L/C vs T/T Payment
L/C adds bank document control; T/T is faster/cheaper but trust-based.
Structured trade knowledge covering terms, processes, regulations, and practice.
L/C adds bank document control; T/T is faster/cheaper but trust-based.
Clear payment terms state method, timing, currency, bank charges, and consequences of default.
Net 30 is open account credit — buyer pays within 30 days of invoice date without L/C.
FOB/CIF describe risk and freight; L/C/T/T describe settlement timing — mismatches cause disputes.
This guide explains Payment Security for Exporters — concepts, use cases, workflow, mistakes, and best practices for import/export teams.
A letter of credit (L/C) is a bank’s conditional payment undertaking against complying documents. It protects sellers from buyer credit risk — if documents match the L/C.
Documentary collection uses banks to present shipping documents against payment (D/P) or acceptance (D/A). Banks handle papers — they do not guarantee payment like an L/C.
Open account ships goods first and invoices for later payment (Net 30/60/90). Maximum buyer convenience — maximum seller credit risk unless insured or secured.
D/P releases documents only after payment; D/A releases after acceptance of a tenor draft. D/A is closer to open-account risk with a bank paper trail.
Discrepancies are document defects versus the L/C. Most can be prevented by a pre-shipment checklist; some require amendment or buyer waiver.
Most export T/T deals split deposit before production and balance before shipment (or against B/L copy). The split is a negotiation of trust and cash cycle — not a fixed 30/70 rule.
T/T (telegraphic transfer) is a bank wire between buyer and seller accounts. Structure deposit/balance timing against production milestones — bare “100% T/T in advance” is a risk statement, not a payment strategy.
Advance payment (deposit) funds materials and capacity before shipment. Cap it to verified suppliers, tie release to milestones, and never confuse “advance” with a completed purchase.
Trade escrow holds buyer funds with a neutral party and releases them against agreed evidence (inspection, documents, delivery). Use it for first deals — and read release conditions like a contract, not a slogan.
A confirmed letter of credit adds a confirming bank’s independent payment undertaking alongside the issuing bank. Use it when country or bank risk makes a straight L/C insufficient for the exporter.
A transferable L/C allows the first beneficiary (often a trading company) to transfer drawing rights to a second beneficiary (often the factory). Transferability must be expressly stated — and quantity/price substitutions have strict limits.
A standby letter of credit (SBLC) pays when the applicant defaults against stated documents — it backs performance or payment rather than acting as the primary shipment payment method.
CAD (cash against documents) releases shipping documents when the buyer pays through the collecting bank chain. It is stronger than open account for exporters, weaker than L/C because banks do not guarantee payment.
A bank guarantee is a bank’s undertaking to pay a beneficiary upon a complying demand if the applicant fails stated obligations. Draft the claim conditions tightly — wording wins or loses the instrument.
SWIFT is the interbank messaging network used to instruct payments and advise credits. Knowing MT types and value dates helps you chase funds and L/C advice without guessing.
Export payment risk is the chance you never get paid — or get paid late — after spending on production and freight. Rank counterparties and match T/T splits, collections, L/C, or refuse the order.
Compare payment terms on cost, speed, document burden, and who carries default risk. The “best” term is the cheapest safe option for that counterparty — not the one your competitor brags about.