Early in my steel sourcing journey, I made a full T/T payment to a new supplier. The shipment never arrived. That costly mistake taught me to explore more secure options—like letters of credit.
For steel parts imports, a Letter of Credit (L/C) provides greater payment security than Telegraphic Transfer (T/T), especially with new suppliers or high-value transactions. L/Cs tie payment to documented proof of shipment, reducing fraud risk.1
The right choice depends on trust level, transaction size, and your risk tolerance.2
How Does a Letter of Credit Protect the Buyer?
A Letter of Credit protects buyers by ensuring payment is released only when the supplier fulfills specified conditions and submits verified shipping documents.3
Once, I used an L/C for a $120,000 order. The supplier hesitated at first, but we both felt secure knowing the bank was overseeing compliance.
A letter of credit (L/C) 4 protects buyers by requiring documents like BLs, commercial invoices, and mill test reports before payment.
Key Protections for Buyers:
- Document Verification: Payment only after correct shipment docs
- Bank Intermediation: Banks verify compliance
- Fraud Prevention: Non-compliant docs block payment
- Risk Shift: Supplier must meet terms before funds release
| L/C Feature | Buyer Benefit |
|---|---|
| Document control | Prevents premature payment |
| Third-party verification | Reduces risk from forged documents |
| Clear terms enforcement | Protects against specification errors |
| Fraud resistance | Shields against supplier non-performance |
What Are the Risks of Using T/T for Overseas Orders?
T/T is fast but risky—once funds are sent they can't be recovered, even if the supplier fails to perform.5
My first T/T order was smooth. The second one? Not so much. The supplier delayed shipping for weeks with excuses—and I had no leverage after the money left.
T/T (Telegraphic Transfer) 6 is irreversible and lacks linkage to shipment documentation.
Common T/T Risks:
- Prepayment Risk: Paying before shipment opens up fraud exposure
- No Documentation Link: No document control
- Irreversible Transfer: Funds can’t be recalled
- No Recourse: Disputes are hard to resolve
| Risk Type | Impact on Buyer |
|---|---|
| Non-shipment | Total loss of funds |
| Defective goods | Loss of leverage post-payment |
| Supplier disappearance | No protection against fraud |
When Is L/C Preferred Over T/T in Steel Imports?
Use L/C when dealing with new suppliers, high-value orders, or strict product specs; use T/T for trusted, low-risk transactions.7
I use L/Cs for high-value or first-time orders, and T/T for my trusted partners. That blend has helped me balance security and speed.
Use L/C When:
- Order > $50,000
- Supplier is new/unverified
- Product specs are tight
- Full documentation is required
Use T/T When:
- Supplier is trusted
- Order is low-risk or phased
- Speed trumps legal protection
| Scenario | Recommended Method | Why |
|---|---|---|
| New, untested supplier | Letter of Credit (L/C) | Minimizes fraud & payment risk |
| Trusted supplier | T/T with split payment | Simpler, faster, less costly |
| High-value deal | L/C or Escrow | Protects investment |
| Urgent small shipment | T/T | Quick and cost-effective |
What Are the Cost Differences Between L/C and T/T?
L/Cs cost more in bank fees and processing time, but offer considerable protection; T/T is cheaper and quicker but riskier.8
I used to avoid L/Cs because of cost. But after one shipment delay turned into $5,000 in penalties, those bank fees didn’t seem so expensive anymore.
Cost Comparison
| Cost Type | T/T Estimate | L/C Estimate |
|---|---|---|
| Bank Fee | $20–$50 | $200–$500+ |
| Documentation | None | Included |
| Courier/Comms | Optional ~$10 | Often $50–$100 |
| Processing Time | 1–3 days | 5–10 days |
When Higher Cost Is Justified:
- High-value parts (> $50K)
- Risky suppliers or routes
- Strict quality requirements
- Non-negotiable delivery timelines
Conclusion
For steel parts imports—particularly with new suppliers or large orders—L/C offers much stronger protection than T/T. T/T remains viable for trusted partners and quick payments, but buyers must weigh cost versus risk smartly.
Footnotes
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FIA comparison of L/C vs T/T safety in international trade. ↩
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Risk tolerance and funding thresholds in procurement. ↩
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Analysis of L/C mechanisms in buyer protection. ↩
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ICC guide detailing required documents for L/C issuance. ↩
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Explanation of T/T payment irreversibility. ↩
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Investopedia overview of T/T risks and limitations. ↩
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When to choose L/C in high‑value or first‑time transactions. ↩
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Estimated bank fees and processing time for L/C vs T/T. ↩
