T/T, L/C, D/P, D/A: which payment method, and what it changes.
The method decides when the supplier is paid, who is exposed, and how much the bank takes.
In short. Telegraphic transfer, letter of credit, documents against payment and documents against acceptance — when the supplier is paid, who carries the risk, what the bank charges, and how documents move.
| Method | When supplier is paid | Who carries risk | Bank cost | How documents move | Typical use |
|---|---|---|---|---|---|
| T/T — telegraphic transfer | Per agreed trigger (advance, B/L copy, net days) | The side that performs first | Low | Directly between parties | Established relationships |
| L/C — letter of credit | On compliant presentation (sight) or at term (usance) | Bank, if documents comply | High: issuance, advising, negotiation, discrepancy fees | Through banks; any discrepancy = rejection | New relationships, large orders |
| D/P — documents against payment | When the buyer pays to collect documents | Supplier | Medium | Through banks | Medium trust |
| D/A — documents against acceptance | At maturity of the accepted bill | Supplier (higher) | Medium | Through banks | Trusted buyers wanting credit |
T/T: the common case
Most ingredient trade between established partners runs on T/T with a split: 30% advance, 70% against a copy of the bill of lading, or net 30/60/90 from the B/L or invoice date. The risk sits with whoever moves first — the buyer on the advance, the supplier on the balance — which is why the split exists.
L/C: safe, slow, expensive
A letter of credit makes the buyer's bank the payer, provided the documents match the credit exactly. “Exactly” is the catch: a misspelt consignee, a late shipment date or a missing signature is a discrepancy, and discrepancies cost fees and days. L/Cs suit first orders and large values; they punish suppliers whose documents are not immaculate.
D/P and D/A: the bank as postman
Under documents against payment the bank releases the shipping documents — and so the goods — only when the buyer pays. Under documents against acceptance the buyer accepts a bill of exchange and gets the documents now, paying at maturity. Both leave the supplier exposed if the buyer walks away with the goods already at the port.
In Pacifica the method changes the order page. T/T advance → an “advance received” gate before production. L/C → L/C number, issuing bank, expiry, latest shipment date, and warnings (“L/C not received”, “latest shipment date in 7 days”, “documents must match the L/C”). D/P → the documents stage reads “sent to bank” and the buyer is reminded to pay before arrival.
Questions
What does 30/70 T/T mean?
30% of the order value is paid in advance (usually before production) and 70% later, commonly against a copy of the bill of lading or within a net period after it.
Is an L/C safer for the buyer or the seller?
Both, in different ways: the seller is paid by a bank once documents comply; the buyer knows nothing is paid until shipment is evidenced. The cost is bank fees and the risk of discrepancies.
What is a discrepancy?
Any difference between the documents presented and what the letter of credit requires. The bank may refuse payment until the buyer waives it, usually for a fee.
What's the difference between D/P and D/A?
D/P: the buyer pays to receive the documents. D/A: the buyer accepts a bill of exchange, receives the documents, and pays at maturity.
Related
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