Neither LC nor TT is automatically safe. The real protection comes from verified counterparties, precise milestones, workable documents and payment terms that reflect the relationship, product and shipment risk.
The practical difference
A telegraphic transfer (TT) is a bank transfer. It is simple and fast, but the commercial risk depends heavily on when each portion is paid. A letter of credit (LC) is a bank undertaking that pays against compliant documents, subject to its terms. It adds document discipline and cost, but it does not guarantee the physical quality of cargo.
| Factor | TT | LC |
|---|---|---|
| Setup | Relatively simple transfer instruction | Formal banking application and wording |
| Payment trigger | Agreed commercial milestone | Compliant document presentation |
| Document risk | Managed by contract and buyer review | Discrepancies can delay or prevent payment |
| Cost | Usually fewer bank charges | Issuance, advising and other charges may apply |
| Best fit | Established relationships or staged transactions | Larger or document-sensitive transactions |
How to structure TT more carefully
Avoid discussing only the percentage. Define what evidence unlocks each payment. Possible milestones include contract signature, approved sample, production completion, independent inspection, container sealing, bill-of-lading copy or document release. The appropriate structure depends on bargaining power and trust.
Always verify beneficiary account details through a known channel. If bank instructions change unexpectedly, pause and reconfirm with an authorised contact using previously verified details. Email account compromise is a real trade risk.
Make LC terms achievable
An LC should request documents the seller can actually produce and that banks can examine. Avoid subjective conditions such as “goods satisfactory to buyer” unless a named certificate provides the required evidence. Align shipment dates, presentation period, tolerance, partial shipment and transshipment terms with the sales contract.
Review the draft before issuance. Amendments take time and cost money. Importers should involve their bank and trade-finance adviser, while exporters should check the issuing bank, country risk and confirmation needs.
Payment-control checklist
- Verify the supplier's legal identity and bank beneficiary name.
- Make sales contract, proforma invoice and payment wording consistent.
- Tie milestones to specific, objective evidence.
- Define inspection separately from document payment.
- State who pays banking, amendment and discrepancy charges.
- Use independent legal and banking advice for material transactions.
A relationship-based approach
First orders may justify stronger controls, smaller trial quantities or an LC structure. As the parties build a reliable shipment record, staged TT may become commercially efficient. The progression should be deliberate and supported by performance, not pressure to pay quickly.
Important limitation
Banks examine documents, not rice, spices or container condition. Product specifications, sampling and inspection must remain strong regardless of the payment method.