What Are The Common Foreign Trade Payment Methods?

In international trade, in addition to negotiating the price and style with Chinese sock manufacturers, the payment method is also crucial. To understand the common payment methods and the risks, we can be in a more favorable position in the transaction.


A Letter of Credit (L/C) is a written document by a bank (issuing bank) to make payment to a third party (beneficiary) or its nominee against the stipulated documents in accordance with the requirements and instructions of (applicant) and subject to the conditions of the credit.
In international trade activities, the buyer and seller may not trust each other, the buyer is worried that the seller will not deliver the goods as required by the contract after the advance payment. The seller is also concerned that the buyer will not pay after delivery or presentation of shipping documents. Therefore, two banks are required to act as the guarantor of both the buyer and the seller and deliver the receipt on behalf of the buyer. Bank credit replaces commercial credit (bank credit is higher than commercial credit). The instrument used by the bank in this activity is the letter of credit.
It can be seen that L/C is a certificate of conditional payment guaranteed by banks and has become a common settlement method in international trade activities. According to the general provisions of this settlement method, the buyer first deposits the payment to the bank, the bank will open a letter of credit, notify the seller’s bank in the other place to inform the seller, the seller shall deliver the goods according to the terms stipulated in the contract and the letter of credit, and the bank will pay on behalf of the buyer.

Process of Letter of Credit

(1) The applicant shall fill in the application form and pay the deposit or provide other guarantees according to the contract.

(2)Please ask the issuing bank to issue the L/C.The issuing bank shall, in accordance with the content of the application, issue the L/C to the beneficiary and forward it to the advising bank at the location of the exporter.
(3)The advising bank will deliver the L/C to the beneficiary after verifying the seal.
(4) The beneficiary shall ship the goods, prepare the documents and draw the draft according to the provisions of the L/C after checking the L/C content in accordance with the contract stipulations, and send the documents to the negotiating bank for negotiation within the validity period of the L/C.
(5)The negotiating bank shall advance the payment to the beneficiary after verifying the documents according to the terms and conditions of the credit.
(6)The negotiating bank can claim against the issuing bank or its particular draughting bank for draft and shipping documents.
(7)Payment shall be made to the negotiating bank after the issuing bank verifies the correctness of documents.
(8) The issuing bank notifies the issuer of the demand for payment.

Common countries where large amounts must be paid by LC: Mongla, Ethiopia, Algeria, Uzbekistan, etc.


A certain percentage deposit, such as 30%, is usually paid for TT. This can help a business get a project started. T /T is a test method of remittance settlement in which the sending bank sends Tested Cable/Telex on the application of the remitter or sends it to the inward bank via SWIFT to instruct it to settle the tested amount to the payee.
Telegraphic transfer uses telegraph and telex as settlement tools. It is safe and fast, and the cost is low. Telegraphic transfer is one of the most popular remittance methods at present

Payment process:

(1) First, the remitter telegraphic application and pay the payment to the remitter bank, and then the remitter bank takes a telegram or telex to the remitter bank, the remitter bank to the payee wire transfer notice, the payee received the notice to the bank to make payment, the bank for settlement, settlement is completed the remitter bank issued a debit notice to the remitter bank, and the remitter bank to the remitter wire transfer receipt.
(2) The sending bank shall send the remittance instructions by telegram or telex to the sending bank according to the contents of the remittance application.
(3) Upon receipt of telegram or telex, the inward bank shall make a telegraphic transfer notice to inform the payee of the withdrawal. The payee shall withdraw the money from the inward bank with the notice in duplicate, and the inward bank shall pay the remittance with the signature of the payee’s receipt.
(4) Finally, the inbound bank sends a Debit Advice to the outbound bank.
The telegraphic fee in telegraphic transfer shall be borne by the remitter. Banks generally handle telegraphic transfer on the same day and do not occupy the remittance funds in the postal process. Therefore, telegraphic transfer is usually adopted for the remittance with a large amount of money or the remittance via SWIFT or interbank.
TT, although there are certain risks, but the cost is low, now it is very popular in the foreign trade payment method in the world. 30% before TT(for deposit),70% after TT, see bill of lading to pay the original payment, this is the most common.


Documents against Payment (D /P) refers to a method of settlement whereby the collecting bank can release the commercial (shipping) documents to the importer only after the importer has paid in full.
D/P Sight means that a draft at sight is drawn by the mouth and presented to the importer by the collecting bank. The importer must pay at sight. When the payment is paid, the importer will get the shipping documents.
D/P after sight or after date refers to a time draft drawn by C] and presented by the receiving bank to the importer for payment on or before the maturity of the draft after acceptance by the importer.


Documents against Acceptance (D /A) means that the exporter’s presentation is conditional on the importer’s acceptance of the draft. That is, the exporter issues the usance draft together with the commercial documents after the shipment of goods, and presents it to the importer through the bank. After the importer accepts the draft, the receiving bank will give the commercial documents to the importer, and the payment obligation will be fulfilled when the draft is due. Because D/A means that the importer can obtain commercial documents against which he can collect the goods after accepting the bill of exchange. Therefore, D/A is only applicable to the collection of time bills.

Western Union

Western Union, short for Q (Western Union), is the world’s leading express remittance company with a history of more than 150 years. It has the world’s largest and most advanced electronic remittance financial network, with agents in nearly 200 countries and regions around the world. Western Union is a subsidiary of First Data Corporation (FDC), a Fortune 500 company in the United States. Several Chinese banks are Western Union partners in China.


PayPal Holdings, Inc., is a wholly owned subsidiary of eBay Inc. Transferring funds between users who use E-mail to identify themselves avoids the traditional method of mailing checks or sending money. PayPal also works with some e-commerce sites as one of their payment methods; However, PayPal charges a certain amount of fees when transferring money using this method of payment.

Payment process:

When a payer wants to pay a sum of money to a merchant or receiver through PayPal, it can be divided into the following steps:
1. As long as there is an email address, the payer can log in to open a PayPal account, become a user through verification, provide credit card or relevant bank information, increase the amount of the account, and transfer the specified amount of money from the account (such as credit card) registered at the time of opening the account to the PayPal account.
2. When the payer starts the process of payment to a third party, it must first enter the PayPal account, specify a specific amount of remittance, and provide the E-mail account of the payee to PayPal.
3. PayPal then sends an email to the merchant or payee to inform them of the money waiting to be collected or transferred.
4. If the merchant or payee is also a PayPal user, the payment specified by the payer will be transferred to the payee after the merchant or payee decides to accept the payment.
5. If the merchant or payee does not have a PayPal account, the payee may go to the website to register for a PayPal account according to the PayPal email instructions. The payee may choose to convert the obtained money into a check and send it to the designated place, transfer it to his personal credit card account or transfer it to another bank account.
PayPal is the remittance receiver who pays the commission fee, which is composed of a certain proportion and service fee added. For specific details, you can consult the specialized Paypal provider. The disadvantage is that if the customer pays by credit card, even if you receive the money, Paypal can still recover it from you. Paypal has a high processing fee and can be flexibly arranged according to the actual situation of the company and individuals.


Moneygram is a kind of global fast remittance service between individuals. It can complete the remittance process from remitter to payee in more than ten minutes, with the characteristics of fast and convenient. moneygram is a similar company to Western Union.
The remitter does not need to choose a complicated remittance path, and the payee does not need to open a bank account to realize the transfer of funds.
If foreign exchange is withdrawn from RMB, this business is foreign exchange settlement business. No matter domestic or overseas individuals, each person can settle foreign exchange equivalent to US $50,000 per year (inclusive) with his valid ID card. That is, the amount of a single exchange settlement is no longer limited, as long as it does not exceed the equivalent of $50,000 in the current year. This makes it easy to transfer small amounts of money to Chinese suppliers.

If you have any questions , please dare to consult us.WIN@TEX  has more than ten years of experience in exporting socks. Our friendly and knowledgeable team will also be on hand to answer any questions and offer any advice you may need.


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