Payment methods in international trade

Choosing the right payment method balances risk between buyer and seller. Here are the most common options ranked from safest for the seller to safest for the buyer.

Cash in Advance (T/T Prepayment)

The buyer wires payment before shipment. Safest for the seller; riskiest for the buyer who must trust the seller to deliver. Common for first-time deals with small order values.

Letter of Credit (L/C)

A bank guarantees payment if the seller presents compliant documents. Balanced risk. Preferred for high-value transactions or new trading relationships.

Documentary Collection (D/P or D/A)

The seller's bank forwards shipping documents to the buyer's bank with instructions to release them against payment (D/P) or acceptance of a draft (D/A). Less expensive than an LC but offers no bank guarantee.

Open Account (Net 30/60/90)

The seller ships and invoices; the buyer pays later. Safest for the buyer; riskiest for the seller. Used between established partners with trust.

Choosing on Faktorist

When creating a tender or RFQ, specify your accepted payment methods. Faktorist displays a risk indicator next to each option to help both parties negotiate informed terms.