Which Is Safer: L/C or T/T for Steel Parts Imports?

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

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

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

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

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