Import & Export Payment Terms: LC, T/T, D/P, D/A & CAD

The safest way to manage import-and-export-payment-terms is to match the payment method to the real risk: counterparty reliability, country/bank risk, document complexity, and cash-flow needs. In practice, LC reduces non-payment risk, T/T is fastest but trust-dependent, and D/P, D/A, CAD sit in the middle—balancing speed, cost, and control through documents. International payments are rarely “just a bank transfer.” The term you choose decides:

• Who carries the risk (buyer, seller, or bank)
• When cash moves (before shipment, on shipment, on documents, or later)
• How disputes get handled (documents vs. goods)
• Total landed cost (fees, financing, delays, and discrepancy costs)

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Payment terms at a glance (fast comparison)

Term	What it means	Best for	Seller risk	Buyer risk	Typical speed	Typical cost
LC (Letter of Credit)	Bank pays if compliant documents are presented	New buyers, larger values, higher-risk markets	Low–Medium	Medium	Medium	Higher
T/T (Wire Transfer)	Direct bank transfer (advance, partial, or after shipment)	Repeat business, simple shipments	Medium–High	Medium–High	Fast	Low
D/P (Documents vs Payment)	Buyer gets documents only after paying	Moderate trust, commodity-style trade	Medium	Medium	Medium	Medium
D/A (Documents vs Acceptance)	Buyer gets documents after accepting a time draft	Buyers needing credit terms	High	Low–Medium	Medium	Medium
CAD (Cash Against Documents)	Documents released to buyer against payment via banks	Similar space as D/P; controlled release	Medium	Medium	Medium	Medium

Practical rule: If you can’t comfortably lose the invoice amount, don’t rely on “trust-only” terms.

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LC (Letter of Credit): the “document-first” safety net

An LC is a bank’s written promise: if the seller presents the required documents exactly as stated, the bank pays—regardless of any later arguments about the goods.

When an LC is the best choice

• First-time buyer or new market
• High shipment value
• Political/country risk or FX controls
• Complex logistics (transshipment, partial shipments, multiple documents)
• You need bank-backed assurance to ship

Mini tutorial: how to structure an LC that actually works

Most LC pain comes from unrealistic document conditions. Use this workflow:

1. Start from your shipping reality
   • What can your freight forwarder actually issue (B/L type, dates, consignee fields)?
   • Can your inspection provider deliver certificates in time?
2. Keep the document set minimal
   • Commercial invoice
   • Packing list
   • Bill of lading / airway bill
   • Certificate of origin (if required)
   • Insurance certificate (only when needed)
   • Inspection certificate (only if genuinely enforceable)
3. Choose the right payment style
   • At sight: bank pays after compliant documents
   • Usance/term: bank pays later (e.g., 30/60/90 days) — better for buyer cash flow
4. Add protection where it matters
   • Confirmed LC if you worry about issuing bank/country risk
   • Clear rules on bank charges (who pays what)
   • Realistic presentation period (enough time to submit documents after shipment)

Example: LC vs. a costly “discrepancy trap”

A seller ships on time but the LC demands “Inspection Certificate issued by Buyer’s agent at port of discharge within 24 hours of arrival.” That condition is outside the seller’s control, and payment can be delayed or refused. Fix: require an inspection certificate at origin by a recognized third party, or remove the condition entirely. Pro tip: LCs don’t guarantee “good goods.” They guarantee “good documents.” Build your quality controls into the contract and inspection plan.

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T/T (Telegraphic Transfer / wire): fastest, but trust-dependent

T/T is the most common international payment method because it’s simple and fast. But it shifts risk depending on timing.

Common T/T structures (and what they really mean)

Structure	What happens	Why it’s used	Risk hotspot
100% advance	Buyer pays before production/shipment	Rare goods, tight supply	Buyer risk
30/70	30% deposit, 70% before shipment or before documents	Balances working capital	Disputes on “ready to ship”
Against copy docs	Buyer pays after receiving scanned documents	Speed + some control	Seller can lose leverage
After delivery (open account-like)	Buyer pays after receipt	Strong buyer power	Seller risk

Mini tutorial: safer T/T for both sides (simple clause logic)

If you must use T/T, use milestones that align with real proof:

• Deposit on order confirmation
• Balance on “evidence of shipment” (e.g., a shipping release or a transport document number)
• Optional: holdback (5–10%) released after clean arrival/inspection

This reduces the classic fight: “We shipped” vs. “We don’t see it / documents are wrong.”

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D/P (Documents Against Payment): controlled release, moderate cost

With D/P, banks handle documents under a collection process:

• Seller ships goods
• Seller’s bank sends documents to buyer’s bank
• Buyer pays
• Buyer receives documents to clear the goods

When D/P fits well

• Buyer is known, but you still want document control
• The cargo is standard and resellable
• You want a middle ground between LC and pure T/T

Real-world scenario

A seller ships industrial materials to a buyer in a market where importers sometimes delay payment. Using D/P ensures the buyer can’t clear the cargo without paying. Watch-out: if the buyer refuses to pay, the goods may sit at port and storage fees can snowball. Always plan your “Plan B” (reroute, resell, return, or local agent support).

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D/A (Documents Against Acceptance): credit terms that can bite sellers

With D/A, the buyer signs (accepts) a time draft promising to pay later (e.g., 60 days). The buyer gets documents immediately after acceptance—before paying.

When D/A makes sense

• You’re competing in a market where buyers demand credit
• Buyer has strong credit profile and verifiable payment behavior
• You can price the credit cost into the deal

How professionals reduce D/A risk

• Set a credit limit by buyer and country
• Add late-payment interest and clear dispute windows
• Use trade credit insurance (common in many industries)
• Consider factoring/forfaiting to convert receivables to cash
• Tie D/A to repeat business (you earn the privilege)

Plain truth: D/A is effectively selling on credit. Treat it like lending.

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CAD (Cash Against Documents): practical, bank-handled control (often similar to D/P)

CAD usually means the buyer pays through the banking channel to obtain documents—often resembling D/P collections in how it works operationally.

Where CAD shines

• You want bank-handled document release
• You don’t want the cost/complexity of an LC
• The trade is repeatable and documentation is straightforward

Operational tip

If your shipment could incur high port storage, pre-agree what happens if the buyer delays:

• Who pays demurrage/detention
• Who can instruct the carrier
• Whether you can switch the consignee if payment stalls

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How to choose import-and-export-payment-terms (decision framework)

Use this decision map to choose quickly without guessing.

Step 1: Score your deal risk (10-minute method)

Give each factor a score: Low / Medium / High

• Buyer relationship (new vs repeat)
• Country/bank risk
• Shipment value (material to your cash flow?)
• Product resellability (easy to redirect or not?)
• Document complexity (many conditions = more failure points)
• Time pressure (tight delivery windows increase dispute risk)

Step 2: Match the term to the risk profile

Risk profile	Recommended starting point	Upgrades/downgrades
High	Confirmed LC	Add tighter document set, at-sight payment
Medium–High	LC or D/P/CAD	Consider partial advance + D/P
Medium	D/P/CAD	Add deposit, shorten payment window
Low	T/T milestones	Add holdback + clear acceptance criteria

Step 3: Decide “who finances what”

• If the buyer needs credit, D/A or usance LC can work—but price it in.
• If you need working capital, prefer deposit + LC, or discounting with reputable banks.

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Negotiation playbook: clauses that prevent payment fights

Add these “small lines” to avoid big losses:

• Payment trigger definition: what exactly counts as “shipment” or “documents presented”
• Bank charges: state who pays issuing, advising, confirmation, and reimbursement fees
• Discrepancy handling: who pays discrepancy fees, and how quickly issues must be raised
• Partial shipments & transshipment: allowed or not (and reflect it in the term)
• Document tolerance: realistic date windows, quantities, and invoice tolerances
• Currency & FX: who carries FX risk between order and payment date
• Compliance clause: sanctions/AML checks can delay funds—plan for it
• Dispute window: a clear timeframe for claims (don’t leave it open-ended)

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Common mistakes (and how to avoid them)

Mistake 1: Overcomplicating LC conditions

Fix: use a minimal, controllable document set. Every extra certificate increases discrepancy risk.

Mistake 2: Treating D/A like “almost safe”

Fix: price it like credit, insure it if needed, and cap exposure.

Mistake 3: Using T/T without milestones

Fix: tie payments to objective, verifiable events and keep proof requirements realistic.

Mistake 4: Ignoring logistics costs if payment stalls

Fix: pre-assign detention/demurrage responsibility and decision rights (reroute/resell/return).

Mistake 5: Not aligning payment terms with Incoterms and shipment flow

Fix: ensure the party responsible for freight/insurance can actually produce the documents required for the chosen term.

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Executive Summary & Practical Checklist

Quick checklist before you sign

• Is this a new buyer or a proven payer?
• Can you survive a 60–90 day delay without harming operations?
• Is the cargo easy to redirect/resell if the buyer refuses payment?
• Are your required documents fully under your control?
• Did you define who pays bank charges and what happens on discrepancies?
• Do you have a Plan B for port storage, rerouting, or local resale?
• If offering credit (D/A or usance), did you set limits and price the risk?
• Are compliance and sanctions delays addressed in timelines?

Final takeaway

The “best” term is the one that keeps goods moving and keeps your cash safe. Use bank-backed tools (LC) when risk is high, use document-controlled methods (D/P/CAD) for balanced deals, and reserve pure T/T convenience for relationships that have earned it—especially when setting import-and-export-payment-terms.

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FAQ

1) Is an LC safer than D/P or CAD? Yes—an LC adds a bank’s payment undertaking if documents comply, while D/P and CAD mainly control document release and don’t guarantee payment if the buyer refuses. 2) What’s the biggest reason LCs fail in real transactions? Document discrepancies: conditions that are unclear, unrealistic, or outside the seller’s control. Simplifying requirements usually improves payment success. 3) Can D/A be safe for exporters? It can be manageable with strong buyer credit, clear limits, and risk tools like credit insurance or receivables financing—but it remains credit exposure. 4) Should I use T/T for first-time buyers? If you do, use deposits and milestone-based balances tied to objective proof of shipment. For higher risk or larger values, an LC is usually a better start. 5) Do these payment terms replace a solid sales contract? No. Payment terms manage money flow and leverage; a contract defines quality, claims, inspection, and dispute resolution—critical for avoiding “documents vs. goods” conflicts.

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Sources

• International Chamber of Commerce (ICC) — the primary global rulemaker for documentary credits and collections used in LC and CAD/D/P structures. ICC
• SWIFT — the global standard for bank-to-bank financial messaging that underpins many trade finance workflows. SWIFT
• World Trade Organization (WTO) — authoritative references on global trade rules, procedures, and trade facilitation context. WTO
• World Bank — research and reports on trade finance access, risk, and market frictions that shape payment-term decisions. World Bank
• International Trade Centre (ITC) — practical guidance for exporters/importers on trade processes and market practices. ITC