Guide to Payment Methods for International Maritime Trade: Application of Remittance and Letters of Credit in Logistics

I. Major Payment Methods in International Trade

In international trade and cross-border logistics, choosing the appropriate payment method is crucial for ensuring transaction security. Common payment methods include:

• Telegraphic Transfer (T/T) — A telegraphic transfer is when the buyer remits payment directly to the seller's account through a bank. T/T can be divided into advance T/T (payment before shipment) and deferred T/T (payment after shipment). Advance T/T favors the seller, while deferred T/T favors the buyer.
• Letter of Credit (L/C) — A written guarantee issued by a bank based on the buyer's application, promising to pay the seller after the seller presents documents conforming to the L/C terms. L/C is one of the most reliable payment methods in international trade.
• Documents against Payment (D/P) — After shipping the goods, the seller presents the documents to the bank. The buyer can only obtain the shipping documents after making payment.
• Documents against Acceptance (D/A) — The buyer obtains the shipping documents after accepting the draft and pays at a later maturity date.

II. Relationship between Payment Methods and Logistics Documents

Payment methods directly affect the operational process of logistics documents:

• L/C Settlement — A Bill of Lading (B/L) must be used as the transport document because it serves as a document of title. A Sea Waybill (SWB) cannot be used for L/C settlement.
• T/T Settlement — When mutual trust exists, a Sea Waybill can be used to simplify the cargo release process, eliminating the need to wait for the original B/L to be mailed.
• Telex Release — Under T/T settlement, the shipper can instruct the shipping company to telex release the cargo after receiving payment. The consignee picks up the goods upon presenting identification.

III. Risk Control Recommendations

Shippers should consider the following risk control measures when selecting a payment method:

1. Know your counterparty — For first-time transactions, using a Letter of Credit is recommended. For long-term cooperative clients, T/T may be considered.
2. Control title to goods — Before receiving the full payment, control the delivery of documents of title, such as the Bill of Lading (B/L).
3. Select a reliable freight forwarder — Appoint a dependable freight forwarder to avoid losing control of the goods due to collusion between the forwarder and the buyer.
4. Purchase credit insurance — For large-value transactions, consider purchasing export credit insurance to mitigate the risk of buyer default.

Bofeng Logistics can provide professional international shipping and documentation services, assisting clients in completing cross-border trade logistics processes safely and efficiently.