Letter of Credit vs TT Payment for Agricultural Imports | FoodEra

Letter of Credit vs TT Payment: Which Is Safer for Agricultural Imports? Letter of Credit vs TT payment is one of the most frequently asked questions among international buyers sourcing agricultural products from Vietnam and other developing-country origins. Both instruments are widely used in global agricultural trade — yet they carry fundamentally different risk profiles, cost structures, and operational requirements that directly affect your supply chain security and cash flow. Furthermore, choosing the wrong payment method for your specific situation can mean the difference between a smooth shipment and a costly dispute. In agricultural trade specifically, where shipments are high-value, time-sensitive, and subject to quality variation, getting payment terms right is as important as getting the price right. This guide explains how both methods work, compares them across the dimensions that matter most to agricultural buyers, and helps you decide which agricultural import payment structure is right for your situation. 1. What Is a Letter of Credit (LC)? A Letter of Credit is a financial instrument issued by the buyer's bank that guarantees payment to the exporter — provided the exporter presents documents that strictly comply with the terms specified in the LC. In simple terms: the buyer's bank promises to pay the seller on the buyer's behalf, as long as the seller delivers exactly what was agreed and provides the correct paperwork to prove it. LCs are legally binding documents acknowledged by 175 countries worldwide, making them one of the most universally accepted instruments in international trade finance. How an LC Works in Agricultural Trade The process typically follows these steps: Buyer and seller agree on price, grade, quantity, and LC payment terms in the sales contract Buyer applies to their bank (the issuing bank) to open an LC in the seller's favor Issuing bank sends the LC to the seller's bank (the advising bank) in Vietnam Seller ships the goods an