In foreign trade, from inquiry and quotation all the way to shipment, the most critical and nerve-wracking step is always payment collection. Get the payment method right, and you protect your money while leaving room for the client relationship. Get it wrong, and at best you tie up working capital and stretch out the collection cycle; at worst, you lose both goods and money.

Today we're walking through every payment method used in international trade, with practical operational details, standard Chinese and English names, and hands-on cautions. Newcomers can use it as a quick primer; seasoned traders can use it to review and cross-check their own practices.

I. Commercial Credit: Settlement Based on Mutual Commercial Trust

These methods rely entirely on the commercial credit of the two parties. The bank only moves funds or passes documents along; it assumes no payment guarantee.

1. Remittance (汇付)

The payer proactively remits funds to the payee through a bank. This is the most basic settlement mode, with three variants depending on the remittance instrument. Telegraphic transfer (T/T) is by far the dominant one.

The payer instructs the bank via SWIFT or other telecommunication means to remit the funds. It is simple to process, credits quickly, and carries low bank fees, making it the most used payment method in export practice. By payment timing, there are three common patterns:

  • T/T in advance (预付货款): full or partial payment (e.g., a 30% deposit) is made before shipment; the safest option for the seller
  • T/T against B/L copy (见提单副本付款): the seller ships and provides a copy of the bill of lading, and the buyer pays the balance
  • T/T after delivery (货到付款): the buyer pays after the goods arrive at the destination port; the riskiest option for the seller

In practice, the most common structure is a "partial deposit + balance against B/L copy" combination, which balances risk between the two sides.

Mail Transfer (M/T): the bank mails a payment order to the overseas remitting bank. It costs less than T/T but is slow, and it is rarely used in practice today.

Demand Draft (D/D): the remitting bank issues a banker's demand draft, which the payer sends directly to the payee to present for payment. The draft can be endorsed and transferred, which offers flexibility, but it carries risks of loss or forgery and is seldom used.

2. Documentary Collection (跟单托收)

After shipping, the seller draws a draft (or may skip the draft) and instructs the exporter's bank to collect payment from the buyer through its correspondent bank in the importer's country. In practice, this is almost always documentary collection; clean collection is rarely used. Two types of banks are involved:

  • Remitting Bank (托收行): the bank in the exporter's country, appointed by the seller
  • Collecting Bank (代收行): the bank in the importer's country, which presents documents to the buyer for payment or acceptance

By release terms, there are three types:

  1. The seller presents the documents and the collecting bank presents a sight draft to the importer. The buyer pays immediately upon sight and can take the full set of shipping documents only after settling in full. Title to the goods stays with the seller throughout, so the risk is moderate.
  2. Example: D/P 45 DAYS AFTER B/L DATE (documents against payment 45 days after the B/L date). The buyer first accepts the draft, undertaking to pay at maturity, and obtains the documents only after paying in full on the due date. In practice, the draft may be omitted, with the deferred payment term set out in the documents alone.
  3. Example: D/A 45 DAYS AFTER B/L DATE. The buyer only needs to accept the draft (undertaking to pay at maturity) to take the full set of shipping documents and clear the goods, then pays the draft amount at maturity.
  • Important note: there is no such thing as sight D/A; every D/A involves a usance period
  • Risk level: extremely high. If the buyer refuses to pay at maturity, the seller has already lost control of the goods and can only pursue recovery through legal channels. Use only with long-standing customers of excellent credit.

3. Open Account (赊销, O/A)

Also known as "on account" trading. It is essentially post-shipment T/T with no bank involvement. The seller ships first and the buyer pays on the agreed credit term (e.g., O/A 30/60/90 days), with no third-party guarantee.

  • Characteristics: minimal formalities and the lowest transaction cost; relies entirely on the buyer's commercial credit, making it the highest-risk method for the seller
  • Practical note: O/A credit periods are calculated in two ways — "XX days after shipment" and "XX days after receipt of goods." Specify the basis in the contract to avoid disputes
  • Suitable for: long-standing customers with reliable credit, or strong buyer's-market situations

4. Cash against Documents (凭单付现, CAD)

The importer must pay immediately upon receiving the documents from the bank in order to redeem them. It is functionally the same as D/P at sight. Some regions and clients simply prefer this term.

II. Bank Credit: The Bank Assumes the Payment Guarantee

The bank steps in with its own credit backing, offering stronger payment protection. These methods suit large-value transactions, new customers, or cooperation involving high-risk regions.

1. Letter of Credit (信用证, L/C)

A conditional payment undertaking issued by the issuing bank at the buyer's request in favor of the seller. It is the archetype of bank credit and the most classic risk-balanced payment method in international trade.

  • Core process: buyer applies to open the credit → seller prepares the goods and presents documents to the advising bank in accordance with the L/C terms → the issuing bank examines the documents and pays directly if they comply, without needing the importer's consent
  • Core rule: payment against documents. As long as the documents are "consistent with each other and in compliance with the credit," the issuing bank must fulfill its primary obligation to pay
  • Advantages: risk is relatively balanced between buyer and seller. The seller gets bank-backed payment, and the buyer obtains title documents upon payment
  • Disadvantages: cumbersome procedures, high bank charges, and strict document requirements; any discrepancy may lead to rejection
  • Common types: sight L/C (L/C at sight), usance L/C, transferable L/C, etc.

2. Letter of Guarantee (银行保函, L/G)

A written guarantee issued by a bank at the applicant's request in favor of the beneficiary. If the applicant fails to perform its contractual obligations, the bank bears the corresponding liability. Common types include bid bonds, performance bonds, advance payment guarantees, and quality guarantees, mostly used in engineering contracting, large equipment procurement, and tendering projects.

III. Small-Value Scenarios: Convenient Cross-Border Payment Tools

For low-value scenarios — sample fees, small orders, cross-border e-commerce retail — speed of crediting and operational convenience come first.

1. Western Union (西联汇款)

A globally recognized express remittance service focused on fast person-to-person transfers. No bank account is required. The recipient can collect the money with an ID and the Money Transfer Control Number (MTCN).

  • Suitable for: sample fees and occasional orders under USD 10,000
  • Advantages: near-instant crediting (minutes to hours) and simple procedures
  • Risk note: the sender can cancel the transfer before the recipient withdraws the funds, so sellers should confirm receipt before shipping

2. PayPal

A mainstream international third-party online payment platform with high adoption among overseas buyers, supporting multi-currency online transactions.

  • Advantages: easy online operation and a low payment barrier for buyers, which helps close small orders
  • Disadvantages: fees are on the high side, platform rules tend to favor buyer protection, and sellers face the risk of fund reversals and chargebacks
  • Suitable for: cross-border e-commerce retail, small sample orders, and service-related payments

3. International Credit Card Payment (国际信用卡支付)

The seller connects to international card networks such as Visa and MasterCard through a third-party payment gateway, allowing buyers to pay online by credit card.

  • Advantages: a smooth payment experience for buyers and higher conversion efficiency
  • Disadvantages: high integration threshold, chargeback risk, and relatively high processing rates

IV. Advanced Supporting Tools: Risk Hedging and Cash Flow Optimization

For high-risk modes such as open account and documentary collection, the tools below can be paired with them to reduce risk and speed up cash recovery.

International Factoring (国际保理)

Also called receivables purchasing. The seller transfers its accounts receivable to a factor, which provides a one-stop service covering trade financing, buyer credit protection, and receivables collection.

  • Core value: recover cash earlier and shift buyer credit risk to the factor
  • Suitable for: O/A and D/A transactions where the seller carries heavy receivables and high risk

V. How to Choose a Payment Method? Four Key Decision Dimensions

There is no absolutely "best" payment method, only the combination that best fits the deal. Focus on these four points when deciding:

  1. Customer credit and relationship depth: for new customers, prioritize higher-security options (e.g., L/C or T/T with a high prepayment ratio); for established customers, gradually loosen to D/P, post-shipment T/T, or even O/A
  2. Order size: small orders call for convenient tools (T/T, PayPal); large orders favor bank credit instruments (L/C) or combined payment structures
  3. Buyer's country/region: for high-risk markets with political or economic instability and strict exchange controls, keep the advance payment ratio as high as possible and use D/A, O/A, or post-shipment T/T with caution
  4. Your own cash flow capacity: if working capital is tight, use tools such as international factoring or L/C discounting to accelerate receipts

One final reminder: in practice, a single payment method is rarely used. Combination structures such as "30% T/T deposit + 70% L/C" or "30% T/T advance + 70% D/P at sight" balance the risk for both sides while keeping operational costs in check — a more flexible and practical choice in foreign trade negotiations.