Letter of Credit vs T/T: Payment Terms for Garment Orders

The short answer

Two payment methods cover almost every woven-garment order: a Telegraphic Transfer (T/T) and a Letter of Credit (LC). A T/T is a plain bank wire, usually split into a deposit when you place the order and a balance around shipment. An LC is a payment guarantee from your bank that releases funds only when the supplier presents shipping documents that match the terms exactly.

T/T is cheaper, faster, and simpler. LC costs more and moves slower, but it protects both sides, which is why it earns its keep on first orders and high-value runs. Most relationships start on LC or a conservative split T/T, then drift toward straight T/T once trust is established. But the payment-method debate usually buries the real point: the term itself is rarely the risk. The risk is who is on the other end — a deposit wired to a factory you can name is a different thing from the same wire into an anonymous trading desk. Here is how each works, and how to set up a first order so you never carry more risk than you should.

T/T: the bank wire

A T/T moves money directly from your bank account to the supplier's. No third party guarantees anything: you trust the supplier to ship, and they trust you to pay. To balance that, T/T orders are almost always split:

A deposit when the order is confirmed. This funds fabric and trims and signals you are committed. Thirty percent is a typical figure, but it is negotiable and varies by supplier and order size.
The balance at or near shipment. Depending on what you agree, that can mean paying once goods are loaded, or paying against a scanned set of shipping documents before the originals are released to you.

Where T/T is strong:

Cheap. Your only cost is the wire fee and any correspondent-bank charges. No issuance or document-examination fees.
Fast. Money arrives in a day or two, with no bank in the middle examining paperwork.
Simple. Two transfers and a confirmation email. Easy to administer for repeat orders with a supplier you know.

Where T/T exposes you:

The deposit is unsecured. Pay a deposit to a supplier you have never used, and if the order goes wrong, recovering it is difficult and slow — a phone call to a named, factory-direct partner who is accountable, or a dead end with an anonymous middleman who never owned a sewing line.
Timing favours one party. Pay the balance before goods ship and you are exposed if quality slips. Pay only after you receive and inspect goods and the supplier is exposed instead. Whoever moves first carries the gap.
No independent check. Nobody but you verifies that what shipped matches what you ordered. That falls to your inspection process, not the bank.

T/T suits an established relationship where both sides have a track record. For a first order with an unproven supplier, an unsecured deposit plus a balance-on-shipment wire puts most of the risk on you — which is exactly why you want to know whose floor your money is funding before it leaves.

LC at sight: the bank-guaranteed route

A Letter of Credit replaces "trust the supplier" with "trust the bank." You instruct your bank (the issuing bank) to open an LC in the supplier's favour. The bank commits, in writing, to pay a fixed amount once the supplier presents a specified set of documents that comply with the LC's terms.

"At sight" means payment is due as soon as the bank sees compliant documents, rather than on a deferred date weeks later. The flow runs roughly like this:

You and the supplier agree terms, then you apply to your bank to issue the LC.
The LC travels to the supplier's bank (the advising or negotiating bank), which confirms it is genuine.
The supplier manufactures and ships, then assembles the documents the LC demands: typically a commercial invoice, packing list, bill of lading, certificate of origin, and often an inspection certificate.
The documents go to the bank for examination. If they comply exactly, payment is released. If not, the bank flags a discrepancy and payment pauses until you resolve or waive it.

The critical point: an LC pays against documents, not against goods. The bank never inspects your garments; it checks paper. So the documents, and especially any required inspection certificate, are what protect you.

Where LC is strong:

It protects both sides. The supplier knows a bank, not just a buyer, stands behind payment. You know your money does not move until compliant documents exist, including any inspection certificate you required.
Good for first orders and large values. With no relationship history and a lot of money on the table, an LC removes the need for either side to gamble on the other.
It builds in document discipline. Customs clearance and your own records benefit from a clean, complete document set.

Where LC costs you:

Fees on both sides. Issuance, amendment, advising, negotiation, and confirmation charges add up. Who pays which is negotiable; the LC should state it.
Document precision is unforgiving. A spelling mismatch, a date out of sequence, or a missing copy can trigger a discrepancy, delay payment, and sometimes cost a fee to fix. A real factory with its own export desk handles this paperwork every week.
Slower. Issuing, amending, and examining documents all take time. An LC is not the tool for a rush top-up order.

Structuring a first order so you are not over-exposed

You do not have to choose between blind trust and a fortress. A few moves keep first-order risk low whatever method you use:

Keep the first run small. A modest first order limits the money at stake while you learn how a supplier performs on sampling, quality, and dates. The order that tests a relationship is the cheapest insurance you will buy.
Use an LC at sight, or a conservative split T/T. An LC at sight is the cleanest protection. If both sides prefer T/T, keep the deposit modest and tie the balance to shipping documents rather than paying everything up front.
Put a third-party inspection before the balance. Book an independent inspection at the factory before the final payment moves, and make a passing certificate a condition of release. On an LC, name it as a required document; on a T/T, make it a written condition of the balance wire. This is the single highest-leverage protection on a first order: an independent set of eyes on the goods before your money is gone.
Write the terms down. Deposit percentage, balance trigger, who pays which bank charges, inspection requirement, and shipment window all belong in the order confirmation or the LC, not in a chat thread.

How payment terms interact with FOB and Incoterms

Your payment method and your Incoterm answer two different questions. The Incoterm (FOB, CIF, and so on) sets where the supplier's cost and risk for the goods stop and yours begin. The payment term sets how and when the money moves. They are linked but separate; agree both clearly.

Most factory-direct woven orders price on FOB (Free On Board), where the supplier delivers the goods onto the vessel at the origin port and you take over freight, insurance, and import from there. For what sits inside that price and what does not, see what FOB covers.

On bank charges, the usual convention is that each side pays its own domestic bank's costs (you cover your issuing or remitting bank, the supplier covers theirs), but this is negotiable and should be stated in writing. An LC can specify which party bears which charges; a T/T agreement should say the same. Do not leave it to assumption.

	T/T (bank wire)	LC at sight
What it is	Direct bank-to-bank transfer	Bank guarantee paid against compliant documents
Who carries risk	Whichever side pays or ships first	Shared, via the bank and documents
Cost	Low; wire fees only	Higher; issuance, advising, examination fees
Speed	Fast (1–2 days)	Slower (issuance plus document examination)
Structure	Deposit on order, balance near shipment	Pays on presentation of compliant documents
Best for	Established, repeat relationships	First orders, large values, no track record
Weakness	Unsecured deposit; timing exposure	Document precision; fees; slower

None of the above is financial or legal advice. Exact fees, document requirements, and timing depend on your bank and your market, so confirm the specifics with your bank and your freight forwarder before you commit to an order.

How EliteHeights works with you

We accept both LC at sight and T/T, and we are comfortable structuring a first order so you are not over-exposed. For a first run with us, that usually means a smaller opening order, an LC at sight or a conservative split T/T, and an independent third-party inspection on the floor before any balance is due. As the relationship settles, terms can move toward straight T/T.

You are not wiring into an anonymous trading desk or a factory you cannot name. We quote factory-direct from our own family floor in Dhaka, the same lines already producing for brands like Mango, Zara, Tommy Hilfiger and Calvin Klein, with a partner accountable for your order. So the payment risk these terms manage is smaller before the LC is drafted: you know who you are paying and who answers if it goes wrong. That is the short version of why buyers switch to us. When you are ready to see real numbers, start a quote and we will walk through the terms with you.

EliteHeights is family-owned woven-garment sourcing, factory-direct, with a named partner who answers the phone.