Usance—a term rarely discussed outside trade finance circles—is rapidly gaining relevance in the Australian financial landscape. As businesses grapple with rising interest rates, shifting global supply chains, and evolving credit norms in 2025, understanding usance and its role in managing cash flow can mean the difference between thriving and barely surviving.
What is Usance? The Basics and Beyond
Usance refers to the period allowed for payment of goods or services after delivery—essentially, it’s a deferred payment term. Unlike the more familiar ‘cash on delivery’ or ‘net 30’ terms, usance commonly appears in international trade, letters of credit, and bills of exchange. It allows buyers to receive goods, sell them, and pay the supplier after a pre-agreed period (such as 60, 90, or even 180 days).
- Example: An Australian importer purchases electronics from a Japanese supplier under a 90-day usance letter of credit. The importer gets three months to sell the goods and generate revenue before payment is due.
- Why it matters in 2025: With credit tighter and working capital at a premium, usance terms offer breathing room for businesses navigating post-pandemic volatility and inflationary pressures.
Usance in Practice: Modern Applications and Real-World Scenarios
Usance has evolved from a niche trade finance tool to a mainstream strategy for Australian SMEs and corporates seeking to optimise cash flow and manage supply chain risks. In 2025, the practice is being shaped by several key trends:
- Digitisation of Trade Finance: Digital platforms now streamline usance transactions, reducing paperwork and speeding up approvals. Banks such as NAB and ANZ offer online portals for initiating and tracking usance letters of credit, making them accessible even to smaller exporters and importers.
- Supply Chain Disruptions: With ongoing disruptions in shipping and logistics, suppliers are increasingly open to usance terms to secure contracts. For example, Australian agricultural exporters are using 60–120 day usance arrangements to attract buyers in Southeast Asia who face liquidity constraints.
- Integration with Invoice Financing: Fintech lenders are offering products that blend usance terms with invoice financing, enabling businesses to unlock cash from receivables while still benefiting from deferred payment obligations to their own suppliers.
2025 Policy Updates and Regulatory Considerations
Recent updates from the Reserve Bank of Australia (RBA) and changes to the Payment Times Reporting Act are influencing how usance is structured and reported:
- Stricter Reporting Requirements: As of January 2025, large businesses must disclose average payment terms and actual payment performance, including the use of usance arrangements. This move aims to increase transparency and prevent abuse of excessively long payment terms that can squeeze small suppliers.
- Interest Rate Implications: With the RBA maintaining a cash rate above 4%, the cost of extending usance terms has risen. Lenders are factoring in higher risk premiums, and businesses must weigh the benefit of delayed payment against increased financing costs.
- ESG and Ethical Sourcing: There’s mounting pressure for companies to ensure their payment practices—including usance—do not disadvantage small suppliers or contribute to unethical supply chain practices. Some corporates are voluntarily capping usance periods or offering early payment programs to align with ESG commitments.
Strategic Advantages—and Pitfalls—of Usance in 2025
When managed well, usance can be a powerful tool for smoothing cash flow and building resilient supply chains. However, misuse or overreliance can backfire:
- Advantages:
- Enables buyers to generate revenue before payment is due
- Strengthens supplier relationships when terms are negotiated transparently
- Supports business growth without immediate outlay of capital
- Potential Pitfalls:
- Excessively long usance terms can strain supplier cash flow
- Interest and fees may erode profit margins if not managed carefully
- Regulatory scrutiny and reputational risks if payment practices are deemed unfair
Conclusion
Usance is no longer a back-office finance term—it’s a frontline strategy for Australian businesses navigating uncertainty in 2025. Whether you’re importing, exporting, or simply managing a complex supply chain, understanding how to leverage usance effectively could be the key to unlocking liquidity, building trust, and staying competitive in a rapidly changing economic environment.
