One of the first questions a buyer faces when starting a new cross-border relationship is how to structure payment. Should you open a Letter of Credit (L/C) or use Telegraphic Transfer (T/T)? The answer depends on the relationship, the transaction size, and your appetite for documentation overhead.

A Letter of Credit is a bank-backed guarantee: your bank promises to pay the seller once the required documents (bill of lading, invoice, packing list, certificate of origin, inspection certificate) are presented in conformity with the L/C terms. For a first-time transaction with a new supplier, an L/C provides strong protection — you pay only when the documents prove the goods have been shipped.

The downside: L/Cs are expensive. Bank charges typically range from 0.5% to 2% of the transaction value, plus amendment fees and confirmation charges if the seller requires a confirmed L/C. The documentation requirements must be followed precisely — even minor discrepancies (a comma in the wrong place, an expired validity date) can result in the bank refusing payment, leaving the seller unpaid and you with delayed goods.

Telegraphic Transfer (T/T) is simpler: you wire funds directly to the seller's account. For established relationships, T/T is the norm — often structured as a deposit (typically 30% with the order) and the balance against shipping documents or on BL date. The advantages are speed, lower cost, and flexibility. The risk is that you have paid before receiving the goods.

For first-time imports from a new European supplier, we recommend starting with an L/C. The extra cost is insurance against the unknown. After two or three smooth transactions, you can transition to a T/T structure — starting with 30% deposit / 70% against BL, and progressing to full T/T against documents as trust builds.

Common L/C discrepancies to watch for: (1) late presentation of documents beyond the L/C expiry or presentation period; (2) bill of lading not marked 'clean on board' or not issued in the required number of originals; (3) insurance document not covering the required risks or not endorsed correctly; (4) invoice description of goods not matching the L/C wording exactly.