What Is the Difference Between T/T and L/C for Importers?
When importing goods for the first time—especially apparel or consumer products—one of the earliest decisions you face is how to pay your supplier. Two terms appear in almost every quotation and proforma invoice: T/T and L/C. They are not just banking jargon. They determine who controls the money, when the supplier gets paid, how much you pay in fees, and what kind of risk you actually carry. Understanding the difference between Telegraphic Transfer (T/T) and Letter of Credit (L/C) is essential for protecting cash flow and avoiding unnecessary delays.
What Is T/T (Telegraphic Transfer)?
T/T is the simplest way to pay a supplier: you send money by bank wire from your account to theirs. It moves fast and costs less than most bank-backed methods. The main idea is control through your process, not through bank documents. Because banks only move funds, your safety comes from vetting the supplier and tying payments to clear milestones.
=> Related Article: What Is T/T (Telegraphic Transfer)?
Definition
T/T is a direct international bank transfer from the importer’s bank account to the supplier’s bank account. This part sets the base meaning of T/T in one clean line. It tells you the payment is direct and bank-to-bank. It also makes it clear the method itself does not “check” your goods or your deal. Once you accept this, you stop expecting protection from the bank and start building protection in your contract and inspections.
How T/T Works
This factor explains the step flow: agree terms, send money, supplier receives it, done. It is designed to be quick and low-friction. Because it is straightforward, it is easy to repeat for deposit and balance payments. The real lever here is when you send each transfer, not how the bank reviews paperwork.
- Importer and supplier agree on payment terms (commonly 30% / 70%).
- Importer sends payment by wire transfer.
- Funds arrive in the supplier’s account.
- Transaction is complete.
Banks act only as money carriers, not as guarantors.
Key Characteristics of T/T
This section highlights what makes T/T attractive: speed and lower fees, with fewer moving parts. It also signals the trade-off: payment is not “conditional” on bank document checks. In practice, T/T works best when you use business controls like inspections and clear approval points. Think of it as simple rails that require discipline
- Unconditional payment
- Fast (1–3 business days)
- Low cost
- Based on commercial trust and control, not documents
Typical T/T Structure in Apparel
This factor shows how apparel importers reduce risk with a common split, such as deposit then balance after inspection. It ties payment to what you can actually verify, like a pre-shipment inspection and a quality report. That keeps production moving while still holding leverage before shipment release. The goal is not perfection it’s manageable risk with usable control points.
- 30% deposit before production
- 70% balance after:
- Pre-shipment inspection (PSI)
- Approval of quality report
This structure limits risk while keeping production moving.
What Is L/C (Letter of Credit)?
An L/C is a bank promise to pay, but only if the supplier presents documents that match the L/C terms exactly. It shifts control toward banks and paperwork review. This can reduce some payment risks, yet it does not prove your real goods are correct. The key mindset change: banks deal in documents, not the physical shipment.
=> Related Article: What Is a Letter of Credit (L/C)?
Definition
An L/C is a bank-issued payment guarantee. The importer’s bank promises to pay the supplier only if the supplier submits documents that exactly match the L/C terms. This factor defines L/C as conditional payment backed by a bank. It stresses that the condition is document accuracy, not product reality. That single point matters because many importers assume “bank guarantee” equals “quality guarantee.” The definition resets expectations so you choose L/C for the right reason.
How L/C Works
This section walks through the L/C chain: issuance, shipment, document presentation, bank checking, then release of funds. It shows why L/C can feel safe but also slow. Each extra condition creates more review time and more chances of mismatch. The process rewards precision writing and careful document control.
- Importer applies to open an L/C at their bank.
- Bank issues L/C with detailed conditions.
- Supplier ships goods.
- Supplier submits documents to their bank.
- Banks review documents line by line.
- Payment is released only if documents are perfect.
Banks deal in documents, not physical goods.
Key Characteristics of L/C
This factor summarizes the nature of L/C: conditional, document-driven, more complex, and usually more expensive. It explains that risk shifts away from “trust” and into “paperwork perfection.” That can help in specific scenarios, but it also creates new failure modes like discrepancies and amendments. The better you understand these traits, the less you overpay for the wrong tool.
- Conditional payment
- Document-driven
- Slow and expensive
- Shifts risk from trust → paperwork accuracy
Core Difference Between T/T and L/C
This is the decision lens: who controls payment, what triggers payment, and what costs you accept to manage risk. T/T is controlled by your milestones and commercial management, while L/C is controlled by banks and document compliance. The section also makes the contrast clear on speed and complexity. If you remember only one factor, it is “process control vs document control.”
| Aspect | T/T | L/C |
|---|---|---|
| Payment control | Importer | Bank |
| Payment condition | Trust & milestones | Perfect documents |
| Speed | Fast | Slow |
| Cost | Low | High |
| Complexity | Simple | Highly complex |
| Focus | Goods & inspection | Paper compliance |
Summary:
- T/T = you control money through process
- L/C = banks control money through documents
Cost Comparison
This factor frames the real price of each method, not just the headline bank fee. T/T tends to be a simple transfer fee per payment. L/C usually adds multiple fee types and can scale with order value, plus admin effort. The cost story matters because it directly hits landed cost and margin.
Bank Fees
This section gives the direct-fee view: what you typically pay the bank for T/T versus L/C. It shows why T/T stays predictable while L/C can expand into many line items. Even before problems happen, L/C is built to cost more. This factor helps you sanity-check whether the deal size justifies the fee load.
T/T
- Flat fee per transfer
- Typically $25–$80
- Two transfers (deposit + balance): ~$100 total
L/C
- Opening fee: 0.1%–1%
- Advising fee
- Amendment fees
- Discrepancy fees
- Confirmation fees (if required)
Total L/C cost on $100,000 order: ➡ $1,000–$3,000+
Hidden Costs of L/C
This factor is about the costs people forget: staff time, expert help, delays, and logistics penalties if documents get rejected. It links money to time, because delays can create storage and demurrage, or missed selling windows. The point is simple: L/C cost is not only “bank fees.” It is also operational drag.
- Staff time reviewing documents
- Consultant or trade finance expert fees
- Delays causing missed selling seasons
- Storage and demurrage if documents are rejected
Time Impact
This factor treats time as a business risk, not just a schedule detail. T/T is fast to execute, so it supports quick production start after deposit. L/C adds stages like issuance, document prep, and bank review. In seasonal categories, even short delays can damage revenue.
T/T Timeline
This section explains why T/T supports speed: transfer time is short and action can start right after funds arrive. It connects payment timing to production momentum. It also clarifies when shipment is released: when the balance is paid. The value here is predictability.
- Transfer: 1–3 business days
- Production starts immediately after deposit
- Shipment released as soon as balance is paid
L/C Timeline
This section shows where time expands under L/C: issuing the L/C, preparing documents, bank checking, and possible amendments. Each layer adds waiting and coordination. This matters most when you run tight calendars and need goods on shelves on time. The timeline factor makes L/C a planning decision, not just a finance decision.
- L/C issuance: 1–2 weeks
- Document preparation: 3–5 days
- Bank review: 3–7 days
- Amendments: additional days or weeks
In fashion and seasonal goods, 2 weeks can mean lost revenue.
Risk Allocation: What Really Changes?
This factor clarifies what L/C actually reduces—and what it does not. It separates “payment risk tied to documents” from “product risk tied to reality.” It also adds a third bucket: risks that L/C can create, like discrepancy and delay risk. The purpose is to stop false confidence and force accurate risk mapping.
Risks Reduced by L/C
This section explains the limited wins: certain non-shipment or document-related issues can be reduced when document conditions are enforced. It frames L/C as a document gate. That can be useful when documents closely represent the goods (more common in some commodities). In custom apparel, the reduction is narrower than many importers expect.
- Supplier non-shipment (document-based)
- Some document fraud (in theory)
Risks NOT Solved by L/C
This factor is the reality check: L/C does not guarantee quality, sizing, materials, or workmanship. Banks do not inspect goods. If your biggest fear is “the product is wrong,” L/C alone is not the fix. This section pushes you toward inspections and technical specs instead of relying on bank paper.
- Product quality
- Wrong sizing or materials
- Poor workmanship
Banks do not inspect goods.
Risks Created by L/C
This section lists the new risks you can “buy” with L/C: documentary discrepancies, delays, added costs, and complexity. These risks are common because documents must match exact wording. Small errors can trigger fees and time loss. The point is not that L/C is bad, but that it is not free protection.
- Documentary discrepancy risk
- Delay risk
- Cost overruns
- Operational complexity
Risk Management with T/T
This factor shows how importers make T/T safer in practice: audits, trial orders, milestone payments, and third-party inspections. It reframes T/T as a system you manage, not a blind transfer. For apparel, the logic is that process control can beat document control. This section ties risk reduction to actions you can actually execute.
- Factory audits
- Small trial orders
- Milestone payments
- Third-party inspections before final payment
For apparel, process control beats document control.
When Should Importers Use T/T or L/C?
This factor converts theory into a decision rule. It shows when T/T fits most normal apparel imports and when L/C becomes worth considering. The key variables are supplier trust level, order size, speed needs, and team capability. The goal is to match tool to context, not to chase “maximum safety.”
=> Related Article: How Does a Prototype Sample Affect My Clothing Production Cost?
Use T/T when:
This section lists the common case: vetted supplier, low-to-medium order value, speed matters, and you rely on inspections. It assumes you can control quality through process steps. It also fits teams that do not want heavy trade-finance admin. In apparel, this is often the default lane.
- Supplier is established or vetted
- Order value is low to medium
- Speed matters
- You use quality inspections
- Team lacks trade finance expertise
This covers most apparel imports.
Consider L/C only when:
This section frames L/C as a special-case tool: new/high-risk supplier, very large order value, or external requirements from banks or investors. It also notes better fit for cases where documents closely represent the goods. It reduces the chance you overuse L/C on normal custom production. The result is fewer fees and fewer delays by default.
- Supplier is new and high-risk
- Order value is extremely large (e.g. > $500,000)
- Required by bank or investors
- Trading commodities where documents equal goods
L/C fits raw materials better than custom garments.
Best Practices for Importers Using T/T and L/C
This factor turns each method into a controlled workflow. It emphasizes discipline: checks before payment, clean paperwork, and verification steps. The checklists are meant to reduce repeat mistakes, not to add theory. This section is the “do this every time” part of the article.
T/T Control Checklist:
This checklist focuses on supplier verification, clear PI terms, staged payments, inspection-linked final payment, and bank detail checks. It is built to prevent the most common T/T failures: paying too early, paying the wrong account, or paying without proof of readiness. The structure turns T/T into a repeatable control system. The key message is discipline, not complexity.
- Verify supplier business license
- Audit factory (virtual or physical)
- Use clear Proforma Invoice
- Follow 30/70 payment structure
- Never pay 100% upfront
- Tie final payment to PSI approval
- Double-check bank details
- Use “OUR” charges
- Keep SWIFT confirmation
- Build long-term payment discipline
Discipline turns T/T into a secure system.
L/C Control Checklist:
This checklist focuses on name matching, independent bank verification, simple wording, realistic dates, limited document demands, and line-by-line review before issuance. It aims to reduce discrepancy risk and amendment churn. It also adds inspection certificate logic if quality matters, because L/C alone does not check goods. The checklist treats L/C as a precision instrument that fails when language is sloppy.
- Verify supplier legal name matches bank registration
- Confirm supplier bank details independently
- Ensure order value justifies L/C cost and delay
- Use simple, exact wording aligned with Proforma Invoice
- Avoid subjective terms and unnecessary clauses
- Limit required documents to essentials only
- Set realistic shipment, expiry, and presentation dates
- Add third-party inspection certificate if quality matters
- Review draft L/C line by line before issuance
- Track amendments, discrepancies, and total bank fees
Discipline turns L/C from a paperwork risk into a controlled payment tool.
Conclusion / Final Words
For importers, the difference between T/T and L/C is not about safety versus risk. It is about where risk lives.
- T/T manages risk through trust, inspection, and control.
- L/C manages risk through paperwork, cost, and delay.
In modern apparel sourcing, where quality, speed, and flexibility matter most, T/T is the preferred method. When paired with proper vetting and inspections, it offers better protection at a fraction of the cost. Strong suppliers and strong processes protect capital better than complex banking instruments.
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