Every international payment method sits somewhere on a spectrum between "safest for the exporter" and "safest for the importer" — nothing is safe for both sides simultaneously. Which method to use depends on how well you know the buyer, the deal size, and how competitive the market is for that specific relationship.
The ladder, from least to most exporter-secure
1. Open Account — goods and documents are sent directly to the buyer, no bank guarantee involved, and payment follows on agreed periodic terms (e.g., every 30/60 days) after the buyer already has the goods. Most exporter risk, least importer risk. Common between parties with a long, trusted relationship — rarely appropriate for a first-time buyer.
2. Bank Collection — Documents against Acceptance (D/A): documents are routed through banks (not sent directly to the buyer), but the buyer receives them against a signed promise to pay later, not an actual payment. Some protection over open account (a bank is at least handling the paper trail), but the exporter is still relying on the buyer's promise.
3. Bank Collection — Documents against Payment (D/P): same routing through banks, but the buyer only receives the documents once they actually pay. More secure than D/A because the buyer can't get the goods released without paying first — but the exporter still isn't protected if the buyer simply refuses to pay and walks away, leaving goods stranded at the destination port.
4. Letter of Credit (LC / Documentary Credit): a bank — not the buyer — guarantees payment, provided the exporter's documents exactly match the LC's conditions. This is the standard recommendation for new trading relationships. See `` for how it actually works.
5. Confirmed Letter of Credit: an LC where a bank in the *exporter's own country* adds its own guarantee on top of the issuing (buyer's) bank's guarantee. Used when the exporter isn't confident in the issuing bank's reliability or the importing country's banking/political stability — costs more, but removes issuing-bank and country risk almost entirely.
6. Advance Payment: the buyer pays before shipment — partial or, more rarely for a new relationship, in full. Maximum protection for the exporter, minimum for the importer, which is exactly why new exporters shouldn't expect 100% advance from an unfamiliar buyer (see ``) — it's the top of this ladder for a reason, and buyers know it.
How to actually choose
- First-time buyer, no track record: LC (confirmed if there's any doubt about the issuing bank's country/reliability), or a meaningful advance payment.
- Repeat buyer with a proven payment history: bank collection (D/P, then D/A once more trust exists) becomes reasonable, and open account eventually becomes viable for the most trusted, longest-standing relationships.
- Large, unfamiliar, or high-risk-market deal: don't compromise on LC just because the order size is attractive — a bigger order on weak payment terms is a bigger loss if it goes wrong, not a bigger win.
The underlying principle across every method: risk and trust move together. As actual, demonstrated trust builds with a specific buyer, it becomes reasonable to move down the ladder toward easier, cheaper payment terms — but that trust has to be earned first, not assumed.