T/T vs L/C: payment terms for international construction material imports

You have a supplier quote you like. The factory asks for 30 percent down, balance before shipment. Your sourcing partner suggests a letter of credit instead. Your freight forwarder says most buyers just do T/T. Your finance team wants to know what the difference actually is.

The difference is who carries the risk: and for how long.

TL;DR

• T/T (wire transfer) is faster, cheaper, and used on the vast majority of construction material deals. The risk is yours.
• L/C (letter of credit) shifts payment risk to the bank. It costs roughly 1 to 2 percent of the transaction value and adds two to three weeks of setup time. That fee belongs in your landed cost calculator before you compare the L/C path to a T/T deal.
• For orders under $50,000 with a verified factory, T/T with a 30/70 structure is standard and reasonable. For large first-time orders or politically sensitive supply chains, L/C is worth the cost.

How T/T actually works

T/T stands for telegraphic transfer: the wire transfer you already know. In international construction material deals, the standard structure is:

• 30% deposit wired before the factory starts production
• 70% balance wired when the factory sends you photos of the finished goods ready to ship, or when they present the bill of lading

Some factories will negotiate 40/60. For a very established relationship, a few will accept 50/50. First-time orders almost always require the 30/70 split at minimum: factories have been burned by buyers who disappear after placing an order and need the deposit to justify starting production.

Advantages of T/T:

• No bank setup fees or documentary credit fees
• Fast: wire clears in 1 to 3 business days
• Simple: no document compliance requirements on either side
• Universally accepted by factories worldwide

Disadvantages of T/T:

• Deposit is at risk if the factory fails to perform
• Disputes resolved outside banking system: you rely on contract, relationship, or legal action
• No bank verification of shipping documents

How L/C actually works

A letter of credit is a commitment from your bank (the issuing bank) to pay the factory's bank (the advising or confirming bank) a specific amount: provided the factory presents a defined set of shipping documents that prove the goods were shipped according to the contract.

The documents typically required include the bill of lading, commercial invoice, packing list, certificate of origin, and sometimes an inspection certificate or quality report.

The factory gets paid when the documents are correct. Not when the goods arrive. Not when you inspect them. When the documents match the L/C terms.

Advantages of L/C:

• Bank verifies shipping documents before payment releases
• Factory knows payment is guaranteed if they comply: can reduce their price slightly
• Strong legal framework (UCP 600) governs L/C disputes internationally

Disadvantages of L/C:

• Bank fees commonly range from 0.5 to 1.5 percent of the transaction value, split across issuance, advising, and amendment fees
• Setup typically adds 2 to 3 weeks to your timeline
• Document discrepancies are common and can delay payment: the slightest mismatch between the L/C terms and the shipping documents triggers a discrepancy that requires a waiver or amendment
• Does not protect you if the goods are shipped but off-spec: the bank pays on documents, not on quality

The real limitation of L/C that most buyers miss

An L/C protects you from the factory not shipping at all, or shipping with fraudulent documents. It does not protect you from receiving goods that do not match your specifications.

If the factory ships 10,000 square meters of tile that is the wrong color, the wrong thickness, or fails anti-slip testing: the bank still pays if the documents are technically correct. The L/C says nothing about quality. That is what pre-shipment inspection is for.

Which one to use: the decision framework

A practical note on T/T 30/70 vs 50/50

Most buyers try to negotiate 50/50: half before production, half before shipment: thinking it is safer than 30/70. It is not necessarily safer, and it often creates friction with factories.

The factory's cost to produce your order is typically front-loaded. Raw materials and labor happen before shipment. A 30 percent deposit covers a meaningful portion of those costs. A 50 percent deposit sounds more balanced to a Western buyer but can actually signal inexperience to a factory that has been doing export deals for twenty years.

The better negotiation is not about the split. It is about adding clear conditions to the balance payment: balance due upon presentation of a clean bill of lading and pre-shipment inspection certificate. That gives you a document-based trigger for your final payment without changing the structure the factory is used to.

How Nexo handles payment on your behalf

When Nexo manages a sourcing deal, we structure payment to balance the factory's requirements with your protection. For most deals we recommend T/T 30/70 with a mandatory pre-shipment inspection as a condition of the balance payment.

For deals over $100,000 or with first-time factory relationships, we assess whether an L/C is warranted and handle the documentary requirements on your side. Before you commit either way, you can compare with your current domestic quote to know whether the deal even justifies the bank-fee tradeoff.

Talk to us about your next project and we will walk you through the payment structure that makes sense for the specific deal.