T/T wire transfer is the most commonly used method of collecting payment in foreign trade, and the level of risk depends entirely on the payment milestone. Understand the three milestones, and you will know which one to use for which type of customer.
Advance T/T: payment before shipment
The customer pays first, and the exporter arranges production or shipment after receiving the money.
Safest for the exporter, with almost no collection risk.
The downside is that the buyer bears all the funding and trust risk, which new customers often will not accept.
Common forms: 100% payment on order, or "deposit + balance paid before shipment".
Post T/T: payment against B/L copy or on arrival
After the goods are shipped, the exporter sends the B/L copy or documents to the customer, who then remits payment.
Favourable to the buyer, while the exporter bears the risk of non-payment or late payment.
Suitable only for long-standing customers with a stable credit record.
Partial prepayment: deposit + balance
A portion of the deposit is paid on order, and the remaining amount is settled before shipment or against the B/L copy.
This is the most common combination in actual business, balancing risk for both sides.
There are two common balance milestones: paid in full before shipment is safer, while balance against B/L copy is more of a compromise.
Comparison of the three milestones
| Milestone | Who bears the main risk | Applicable customers |
|---|---|---|
| Advance T/T | Buyer bears the funding risk | New customers, custom goods |
| Partial prepayment | Risk shared by both sides | Regular business |
| Post T/T | Exporter bears the collection risk | Old customers, long-term cooperation |
Payment slips, receipt of funds and bank charges
The remittance slip sent by the customer is only proof of initiation; it does not mean the money has arrived.
Cross-border remittances may incur charges from intermediary banks, so the actual amount credited is less than the slip amount; the contract should ideally specify who bears the fees.
Arrival time depends on the remittance route, currency and bank processing; the bank's actual processing prevails.
How it works with letters of credit and documentary collections
T/T relies on commercial credit, a letter of credit relies on bank credit, and documentary collection sits between the two.
For large orders from new customers, a common approach is "partial prepayment + letter of credit for the balance" to reduce risk.
The earlier the milestone, the safer it is for the exporter, but the harder it is to close the deal.
Key operational points
State the remittance milestone, currency, amount and receiving account details clearly in the contract.
Receiving a payment slip from the customer does not mean the funds have arrived; always rely on the bank's actual credit.
For large orders, export credit insurance can be added to reduce losses from buyer default.
Specific fees and arrival times are subject to the bank's live quotation.
