T/T or letter of credit…

A buyer asks whether T/T or a letter of credit is safer. The question is aimed one step too late: the instrument decides how the money travels, the buyer's ability to pay decides whether it travels at all. Most deals die not at the issuing bank but at the foreign exchange quota.

Start with whether the buyer can pay, then pick the instrument. A Nigerian buyer without an approved Form M cannot open a credit, and cannot wire T/T either. Until that route exists, comparing instruments is pointless. The order is: payment feasibility in the buyer's country, then the amount and whether this is a first order, then the instrument.

✓Repeat order, small amount, full or large T/T advance

Small ticket with a clean payment record, T/T carries the lowest documentary cost

✓Large first order, sight irrevocable credit without soft clauses

The bank pays against complying documents, turning "will the buyer pay" into "are the documents right"

!Buyer in a country with exchange controls, such as Nigeria or Ghana

Opening and funding both need prior approval, confirm the quota before discussing the instrument

×Treating a credit as cargo insurance

Under UCP600 banks handle documents, not goods; a bad car or a blocked clearance is outside their liability

Three structures and what each one carries

Structure	Who carries what risk	When it fails
Full T/T in advance	The buyer risks non-delivery, the seller carries almost no payment risk	The buyer has no quota, or will not pay first without trust
Deposit plus balance against a copy bill of lading	The seller risks the buyer not taking delivery, the buyer risks goods that do not match	The bill is only a copy and title has already moved, demurrage at destination with no claimant
Sight irrevocable credit	The issuing bank owes payment against complying documents, the buyer pays fees and margin	A soft clause, one discrepancy, no foreign exchange quota in the buyer's country

Four soft clauses to spot at a glance: the credit "becomes effective once the applicant obtains a licence or approves the sample"; the goods receipt or acceptance certificate is issued by the applicant; the applicant's signature must match the specimen held by the issuing bank; the vessel name or shipment date is "to be amended after notice from the applicant". Any one of them turns the bank's undertaking from "pay against complying documents" into "pay once the buyer nods".

UCP600 protects the documents, not the goods

Article 4 separates the credit from the underlying contract, and the bank is not bound by it. Article 5 says banks deal with documents, not with the goods the documents may relate to. Article 14 requires only that documents appear on their face to comply. Article 34 frees the bank from liability for the authenticity of documents and for the condition of the goods. Together they say one thing: a credit protects compliance, not the cargo.

A soft clause rewrites that boundary. In the 2004 Hunan Hualong case, the credit required the applicant's signature to match the specimen held by the issuing bank; the receipt tendered bore a different seal, the bank refused, and the court held the refusal proper. Formally still a credit, in substance conditional commercial credit.

The earlier gate: exchange control in the buyer's country

Nigeria: Form M is a statutory document and must be raised at an authorised dealer bank whether or not foreign exchange is involved. It must be approved before shipment, not at arrival, and the bill of lading must show the Form M number. Get the order wrong and every later step is a repair job.

Ghana: under the Foreign Exchange Act 2006, Act 723 (not 712), authorised dealer banks must verify that the trade is genuine; in practice the invoice, the bill of lading and the CCVR generated in ICUMS must agree.

China adds its own gate: SAFE Circular 2024 No.11 moved registration on the foreign exchange receipts and payments list to the domestic bank from 1 June 2024, to be completed before the first receipt or payment; outside the list, banks in principle may not handle goods trade receipts and payments. For where to split the payment nodes, see "First cooperation: how to avoid a runaway order".

Four steps to fix the structure

Ask about the payment route first

Nigeria: is the Form M approved; Ghana: will the CCVR match the invoice and bill of lading; if not, do not discuss instruments

Set the structure by amount and first order status

Small first order: T/T or a small deposit; large first order: sight irrevocable credit; repeat buyer: back to T/T with credit terms

Read the credit draft for the four soft clauses

If they cannot be removed, fall back to partial advance, or split shipment and payment

Clear the China side first

Five common traps

✓Quoting before asking about payment, then the buyer can open nothing
✓Scheduling production without reading the credit draft for soft clauses
✓Raising Form M after arrival in Nigeria, with no Form M number on the bill of lading
✓Invoice, bill of lading and CCVR disagreeing in Ghana, and compliance stops the payment
✓Collecting into the account of a company that is not on the list, and the bank cannot book it

Closing

No instrument is better in the abstract, only better matched. The one that works is the one where the country can pay, the amount can bear it and the documents can control it. To size what the deal leaves you, run the CIF figure through the site's import duty calculator (/en/duty-calculator) first, then decide what to give away on terms.

This reflects the position verified on 5 November 2026. UCP600 wording follows the current ICC version; Form M and local payment rules must be confirmed against the buyer's country rules in force and the bank's written confirmation.