classroom despite having not been exposed to any presentation training before. This implies that the teaching and learning process in a nursing education program is participatory and student-centered, thus giving the students the opportunity to interact with learning contents, peers, experts, webpages, and other learning resources to become knowledgeable. These findings fit with the principle that guides and facilitates the student’s learning from peers and teachers according to the constructivism theory of learning by Lev Vygotsky [ 48 ].

Effects of pecha kucha presentation pedagogy on participants’ presentation skills

The participants’ presentation skills were higher for Pecha Kucha presentations compared with traditional PowerPoint presentations. This display of the Pecha Kucha presentation style enables the nursing students to prepare the learning content, master their learning content before classroom presentations, create good presentation materials and present the materials, before the audience in the classroom. This finding was similar to that at Padang State University, Indonesia, among first-year English and literature students whereby the Pecha Kucha Presentation format helped the students improve their skills in presentation [ 20 ]. Pecha Kucha was also found to facilitate careful selection of the topic, organization and outlining of the students’ ideas, selection of appropriate images, preparation of presentations, rehearsing, and delivery of the presentations before the audience in a qualitative study among English language students at the Private University of Manila, Philippines [ 23 ].

The current study found that Pecha Kucha presentations enable the students to perform literature searches from different webpages, journals, and books in an attempt to identify specific contents during the preparation of the classroom presentations more than traditional PowerPoint presentations. This is triggered by the ability of the presentation format to force the students to filter relevant and specific information to be included in the presentation and search for appropriate images, pictures, or figures to be presented before the audience. Pecha Kucha presentations were found to increase the ability to perform literature searches before classroom presentations compared to traditional PowerPoint presentations in an experimental study among English language students at Worcester State University [ 29 ].

The current study revealed that Pecha Kucha presentations enable the students to create a well-structured classroom presentation effectively by designing 20 meaningful and content-rich slides containing 20 images, pictures, or figures and a transitional flow of 20 s for each slide, more than the traditional PowerPoint presentation with an unlimited number of slides containing bullets with many texts or words. Similarly, in a cross-sectional study of medical students in India, Pecha Kucha presentations were found to help undergraduate first-year medical students learn how to organize knowledge in a sequential fashion [ 26 ].

The current study revealed that Pecha Kucha presentations enhance sound mastery of the learning contents and presentation materials before the classroom presentation compared with traditional PowerPoint presentations. This is hastened by the fact that there is no slide reading during the classroom Pecha Kucha presentation, thus forcing students to read several times, rehearse, and practice harder the presentation contents and materials before the classroom presentation. Pecha Kucha presentation needed first year English and literature students to practice a lot before their classroom presentation in a descriptive qualitative study at Padang State University-Indonesia [ 20 ].

The current study revealed that the participants became more confident in answering the questions about the topic during the classroom presentation using the Pecha Kucha presentation style than during the classroom presentation using the tradition PowerPoint presentation. This is precipitated by the mastery level of the presentation contents and materials through rehearsal, re-reading, and material synthesis before the classroom presentations. Moreover, Pecha Kucha was found to significantly increase the students’ confidence during classroom presentation and preparation in a qualitative study among English language students at the Private University of Manila, Philippines [ 23 ].

Hence, there was enough evidence to reject the null hypothesis in that there was no significant difference in nursing students’ presentation skills between the baseline and end line. The Pecha Kucha presentation format has a significant effect on nursing student’s classroom presentation skills as it enables them to prepare the learning content, have good mastery of the learning contents, create presentation materials, and confidently share their learning with the audience in the classroom.

The current study’s findings complement the available pieces of evidence on the effects of Pecha Kucha presentations on the students’ learning and development of survival life skills in the 21st century. Pecha kucha presentations have more significant effects on the students’ presentation skills compared with traditional PowerPoint presentations. It enables the students to select the topic carefully, organize and outline the presentation ideas, select appropriate images, create presentations, rehearse the presentations, and deliver them confidently before an audience. It also enables the students to select and organize the learning contents for classroom presentations more than traditional PowerPoint presentations.

Pecha Kucha presentations enhance the mastery of learning content by encouraging the students to read the content several times, rehearse, and practice hard before the actual classroom presentation. It increases the students’ ability to perform literature searches before the classroom presentation compared to a traditional PowerPoint presentation. Pecha Kucha presentations enable the students to create well-structured classroom presentations more effectively compared to traditional PowerPoint presentations. Furthermore, Pecha Kucha presentations make the students confident during the presentation of their assignments and project works before the audience and during answering the questions.

Lastly, Pecha Kucha presentations enhance creativity among the students by providing the opportunity for them to decide on the learning content to be presented. Specifically, they are able to select the learning content, appropriate images, pictures, or figures, organize and structure the presentation slides into a meaningful and transitional flow of ideas, rehearse and practice individually before the actual classroom presentation.

Strength of the study

This study has addressed the pedagogical gap in nursing training and education by providing new insights on the innovative students’ presentation format that engages students actively in their learning to bring about meaningful and effective students’ learning. It has also managed to recruit, asses, and provide intended intervention to 230 nursing students without dropout.

Study limitation

The current study has pointed out some of the strengths of the PechaKucha presentations on the students’ presentation skills over the traditional students’ presentations. However, the study had the following limitations: It involved one group of nursing students from one of the public training institutions in Tanzania. The use of one university may obscure the interpretation of the effects of the size of the intervention on the outcome variables of interest, thus limiting the generalization of the study findings to all training institutions in Tanzania. Therefore, the findings from this study need to be interpreted by considering this limitation. The use of one group of nursing students from one university to explore their learning experience through different presentation formats may also limit the generalization of the study findings to all nursing students in the country. The limited generalization may be attributed to differences in socio-demographic characteristics, learning environments, and teaching and learning approaches. Therefore, the findings from this study need to be interpreted by considering this limitation.

Suggestions for future research

The future research should try to overcome the current study limitations and shortcomings and extend the areas assessed by the study to different study settings and different characteristics of nursing students in Tanzania as follows: To test rigorously the effects of Pecha Kucha presentations in enhancing the nursing students’ learning, the future studies should involve nursing students’ different health training institutions rather than one training institution. Future studies should better use the control students by randomly allocating the nursing students or training institutions in the intervention group or control group in order to assess the students’ learning experiences through the use of Pecha Kucha presentations and PowerPoint presentations consecutively. Lastly, future studies should focus on nursing students’ mastery of content knowledge and students’ classroom performance through the use of the Pecha Kucha presentation format in the teaching and learning process.

Data availability

The datasets generated and analyzed by this study can be obtained from the corresponding author on reasonable request through [email protected] & [email protected].

Abbreviations

Doctor (PhD)

Multimedia Theory of Cognitive Learning

National Council for Technical and Vocational Education and Training

Principle Investigator

Pecha Kucha presentation

Statistical Package for Social Sciences

Tanzania Commission for Universities

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Acknowledgements

The supervisors at the University of Dodoma, statisticians, my employer, family members, research assistants and postgraduate colleagues are acknowledged for their support in an attempt to facilitate the development and completion of this manuscript.

The source of funds to conduct this study was the registrar, Tanzania Nursing and Midwifery Council (TNMC) who is the employer of the corresponding author. The funds helped the author in developing the protocol, printing the questionnaires, and facilitating communication during the data collection and data analysis and manuscript preparation.

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S.J.H: conceptualization, proposal development, data collection, data entry, data cleaning and analysis, writing the original draft of the manuscript W.C.M: Conceptualization, supervision, review, and editing of the proposal, and the final manuscript S.S.A: Conceptualization, supervision, review, and editing of the proposal and the final manuscript.

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All methods were carried out under the relevant guidelines and regulations. Since the study involved the manipulation of human behaviors and practices and the exploration of human internal learning experiences, there was a pressing need to obtain ethical clearance and permission from the University of Dodoma (UDOM) Institution of Research Review Ethics Committee (IRREC) in order to conduct this study. The written informed consents were obtained from all the participants, after explaining to them the purpose, the importance of participating in the study, the significance of the study findings to students’ learning, and confidentiality and privacy of the information that will be provided. The nursing students who participated in this study benefited from the knowledge of the Pecha Kucha presentation format and how to prepare and present their assignments using the Pecha Kucha presentation format.

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Haramba, S.J., Millanzi, W.C. & Seif, S.A. Effects of pecha kucha presentation pedagogy on nursing students’ presentation skills: a quasi-experimental study in Tanzania. BMC Med Educ 24 , 952 (2024). https://doi.org/10.1186/s12909-024-05920-2

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DOI : https://doi.org/10.1186/s12909-024-05920-2

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