Question 1

What is the difference between T/T, L/C, and D/P payment terms?

Accepted Answer

T/T (Telegraphic Transfer) is a direct bank wire transfer where funds move between accounts. L/C (Letter of Credit) is a bank-guaranteed payment method where the issuing bank commits to pay the seller upon presentation of compliant documents. D/P (Documents against Payment) requires the buyer to pay at sight to receive shipping documents from the collecting bank. T/T offers flexibility but varying risk levels, L/C provides highest security with more complexity, and D/P sits in the middle for cost and risk.

Question 2

Which payment method is safest for international trade transactions?

Accepted Answer

A confirmed Letter of Credit (L/C) is generally the safest payment method for both buyers and sellers in international trade. The issuing bank and confirming bank both guarantee payment, significantly reducing counterparty risk. For sellers, advance T/T (100% before shipment) is also very safe but rarely accepted by buyers. D/P offers moderate protection since documents are only released upon payment, but carries country and bank risk.

Question 3

How do bank charges compare between T/T, L/C, and D/P?

Accepted Answer

T/T typically costs $25-$50 per transfer in wire fees, making it the most economical option. L/C charges are significantly higher, usually 1-2% of the transaction value, with additional amendment fees of $50-$100 per change and document examination fees. D/P collection charges range from $50-$150 per transaction plus small percentage fees. For a $100,000 shipment, T/T might cost $50 total, D/P around $200, while L/C could cost $1,500-$2,500 or more.

Payment Terms Comparator

Transaction Details

T/T (Telegraphic Transfer)

L/C (Letter of Credit)

D/P (Documents against Payment)

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