You’re running a global supply chain, negotiating with suppliers across borders, and chasing on-time deliveries. In this landscape, payment terms can either accelerate growth or create cash-flow headaches. If you’re currently relying on a simple T/T payment (telegraphic transfer), you’ve likely faced late shipments, disputed invoices, or last-minute funding crunches. The risk isn’t just about losing margin; it’s about weakening trust with suppliers and slowing production ramps. You deserve a payment method that protects your interests while preserving supplier relationships—and that’s where a thoughtful switch to L/C (letter of credit) comes in.
Many buyers stay with T/T payments because they’re familiar and fast at the outset. Yet as volumes scale, the advantages of an L/C—risk mitigation, bank-backed guarantees, and improved supplier confidence—often outweigh the costs. In 2024/2025, global trade finance has evolved with digital platforms and streamlined processes, making L/C more accessible to smaller buyers than ever before. This article helps you determine when a switch is warranted, how to evaluate costs, and how to implement an L/C-based payment framework without derailing cash flow. You’ll learn practical criteria, actionable steps, and expert tips so you can protect margins, maintain production schedules, and sustain healthy supplier partnerships.
We’ll cover: when to switch from T/T payment to L/C, how to assess supplier reliability, how to estimate total costs, and how to sequence the transition. By the end, you’ll have a clear roadmap to decide whether T/T payment should coexist with L/C or gradually give way to a credit-backed approach. You’ll also discover concrete scenarios, common pitfalls, and best practices used by manufacturers in China and other manufacturing hubs. As you read, you’ll notice semantic keywords and phrases that help you plan a risk-aware, cash-flow-friendly move toward L/C in 2025.
Preview: you’ll learn triggers for switching, a side-by-side comparison, a step-by-step implementation plan, mistakes to avoid, and advanced strategies to optimize L/C usage. You’ll also find practical, numbers-driven guidance tailored to apparel manufacturing and other volume-driven industries. Let’s explore how you can minimize risk and maximize reliability when moving from T/T payment to L/C.
Choosing between T/T payment and L/C isn’t purely a cost debate; it’s a risk-management choice that affects supplier reliability, shipment timing, and cash flow. Below, you’ll find a concise comparison of common payment approaches used in manufacturing supply chains in 2024/2025, with practical pros, cons, costs, time to ship, and relative difficulty. This section also includes a mobile-friendly table you can consult quickly to understand how each option stacks up against the others.
| Payment Method | Key Characteristics | Typical Costs | Time to Ship Impact | Difficulty | Best For |
|---|---|---|---|---|---|
| T/T Payment | Direct bank transfer before or after shipment; minimal paperwork; currency may be negotiated. | Low to moderate transfer fees; no LC fees; no bank confirmation costs. | Fast to execute, but may delay shipping if funds not cleared; risk of non-delivery if supplier reneges. | Low to moderate, depending on trust level with supplier. | High-volume buyers with strong supplier credibility and predictable cash flow. |
| L/C (Sight) | Bank guarantees payment upon presentation of compliant documents; reduces supplier risk. | Issuance, advising, possible confirmation; amendment costs; bank fees scale with LC value. | May add 3–7 days for document checks; can expedite with electronic LC platforms. | Moderate to high; requires documentation discipline and bank coordination. | Medium to high-risk suppliers; high-value or time-critical orders; geographic risk mitigation. |
| L/C (Usance / Deferred) | Credit terms within LC; payment deferred for a set period after shipment (e.g., 30–90 days). | Higher cost than sight LC due to risk premium; banks may require confirmations. | Similar to sight LC timing; can affect cash conversion cycle positively if managed well. | Higher complexity; requires longer-term trust and cash flow planning. | Longer-term supplier partnerships; when inventory turns are predictable, and you can forecast cash flow precisely. |
| Open Account with Documentary Collection (D/P or D/C) | Seller ships goods; documents handled through bank; payment or acceptance occurs later. | Lower bank fees; no LC issuance; relies on buyer credit; higher risk for seller. | Often slower post-shipment, but can align with your internal cash cycles. | Low to moderate for the buyer; high risk for the supplier unless security is provided. | Trusted supplier relationships and well-developed supply chain finance programs. |
As you compare, consider your focus on risk control vs. cost savings. T/T payment is cheap and swift but exposes you to delivery risk. L/C shifts risk to the bank and offers leverage with suppliers, especially for high-value orders or new supplier relationships. For manufacturing operations in China and other hubs, LC-based terms align with the value of trust and reliability you need to maintain steady production lines—and in 2025, digital LC platforms are making this approach faster and more accessible than in previous years. For internal planning, map each supplier’s risk profile and product category to the payment approach that minimizes total cost of risk, not just apparent price.
Internal link idea: For readers exploring how to structure supplier terms, see our related guide on international trade finance terms. Also consider a staged transition plan where you pilot LC with key suppliers before broad adoption.
Implementing a switch from T/T payment to an L/C-based framework requires careful planning, cross-functional collaboration, and disciplined execution. The steps below provide a practical, end-to-end process you can follow over 4–12 weeks, depending on order volume and supplier readiness. Each major step includes specific actions, timeframes, and concrete tips to minimize disruption and keep orders on track.
Form a cross-functional team with procurement, treasury, logistics, compliance, and legal. Assign a primary owner for LC workflow and a backup.
Timeframe: 1–2 weeks. Tip: Create a shared checklist and a central drive for documents and templates.
Warning: Avoid siloed decisions. LC success hinges on cross-department alignment.
Evaluate supplier willingness and capability to comply with LC documentation. Prioritize suppliers with robust invoicing, packing, and shipping documentation.
Timeframe: 1–3 weeks. Tip: Start with 2–3 pilot suppliers who have shown reliability in the past year.
Draft a policy outlining when to use LC (e.g., orders above a threshold, new suppliers, or high-value items). Decide between sight LC or usance LC for different scenarios.
Key decisions: LC limit per order, confirmation need, usance period, and amendments process.
Meet with your bank to discuss LC issuance, advisory services, confirmation, and amendment procedures. Obtain pre-approval for LC lines based on forecasted annual spend.
Timeframe: 1–2 weeks. Pro tip: Request a generic LC template from the bank to speed up future requests.
Standardize LC-related documents: LC application form, commercial invoice templates, packing list templates, and bill of lading formats. Ensure the documents map precisely to LC terms to avoid discrepancies.
Tip: Include a check-list in each shipment package to ensure documents are compliant before submission.
Issue a small-scale LC to a chosen supplier for a controlled order. Track processing times, document accuracy, and supplier feedback.
Timeframe: 2–4 weeks for initial LC cycle, including bank processing.
Deliver targeted training for procurement, treasury, and logistics teams. Use real documents from the pilot order to illustrate common issues.
Timeframe: 1 week of hands-on sessions; ongoing refreshers every quarter.
Onboard more suppliers to LC terms using the pilot learnings. Provide them with clear onboarding materials and timelines.
Tip: Offer an incentive like quicker payment cycles for compliant suppliers to encourage adoption.
Track LC issuance time, document compliance time, and shipment readiness. Use dashboards to identify bottlenecks.
Timeframe: Weekly monitoring for the first two months, then monthly reviews.
Link LC statuses to ERP modules (procurement, finance, accounting) to automate reminders and reconciliation.
Tip: Automate alerts for document discrepancies and amendment requests to reduce delays.
Institute checks for sanctions, embargoed items, and country risk. Ensure all LC amendments and confirmations have proper approvals.
Warning: Failing to verify compliance can lead to LC repudiation or bank penalties.
Conduct quarterly reviews of LC performance, supplier feedback, and cash-flow impact. Scale the program to cover additional suppliers and product lines.
Outcome: A smoother, more predictable supply chain with stronger supplier confidence.
Checklist snapshot: ensure you have an LC-ready supplier list, bank-approved LC limits, standardized documents, and a monitoring dashboard. This structure helps you maintain control while you expand LC usage beyond the pilot phase.
Transitioning from T/T payment to L/C can be smooth when you anticipate likely pitfalls. Below are common mistakes and practical fixes. Each item includes expert tips to save time and money while safeguarding your supply chain. Use these as a reference as you plan your LC rollout.
Many buyers assume LC costs are minor and processing is quick. In reality, issuance fees, amendment costs, and possible confirmation fees can add up, especially for large orders or multiple suppliers.
Solution: Get formal quotes from your bank for different LC types (sight vs. usance, with or without confirmation). Build a budget with a 5–10% contingency for amendments. In 2025, digital LC platforms can reduce processing time by up to 40%, so include adoption time in your planning.
Inconsistent or missing documents lead to delays, rejected claims, and failed LC presentations.
Solution: Create a standardized document package and a pre-submission checklist. Conduct a quick supplier workshop to align expectations on invoices, packing lists, and certificates of origin. Tip: Use sample documents from a successful LC order as a template for others.
A sight LC may be too rigid for buyers who need longer payment terms, while usance LC without proper cash flow planning increases risk for the supplier.
Solution: Align LC type with order risk and cash flow needs. For new suppliers, start with sight LC or even a short usance period, then upgrade to longer terms as trust grows.
Frequent amendments create delays and bank fees, reducing the advantages of LC compliance.
Solution: Lock in clear terms in the initial LC and limit amendments to essential changes. Use amendments only for critical issues like quantity, price, or shipment date.
LCs involve currencies, exchange rates, and hedging considerations. Poor FX planning erodes margins.
Solution: Coordinate with treasury to set FX hedges and decide currency denomination for each LC. Consider pegged rates or forward contracts for high-volume orders.
Without data, you can’t justify the shift from T/T to LC at scale.
Solution: Track on-time delivery, document accuracy, and dispute frequency by supplier. Use these metrics to identify LC-ready candidates and optimize terms.
Teams may resist or mishandle LC processes without proper training.
Solution: Implement a formal LC onboarding program and quarterly refreshers. Include role-based simulations using real supplier scenarios.
If you want to push your LC strategy beyond the basics, these advanced practices help you drive efficiency, reduce risk, and improve supplier partnerships. The goal is to make LC usage transparent, scalable, and aligned with your business objectives in 2025 and beyond.
Digital LC platforms and eLCs are transforming the speed and reliability of documentary credits. By digitizing document submission, you cut handling time and minimize human error. Look for platforms that integrate with your ERP and allow real-time tracking of each LC stage.
Dynamic risk scoring helps you balance supplier risk with LC terms. Use a simple 3- or 5-point scale to rate suppliers on factors like on-time performance, document quality, and financial stability. Tie these scores to LC limits and terms to structure risk-adjusted credit lines.
Supply chain finance and reverse factoring can improve supplier cash flow while keeping your own working capital under control. If a supplier needs early payment, you can engage reverse factoring with your bank to unlock favorable terms without increasing your own cost of capital.
Document excellence programs reward suppliers with consistent, accurate LC documentation. These programs reduce disputes and enable faster LC processing. Start with a simple incentive, such as faster payment terms for compliant documents on a set percentage of orders.
Localization and compliance stay essential. In 2024/2025, sanctions lists and export controls demand continuous refreshers for your teams. Build checks into LC onboarding to prevent compliance gaps that could delay shipments or trigger penalties.
Industry trends: Expect more cross-border digital cash management integrations, improved LC templates, and streamlined amendment workflows. As you modernize, you’ll see faster confirmations, fewer document discrepancies, and a more resilient supply chain—especially for apparel manufacturing where volume and timing matter.
Switching from T/T payment to an LC-based approach is not a single event but a strategic transformation. When you start with a clear policy, strong supplier readiness, and bank alignment, you create a robust framework that protects cash flow, reduces delivery risk, and strengthens supplier partnerships. The benefits include fewer shipment delays, higher predictability, and better leverage for negotiating favorable terms with key suppliers. In 2025, the interplay between T/T payment and L/C can be managed dynamically to optimize costs and risk. A measured, data-driven transition lets you retain agility while expanding your international manufacturing footprint—particularly in sourcing hubs like China and beyond.
To begin, identify your high-value or high-risk orders, select 1–3 pilot suppliers, and schedule a bank meeting to discuss LC terms, costs, and processing timelines. Track metrics such as LC processing time, document approval rate, and on-time delivery to quantify improvement. Remember: LC terms are an investment in reliability and scale. If you’re ready to explore LC-based payment terms or want expert help crafting a tailored plan, contact us to discuss your options and design a transition that fits your business. Visit our contact page for custom clothing to start the conversation today.
Internal resource note: For further reading on how LC terms can affect apparel manufacturing pricing strategies, see our guide on international trade finance terms. For a deeper dive into the mechanics of documentary credits, consult the ICC UCP 600 guidelines and practical overviews on letter of credit basics.
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