A letter of credit (LC) is the most secure option for both sides: a bank promises to pay the seller when compliant shipping documents are presented. Cash against documents (CAD) is cheaper: the documents travel through banks and are released to the buyer only on payment. Telegraphic transfer (TT) is a plain bank transfer, and paying by TT in advance puts all the risk on the buyer. For a first order with a new seller, use an LC or CAD.
This guide compares the three for palm oil and rubber trade. It is part of our guide to buying commodities from West Africa.
At a glance
| Item | Letter of credit | Cash against documents | TT in advance | TT against documents |
|---|---|---|---|---|
| Buyer pays | When documents comply | When documents arrive at buyer's bank | Before shipment | On receipt of copy documents |
| Buyer's risk | Low | Low to medium | High | Medium |
| Seller's risk | Low | Medium (buyer may not pay) | None | Medium to high |
| Bank cost | Highest | Moderate | Lowest | Lowest |
| Paperwork | Strict | Moderate | Minimal | Minimal |
| Rules | ICC UCP 600 | ICC URC 522 | None | None |
Letter of credit
The buyer's bank issues an LC in favour of the seller. The LC lists the documents the seller must present, such as the bill of lading, invoice, certificate of analysis and certificate of origin. When the seller presents documents that comply, the bank pays.
- Confirmed LC: a second bank, often in the seller's region or a major financial centre, adds its own promise to pay. This protects the seller against the issuing bank's risk.
- At sight or usance: at sight means payment on presentation. Usance means payment after an agreed period, which gives the buyer credit.
What to watch: LCs are paid on documents, not goods. A small error, such as a misspelt port name, can make documents "discrepant" and delay payment. Write the LC terms carefully and in line with the contract. The LC also only protects you if the documents prove what you need, so require an independent certificate of analysis.
Cash against documents (CAD)
Also called documents against payment (D/P). The seller ships and hands the documents to its bank. That bank sends them to the buyer's bank, which releases them to the buyer only when the buyer pays. Without the original bill of lading, the buyer cannot take the cargo.
For the buyer: you pay only when the documents are in your bank's hands. Check them carefully before paying.
For the seller: if the buyer refuses to pay, the cargo is at destination and the seller must find another buyer or bring it back. That is why sellers often ask for a deposit with CAD.
CAD is common in regional trade and for repeat business between parties who know each other.
Telegraphic transfer (TT)
A TT is a bank transfer. What matters is when it is paid.
- TT in advance: the buyer pays before shipment. Suitable only with a trusted, long-standing seller, or for a small deposit.
- TT against copy documents: the buyer pays when it receives scans of the shipping documents, then the seller releases the originals. Common between established partners.
- Split terms: for example a deposit by TT, balance against documents.
Most commodity frauds rely on TT in advance. See commodity trade scams.
Which to use
- First order with a new seller: LC at sight, or CAD with a small deposit
- Established relationship, regular shipments: CAD or TT against documents
- Very small sample shipments: TT is often practical, for a value you can afford to lose
Our own payment terms are flexible: letters of credit and payment after delivery are both possible, agreed per contract depending on the buyer, volume and destination.
Documents your payment should depend on
Whatever the method, tie payment to these documents:
- Full set of original bills of lading
- Commercial invoice
- Certificate of analysis from the named surveyor
- Weight or quantity certificate
- Certificate of origin
- EUDR data package, for EU destinations
See export documents explained. The contract should list the same documents. Our sales contract checklist covers how payment, documents and claims fit together.