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Payment terms in international trade

Sending money to a supplier you have never met, or shipping goods before you are paid, is the scariest part of trading abroad. Here is how businesses actually manage that risk.

General information to help you understand your options. Not financial or legal advice.

Why payment terms matter so much

In a domestic sale, if something goes wrong you can usually visit the other party or use familiar courts. In an international deal, your buyer or supplier might be on the other side of the world, under different laws, and someone you have never met in person. Payment terms exist to manage that trust gap.

Every method balances the same tension: the buyer wants to pay only after receiving the goods, and the seller wants to be paid before releasing them. The terms you choose decide who carries that risk, and for how long.

The main methods, tap to expand

T/T
Telegraphic Transfer
A direct bank wire. Simple and fast, but offers little protection. Usually used with a trusted, repeat partner, or split as a deposit plus balance.
L/C
Letter of Credit
A bank guarantees payment to the seller once agreed documents are presented, proving the goods were shipped as promised. Strong protection for both sides, but paperwork must be precise or the bank can refuse payment.
D/P
Documents against Payment
The buyer's bank releases shipping documents, and with them the ability to collect the goods, only once the buyer pays. The seller keeps control until payment lands.
D/A
Documents against Acceptance
Similar to D/P, but the buyer gets the documents by promising to pay later, on an agreed date. More trust required from the seller, since goods can be collected before payment is made.
Open Account
Pay later, on trust
The seller ships first and invoices for payment at a later date, often 30 to 90 days. Common between established partners, risky with a new one.
Advance Payment
Pay before shipment
The buyer pays some or all of the price before the goods ship. Safest for the seller, riskiest for the buyer, who is trusting the goods will actually arrive.

Where the risk sits

MethodSafer forTypical use
Advance paymentSellerNew or small buyers
Letter of CreditBoth sidesLarger, unfamiliar deals
Documents against PaymentSellerModerate trust, established banks
Documents against AcceptanceBuyerTrusted, repeat relationships
Open accountBuyerLong-standing partners
A common middle ground: a split payment, for example 30% deposit by T/T before production and 70% before shipment, shares the risk without the cost and complexity of a Letter of Credit.

Choosing the right terms

  • First deal with a new partner? Lean towards advance payment, a Letter of Credit, or a split deposit, don't extend full trust immediately.
  • Established, repeat relationship? Open account or Documents against Acceptance become reasonable as trust builds.
  • Large or high-value order? A Letter of Credit is worth the extra cost and paperwork for the protection it gives both sides.
  • Small, lower-risk order? A straightforward T/T split is often enough.

Protecting yourself either way

  • Verify who you are dealing with. Confirm business registration and reputation before sending money or shipping goods.
  • Get it in writing. Price, quantity, quality, and payment terms should all be in a signed agreement, not just messages.
  • Use your bank as a checkpoint. Letters of Credit and documentary collections exist precisely to put a bank between you and the risk.
  • Start small. A smaller first order tests the relationship before you commit to bigger terms and bigger sums.
The takeaway: there is no single right answer, the right payment term depends on how well you know the other side. Start cautious, and let trust earn easier terms over time.

Not sure what terms to offer or accept?

Tell us about the deal and the relationship, and we will help you think through the right payment structure.

Ask us