T/T, L/C, D/P ..... Which payment method is the safest?

In business, securing payment is extremely important—especially for those of us involved in cross-border transactions. Not only must we ensure the safety of funds, but we also need to accommodate the payment habits of our clients. This often becomes a key point of negotiation. While clients aim to reduce trade risks, sellers seek to guarantee timely payments. So, how should we make decisions during actual negotiations? Let’s explore that in this article.


 
T/T (Telegraphic Transfer)
T/T, or Telegraphic Transfer, refers to a method where the buyer remits funds directly to the seller. The level of security depends on the timing of the payment. Common T/T payment methods include:
 
- 100% T/T (Full payment before shipment):  
This poses the least risk and is most favorable to the seller. However, new clients typically find it hard to accept unless the seller has strong bargaining power or offers exclusive products.
 
- 30% T/T + 70% against copy of B/L (Bill of Lading):  
Also known as the "30/70 model," the buyer pays a partial deposit before shipment and settles the balance upon presentation of the B/L copy. This is currently the most common method and offers a relatively balanced risk for both parties.
 
- T/T 30 days after shipment:  
This is a post-shipment credit term and carries higher risk. It is usually reserved for long-term and stable clients.
 
Advantages: Fast fund transfer, simple operation, high flexibility.  
Disadvantages: The risk depends on customer credit. There’s uncertainty in collecting the balance, especially with new clients who may delay or refuse payment.
 
Recommendation: For new clients, try to secure a larger advance payment. If 100% upfront isn’t feasible, consider compromising to 50%. For long-term clients, terms can be relaxed based on past performance.

L/C (Letter of Credit) and D/P (Documents against Payment)
 
Both L/C and D/P are document-based payment methods, backed by the credit of a bank. The difference is that L/C involves the issuance of a letter of credit. Both are relatively secure.
 
Advantages: Bank guarantees provide greater security for both payment and receipt.  
Disadvantages: Complex procedures and the possibility of document discrepancies or rejection.
 
Note: It is not necessary for 100% of the documents to match exactly in an L/C. If discrepancies are minor and the risk is controllable, the bank may still release the payment.
 
D/A (Documents against Acceptance)
 
In a D/A transaction, the seller sends the documents through the bank after the buyer signs a time draft. The buyer can clear customs with the draft but pays later.
 
Risk warning: This method is highly unfavorable to the seller. If the buyer refuses to pay at maturity, it is very difficult to recover the funds. It should only be used with well-known clients or when backed by a Bank Avalization, where the buyer’s bank guarantees the payment.
 
O/A (Open Account)
 
O/A can be seen as a form of post-shipment T/T and is especially favored by U.S. clients. Here, the supplier assumes all the risk. If the client cancels the order, the supplier bears the entire loss.
 
Recommendation: Avoid using this method for first-time cooperation, even with clients from creditworthy countries.  
This method is only suitable for clients with a long and trustworthy track record. Even then, it should be combined with export credit insurance to reduce the risk of default.
 
In international trade, there is no absolutely secure payment method. However, by considering the client's background, transaction value, and cooperation history, we can make flexible and informed choices.