A new supplier wants an advance, but your business cannot comfortably risk the whole order. Someone suggests a letter of credit instead of T/T. That changes the payment structure, not the need to verify the supplier or agree a usable specification. Before asking for a bank instrument, work out which risk you want it to address and whether the supplier can meet its documentary conditions.
This is a fictional, generalised purchasing situation, not an actual customer case. This article is general information, not legal, tax or investment advice. Availability and terms depend on the banks, parties and transaction.
Separate a bank transfer from a bank undertaking
T/T in a supplier quotation usually means bank transfer, with the purchase agreement setting the deposit and balance dates. The buyer instructs each transfer. The bank does not become responsible for the seller completing production simply because the transfer includes an invoice reference.
A documentary letter of credit involves an issuing bank's undertaking to honour a complying presentation under its terms. The required documents and applicable rules matter. Ask your bank to explain the proposed instrument, including whether another bank would add confirmation and what that would change. Do not assume every offer labelled a letter of credit has identical protection.
Know what documents cannot prove
As the ICC documentary-credit explainer explains for credits subject to its rules, banks examine documents, not the goods themselves. A complying presentation can trigger payment even if the buyer later disputes quality. If inspection evidence is part of your plan, discuss the required certificate, issuer and timing with your bank before the credit is issued.
Avoid broad conditions such as payment only for satisfactory goods without defining a workable documentary requirement. The invoice comparison explains why an invoice title is not evidence of inspection or delivery. Your purchasing contract still needs specifications, remedies and a dispute process appropriate to the order.
Ask the bank for the whole cost and commitment
For a small importer, charges and administration can weigh heavily on a modest purchase. Request the fees for issuance and any relevant advising, confirmation, document handling or amendments. Ask about collateral or credit approval, currency, validity and what happens if the supplier presents discrepant documents.
Compare that proposal with the cost and exposure of a negotiated transfer schedule. Do not invent a universal order-value threshold for choosing a letter of credit. Your bank's terms, the supplier's willingness and your cash constraints determine whether the structure is practical for this purchase.
Check whether the supplier can operate the credit
Ask the supplier to review the proposed documentary requirements with its bank before issue. Required shipping dates, document descriptions and presentation deadlines need to be achievable. A mismatch between the purchase contract and the credit can lead to amendments or document discrepancies at the point when the goods are already moving.
Agree who prepares each document and who reviews the draft terms internally. Keep amendments visible to purchasing and finance. An apparently helpful change can alter the payment conditions; do not let an email request become a bank instruction without approval from the person responsible for the order.
Compare T/T milestones on their own merits
With a transfer schedule, negotiate how much is paid upfront and what releases the balance. A repeat supplier, independently reviewed samples and a clear inspection milestone can inform your decision, but none guarantees performance. Keep the amount at risk within what your business has consciously approved.
The T/T terms guide compares common deposit splits. If the seller wants full prepayment for a new production order, the relevant question is whether you can accept that exposure, not whether the transfer method is familiar. You may decide to change the order, negotiate or decline it.
Keep the payment service role separate
A service arranging invoice payment is not automatically providing a letter of credit, escrow or purchase protection. If your business proposes stablecoin funding for a bank payout, confirm that arrangement separately from the supplier's purchase terms. Do not describe the funding method as security for delivery.
Use pay an invoice to ask A2vanta about documents and a quote for the proposed invoice payment, not to assume it issues bank instruments. For a documentary credit, speak to your bank and relevant advisers. Keep the chosen payment structure, approved terms and outstanding risks in the purchase file so finance knows what it is authorising.