B2B Large Payments Compared: T/T, Letters of Credit, Collections and Open Account
The consumer model, where the buyer clicks pay, the platform acquires and funds land in an account, barely applies to large B2B invoices. On a payment of several hundred thousand dollars, both sides care about who moves first, how documents are controlled and who absorbs a dispute. Payment gateways here mostly assist with collection notification and reconciliation; the real work happens inside the banking system.
1. Five mainstream methods
1.1 Telegraphic transfer (T/T)
The most common and most direct. Split by timing into advance payment and payment after shipment, with deposit-plus-balance being the usual combination in practice. The advantage is a simple process and high buyer acceptance; the drawback is that the deposit ratio distributes risk, and cross-border transfers involve intermediary bank charges and uncertain arrival times. Large transfers may also trigger trade-background checks at the bank.
1.2 Letter of credit (L/C)
Issued by a bank, it substitutes bank credit for commercial credit and suits large orders with new customers or higher-risk regions. Its defining feature is strict documentary compliance: any discrepancy, even in wording, can lead to refusal. Costs include issuance, advising and negotiation fees, and the process is far slower than a transfer. It is worth the cost when the amount is large enough that security justifies it.
1.3 Documentary collections (D/P and D/A)
Documents are handled through banks. Under D/P the buyer must pay before receiving documents and goods; under D/A acceptance alone releases documents, which is materially riskier. Cheaper than an L/C, but banks carry no payment obligation, so it remains commercial credit.
1.4 Escrow
A third party or the platform guarantees the transaction: funds are held after payment and released once goods or services are confirmed. Suitable for mid-sized first orders without an established relationship. Pricing is usually a percentage, and dispute decisions follow platform rules.
1.5 Open account (O/A) with export credit insurance
Ship first, get paid later, a common concession when courting large buyers. Risk is offset with export credit insurance plus credit investigation and limit management. This method demands the strongest cash flow and risk capability.
2. Comparing the five
| Method | Fund security | Cost | Document complexity | Speed | Buyer acceptance |
|---|---|---|---|---|---|
| T/T | Depends on deposit ratio | Low, plus intermediary charges | Low | A few business days | High |
| L/C | High, bank credit | High | High, strict compliance | Slow | Medium; common for large orders |
| D/P | Medium | Low to medium | Medium | Medium | Medium |
| D/A | Low | Low to medium | Medium | Medium | Relatively high |
| Escrow | Medium to high | Percentage based | Low | Medium | Good for first orders |
| O/A plus insurance | Covered by insurance | Premium plus capital cost | Low | Fastest for buyer | Highest |
3. Choosing by order size and relationship
New customer plus large amount: L/C first, or a mix of partial advance and L/C. Security outranks cost.
Established customer with steady repeat orders: T/T deposit plus balance with simplified documents. Efficiency matters more in a long relationship.
Small to mid-sized first order: escrow or platform-guaranteed transactions, minimising the cost of building trust.
Competing for a large buyer needing terms: O/A with export credit insurance, but only after credit investigation and with a hard limit.
Region and currency: cross-border RMB settlement is available in some markets and removes one conversion. Currency and route planning follows the same logic as the Multi-Currency Payment Account Guide.
4. Cost calculation points
Large-payment costs are underestimated in three places: intermediary bank charges (sometimes borne by the seller), FX spread (more significant as the amount grows) and capital occupation cost (longer terms mean higher implicit cost). Measure both net proceeds and days of capital turnover; looking at fees alone produces the wrong answer.
5. Compliance and risk control
Three things need preparation in advance. First, trade background evidence such as contract, invoice, bill of lading and customs declaration must corroborate each other. Second, buyer credit investigation, especially for new customers. Third, sanctions and export control screening, which is stricter for sensitive regions or goods. None of this exists in consumer payments, but it is routine in large B2B.
6. Three common mistakes
First, treating an L/C as a universal guarantee; documentary discrepancies still stop payment. Second, comparing fees without capital cost; the implicit cost of 90-day terms can dwarf a fee difference. Third, ignoring FX movement; long-cycle large orders should consider hedging tools.
For aggregating and settling incoming funds, see the PingPong Guide and the WorldFirst Guide; for online collection see the Cross-Border Payment Selection Matrix, and for process fundamentals see Payment Transaction Flow Basics. More payment options are listed under Payment.
Source: 16IDC original. Product capabilities, pricing and eligibility requirements follow www.sinosure.com.cn / www.swift.com and related official documentation and contract terms.