Usance refers to the utilization of economic goods to satisfy needs. In manufacturing, "usance" means "inputs." It is used in "usance bills." This terminology is used in banks in India, when dealing with
forex
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...
.
In
medieval banking
The history of banking began with the first prototype banks, that is, the merchants of the world, who gave grain loans to farmers and traders who carried goods between cities. This was around 2000 BCE in Assyria, India and Sumeria. Later, in an ...
, "usance" denoted the period of time, set by custom, before a
bill of exchange
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...
could be redeemed at its destination.
In today's financial world, the term usance denotes the period of time between the date of the bill and the payment of the bill, which is allowed by law. Usance differs from country to country. Some countries may have a usance period of as little as 2 weeks, while some others may have a usance period of up to 2 months. Usance usually applies to items or goods purchased on credit.
Usance may also mean the interest that will be charged on the person who has borrowed some amount of money. Thus, usance here means the profits earned from the lending of
principal.
Usance as a bill of exchange
One of the major uses of Usance Bills is Drafts are used in arrangements where
deferred payment
Defer may refer to:
* Defer Elementary School, a Michigan State Historic Site
* Deference, the acknowledgement of the legitimacy of the power of one's superior or superiors
* Deferral
A deferral, in ''accrual accounting'', is any account w ...
s are used. In such a case, the payment is made on a particular date in the future, which is determined in the future according to the
letter of credit
A letter of credit (LC), also known as a documentary credit or bankers commercial credit, or letter of undertaking (LoU), is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exp ...
. The date of
maturity, when the payment needs to be made may be at a date.
* After the person accepting the draft accepts the draft.
* At a specific pre-determined date in the future.
In some case, when there is no particular fixed date, the acceptor may refuse to accept the draft, thus extending the date of maturity.
References
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Banking in India