Payment Terms in International Trade: T/T, L/C, D/P, D/A, Open Account

Which payment term is safest for whom

The US International Trade Administration (ITA) ranks the main methods from most to least secure for the exporter: cash in advance, letter of credit, documentary collection, open account and consignment. For the importer the order is reversed: open account and consignment are the best for its cash flow and cost, and paying in advance the least attractive.

What moves a term up or down the list is when the buyer gets control of the goods compared with when you get paid, and whether a bank, not only the buyer, promises to pay. Choose it with the buyer's track record and its country's risk in mind, and agree it before you confirm the order.

• Cash in advance (T/T before shipment): you are paid before the goods leave; the buyer carries the risk that you do not ship.
• Deposit and balance against copy B/L: part is paid on order, the rest after shipment while you still hold the original bills of lading.
• Letter of credit (L/C): the buyer's bank, and a confirming bank if one is added, promises to pay against documents that comply with the credit.
• Documentary collection (D/P, D/A): banks hand the documents to the buyer against payment or acceptance of a draft, but do not promise to pay.
• Open account: you ship and send the documents directly; the buyer pays later, usually in 30, 60 or 90 days.
• Consignment: you are paid only after the buyer has sold the goods on.

Cash in advance and deposit plus balance against copy B/L

ITA calls cash in advance the most secure method for the exporter and recommends it when the buyer is new, its creditworthiness is doubtful or unverifiable, or its country's political and commercial risks are very high. International wire transfers (T/T) are the usual route, and you should give the buyer clear bank routing instructions; ITA also lists credit cards, for sales direct to foreign customers, and cross-border escrow, which holds the buyer's money until agreed conditions are met. The cost is competitiveness: buyers dislike paying before they see the goods and may turn to a supplier with easier terms.

Many exporters split the price: a deposit, for example 30%, on order confirmation, and the balance either before shipment or against a copy of the bill of lading (B/L). With balance against copy B/L you ship, email the buyer a scan of the B/L, and courier the originals or ask for a telex release only after the balance has reached your account. This works only if the originals control the goods: take bills made out to order and keep the full set. A sea waybill, an early telex release or a straight B/L naming the buyer can let the buyer collect without paying (see Triplicate's bill of lading note).

If the balance never comes, you still control the goods, but they are in a foreign port and the deposit is your only cushion while you find another buyer there or bring them back.

A payment copy from the buyer, often called an MT103 copy, shows that its bank sent a payment instruction, not that you have been paid. Since 22 November 2025 Swift no longer delivers cross-border payment instructions between banks as MT messages; they travel as ISO 20022 messages such as pacs.008. Whatever proof the buyer sends, ship or release documents only when your own bank confirms the money is in your account.

Letters of credit: sight, usance and confirmed

A letter of credit is the buyer's bank's promise to pay you if you present documents that comply with the credit. Credits are normally issued subject to the ICC's UCP 600, under which a credit is irrevocable even if it does not say so and banks deal with documents, not goods. ITA recommends L/Cs for higher-risk situations and new or less-established relationships when you are satisfied with the credit standing of the buyer's bank; the drawbacks are cost and paperwork, and one discrepancy lets the bank refuse the documents.

When you are paid depends on how the credit is available (UCP 600 Art. 2 and 6). At sight, the bank pays once it has complying documents. A usance credit, available by deferred payment or by acceptance of your draft, pays at maturity, for example 90 days after the B/L date. A credit available by negotiation lets a nominated bank buy your draft or documents, advancing, or agreeing to advance, the money before it is reimbursed.

A confirmed L/C adds the undertaking of a second bank, usually one in your country, to honour or negotiate a complying presentation; that bank confirms at the issuing bank's request or with its authorization (UCP 600 Art. 2 and 8). ITA suggests it when you are concerned about the foreign bank's credit standing or when political upheaval, economic collapse, devaluation or exchange controls could put payment at risk.

The documents usually include the commercial invoice, the transport document (for sea freight, normally the full set of original B/Ls), the insurance document on CIF or CIP, a packing list and certificate of origin if called for, and often a draft. Present them within 21 calendar days after shipment, unless the credit sets another period, and before expiry (UCP 600 Art. 14(c)); Triplicate's note on L/C discrepancies lists what banks refuse.

Documentary collections: D/P and D/A under URC 522

In a documentary collection your bank (the remitting bank) sends the shipping documents and usually a draft to a bank in the buyer's country (the collecting or presenting bank), which hands them to the buyer only against payment or acceptance. The ICC's Uniform Rules for Collections, URC 522, in force since 1 January 1996, apply when your collection instruction says so. Banks follow your instructions but do not guarantee payment, so collections cost less than L/Cs and protect you less.

• D/P (documents against payment, also called cash against documents): the buyer pays the draft at sight to get the documents. If the collection instruction does not say D/P or D/A, documents are released only against payment (URC 522 Art. 7).
• D/A (documents against acceptance): the buyer gets the documents by accepting a draft payable later, for example 60 days after the B/L date. From then on you hold an accepted draft, not the goods, which is close to open account with a written promise to pay.
• URC 522 also says goods should not be consigned to or to the order of a bank without its prior agreement (Art. 10), that banks need not protest an unpaid or unaccepted draft unless you instruct them to (Art. 24), and that if you send no instructions within 60 days after the presenting bank reports non-payment or non-acceptance, it may return the documents (Art. 26).

Open account, export credit insurance and factoring

On open account you ship the goods and send the documents directly to the buyer, who pays your invoice on an agreed date, usually 30, 60 or 90 days later. ITA calls it one of the highest-risk options for the exporter and one of the most advantageous for the importer, and recommends it for low-risk relationships and markets, or to win customers in competitive markets with finance tools such as export credit insurance or factoring.

Export credit insurance covers your foreign receivables against commercial risks, such as the buyer's insolvency, bankruptcy or protracted default, and political risks, such as war, currency inconvertibility or changes in import or export rules. ITA says short-term cover is typically 90 to 95%, usually below 100%, so you keep part of the loss, and claims can be denied if you did not meet the policy's requirements. Insured receivables also make lenders more willing to finance you. Private insurers sell it, as do public export credit agencies such as EXIM in the US, UK Export Finance (up to 95% of losses, where the private market is unwilling or unable to cover) and K-SURE in Korea (export contracts with credit periods of less than two years).

In export factoring a factor buys your short-term foreign receivables for cash at a discount, normally without recourse, so it takes the buyer's credit risk. ITA notes that factoring generally does not work for terms longer than 180 days, is generally more costly than credit insurance and is generally only available in developed countries.

How to write the payment term on the proforma invoice

Incoterms 2020 do not deal with the time, place, method or currency of payment, so FOB Busan says nothing about when you are paid. Write the payment term as its own line in the sales contract and on the proforma invoice, and repeat it on the commercial invoice; Triplicate's generator prints it next to the Incoterm on both.

State how much, how, in which currency and against what event each payment is due, which B/L or documents the buyer receives and when, the rules that apply (UCP 600 or URC 522) and who pays bank charges. Avoid "T/T 30 days" (30 days from what?), "D/P 60 days" (URC 522 Art. 7(a) says a collection should not combine a future-dated draft with release against payment) and a bare "L/C" that does not say sight or usance, or whether it is confirmed. Clear wordings look like this:

• T/T 100% in advance before shipment, in USD.
• 30% T/T deposit on order confirmation; 70% T/T balance against copy of B/L. Full set of original B/Ls (to order) released after receipt of full payment.
• Irrevocable documentary credit available at sight, confirmed by a bank acceptable to the seller, subject to UCP 600.
• Irrevocable documentary credit available by deferred payment at 90 days after B/L date, subject to UCP 600.
• D/P at sight, subject to URC 522.
• D/A 60 days after B/L date, subject to URC 522.
• Open account, 30 days from invoice date, by T/T.