The core of any payment method is "who concedes first". Which one you choose depends on your level of trust with the customer, the order value and your cash flow pressure.
Get to Know the Five Methods First
| Method | Full Name | Key Process | Seller Risk |
|---|---|---|---|
| T/T | Telegraphic Transfer | Buyer remits directly to seller | Depends on prepayment ratio |
| L/C | Letter of Credit | Bank pays against complying documents | Lower (bank credit) |
| D/P | Documents against Payment | Buyer gets documents only after payment | Medium |
| D/A | Documents against Acceptance | Buyer gets documents by accepting a draft | Higher |
| O/A | Open Account | Ship first, collect payment after an agreed period | Highest |
How to Use T/T Most Safely
The common combination is "30% prepayment + 70% against copy of B/L", with the ratio as agreed by both parties.
The higher the prepayment ratio, the safer the seller — and the less willing the buyer is to accept it.
Releasing the original B/L or telex release before the balance arrives is giving the goods away for free.
So the iron rule of T/T is: release documents only after the balance is received.
When L/C Is the Right Fit
Best suited to large orders, new customers, and situations where neither side trusts the other.
It replaces commercial credit with bank credit. As long as the documents comply, the bank must pay.
The trade-off is a long process, strict document requirements and many types of fees. All fees are subject to the bank's actual quotation.
D/P and D/A Differ by One Letter, but the Risk Differs a Lot
D/P: the buyer gets the documents to take delivery only after payment.
D/A: the buyer gets the documents simply by accepting a draft, and pays at maturity.
D/A is essentially the seller financing the buyer, with risk close to that of open account.
How to Choose
| Scenario | Recommended Method |
|---|---|
| Existing customer, small order | T/T |
| New customer, large order | L/C |
| Some basis of trust | D/P |
| Long-term cooperation, strong buyer | D/A or O/A, always paired with export credit insurance |
Why Export Credit Insurance Is Worth Having
Methods like D/A and O/A, where goods ship before payment, essentially mean the seller bears the buyer's credit risk.
Export credit insurance can transfer risks such as buyer default, refusal to pay and bankruptcy.
For sellers doing open account business, it protects profit better than simply cutting prices.
Whether you qualify for coverage, and the coverage amount and rates, are subject to the insurer's actual quotation.
Four Common Pitfalls
Not checking L/C terms one by one, only to find discrepancies after the ship has sailed.
Using D/A without a buyer credit check — that is going in with no protection at all.
Shipping as soon as you receive a remittance slip, when the money has not actually arrived.
Misreading "payment against copy of B/L" as "payment once the copy is seen".
