Payment
L/C vs T/T Payment
Compare Letter of Credit and T/T for export payment — security, cost, speed, and when to use each.
L/C adds bank document control; T/T is faster/cheaper but trust-based.
Key Differences at a Glance
L/C uses banks to pay against compliant documents under UCP rules. T/T transfers cash directly when buyer initiates wire — no automatic document gate.
Seller vs Buyer Obligations
L/C protects seller if documents perfect; T/T favors seller only when buyer pays advance or reputable relationship exists.
L/C lets buyer delay payment until bank accepts docs; T/T often requires advance — buyer bears non-delivery risk on prepayment.
Risk Transfer and Cost Structure
L/C risk = discrepancy, fraud docs, bank/country risk. T/T risk = buyer default before pay or seller non-performance after pay.
L/C bank fees higher (opening, confirmation, negotiation). T/T mainly SWIFT and FX spread.
Which Term to Choose
Examples
LC win
USD 500k first order to new distributor — LC at sight reduces seller exposure.
TT win
5-year OEM partner — monthly T/T saves USD 800/month LC fees.
FAQ
- Combine LC and TT?
- Sometimes deposit T/T + balance LC — spell clearly in contract.
- LC then TT for amendments?
- Amendment fees add up — consider TT for small repeat orders.
- Which for services?
- T/T common; standby LC for performance.
- eUCP digital docs?
- Electronic records under eUCP — still mainly LC channel.
- Sanctions screening?
- Both paths hit bank compliance — factor delay.
Conclusion
Match method to relationship and amount. Read Payment Terms for Export for contract wording.