The real problem
The buyer does not want to pay before the goods exist. The seller does not want to ship before the money exists. Every trade payment instrument is a different answer to that single standoff.
Telegraphic transfer (T/T)
A bank wire, usually split: a deposit (commonly 30%) before production and the balance against shipping documents or on arrival.
- Cost: lowest — just wire fees.
- Speed: same or next day.
- Protection: weakest. The deposit is at risk for the buyer; the balance is at risk for the seller.
- Use when: the counterparty is known, the amount is modest, or a third party holds the balance.
Documentary letter of credit (LC)
The buyer's bank undertakes to pay against documents that comply exactly with the credit's terms, governed by ICC UCP 600.
- Cost: issuance, advising, confirmation and discrepancy fees — typically the most expensive option, and it consumes the buyer's credit line.
- Speed: days to set up; payment follows document examination (banks have up to five banking days under UCP 600).
- Protection: strong for the seller — but only if the documents are perfect. Banks deal in documents, not goods. A misspelt port name can trigger a discrepancy fee or refusal.
- Use when: large value, new counterparty, or a country where you need bank intermediation.
Escrow
A neutral party holds the funds and releases them when an agreed milestone is met (shipment proof, inspection pass, delivery confirmation).
- Cost: a percentage fee, usually well below LC total cost.
- Speed: funding is immediate; release follows the milestone.
- Protection: balanced — the seller sees the money is real before producing; the buyer keeps control until the condition is met.
- Use when: first orders, mid-size values, or when neither side will move first.
Side-by-side
T/T Escrow LC
--- --- --- ---
Cost Lowest Medium Highest
Setup time Hours Hours Days
Seller protection Low High High (if documents comply)
Buyer protection Low High Medium
Bank credit line needed No No Yes
Practical rules
- Never send a 100% advance to a first-time supplier.
- Tie every release to a verifiable event: a signed inspection report, a bill of lading number, a delivery confirmation — not "when ready".
- Put the payment schedule in the contract with dates, not just percentages.
- Under an LC, have the draft credit checked before it is issued; amendments cost money and time.
On Prebro
Escrow is built into the deal room: funds are held against contract milestones and released on the event both sides agreed to, with the trail visible to buyer and seller. That removes the "who moves first" deadlock without an LC's paperwork.
*References: ICC Uniform Customs and Practice for Documentary Credits (UCP 600); ICC Incoterms 2020 introduction on payment vs delivery terms.*