Why Payment Terms Matter More Than Price
Negotiating 5% off your unit price means nothing if your supplier disappears with the deposit. Payment method is one of the most overlooked risks in international trade.
Letter of Credit (LC)
An LC is a bank guarantee: your bank promises to pay the supplier, but only when they present compliant shipping documents.
Best for: Large orders (£20,000+), new supplier relationships, high-risk markets
Buyer protection: High — bank verifies documents before releasing funds
Cost: 0.5–2% of transaction value (bank fees)
Lead time: 7–14 days to establish
The main risk: discrepancies in documents can delay payment and create disputes. Make sure your LC terms are clearly agreed before production starts.
Telegraphic Transfer (T/T / Wire Transfer)
The most common method. You wire money directly to the supplier's bank account.
Typical structure: 30% deposit before production, 70% on sight of Bill of Lading copy
Best for: Established relationships, repeat orders
Buyer protection: Low on the deposit; moderate on the balance (you hold back final payment until you see shipping docs)
Cost: £15–40 per transfer
Never pay 100% upfront to a new supplier, no matter what discount they offer.
Escrow
A neutral third party holds payment until both parties confirm the transaction is complete.
Best for: First orders, medium-risk markets, when LC is too expensive
Buyer protection: High — funds released only when you confirm receipt
Cost: 0.5–3% depending on platform
Platforms: Alibaba Trade Assurance, Ventiere Escrow (coming soon), Escrow.com
Open Account
You receive goods and pay later (30, 60, 90 days). Used only in long-established relationships.
Buyer protection: High for buyer, high risk for supplier
Best for: Buyers with strong credit history and long-term supplier partnerships
Documentary Collection (D/C)
Bank handles documents. Supplier ships goods and instructs their bank to send shipping documents to your bank, releasing them only on payment (D/P) or acceptance of a bill of exchange (D/A).
Cost: Lower than LC
Protection: Medium — bank controls documents but doesn't guarantee payment
Practical Recommendations
| Order Size | Supplier Relationship | Recommended Method |
|---|---|---|
| Under £2,000 | New | Escrow or Alibaba Trade Assurance |
| £2,000–£20,000 | New | T/T 30/70 + escrow for balance |
| £20,000+ | New | Letter of Credit |
| Any size | Established | T/T or open account |