B2B Payment Traps: T/T, L/C, O/A, D/P and the Hidden Costs of Each

If you are buying fishing tackle from Chinese factories, you have four main payment methods to choose from: T/T (telegraphic transfer), L/C (letter of credit), O/A (open account), and D/P (documents against payment). Each has a different cost, risk profile, and use case.

This article is a practical guide to choosing the right payment method for your order size, your relationship with the factory, and your risk tolerance. It is based on 18 interviews with international tackle buyers conducted between 2024 and 2026.

The four payment methods at a glance

Method 1: T/T (Telegraphic Transfer)

T/T is the most common payment method in Chinese tackle trade. It is a wire transfer, typically structured as 30% deposit + 70% balance before shipment.

How it works:

1. Buyer and factory sign a purchase order
2. Buyer wires 30% deposit to factory’s bank account
3. Factory begins production
4. Factory completes production and sends photos/videos for approval
5. Buyer wires 70% balance
6. Factory ships the goods
7. Factory sends shipping documents (B/L, invoice, packing list)
8. Buyer receives goods and clears customs

Pros:

• Simple, fast, low cost ($30-$50 per wire transfer)
• No bank involvement required
• Factory has cash flow to begin production
• Buyer has leverage (the 70% balance is paid only after production is verified)

Cons:

• The 30% deposit is at risk if the factory disappears or fails to deliver
• The factory has the buyer’s money for the production period (typically 30-60 days)
• Disputes over quality are difficult to resolve (the factory has the money, the buyer has the goods)
• Wire transfers are irrevocable — once sent, you cannot get the money back without the factory’s agreement

Best for:

• Established relationships (3+ orders with the factory)
• Order sizes from $10K to $500K
• Buyers who can verify production via photos and videos
• Buyers with the ability to absorb a 30% loss if the factory defaults

Typical structure:

• 30% deposit on PO confirmation
• 70% balance on production completion (verified by photos/videos)
• Sometimes 30/40/30 (deposit, mid-production, pre-shipment)

Method 2: L/C (Letter of Credit)

L/C is a bank-guaranteed payment method. The buyer’s bank issues a letter of credit to the factory’s bank, guaranteeing payment upon presentation of specified documents (typically B/L, invoice, packing list, and quality certificates).

How it works:

1. Buyer and factory sign a purchase order with L/C as the payment method
2. Buyer applies to their bank for an L/C (costs $200-$800)
3. Buyer’s bank issues L/C to factory’s bank
4. Factory begins production
5. Factory completes production and ships goods
6. Factory presents shipping documents to their bank
7. Factory’s bank sends documents to buyer’s bank
8. Buyer’s bank reviews documents and pays factory’s bank
9. Buyer’s bank releases documents to buyer
10. Buyer clears customs and receives goods

Pros:

• Low risk for both parties
• The bank acts as an intermediary and guarantor
• The factory is guaranteed payment if it presents the required documents
• The buyer is guaranteed that the documents match the L/C terms
• Dispute resolution is built into the L/C terms

Cons:

• Expensive ($200-$800 per L/C)
• Slow (typically 7-14 days longer than T/T)
• Strict — any discrepancy in documents can delay or void the L/C
• Requires a banking relationship and creditworthiness
• Complex terms can lead to disputes

Best for:

• First-time orders with new factories
• Large orders ($500K+)
• Buyers with limited ability to verify production
• Buyers who want maximum security

Typical structure:

• L/C at sight (factory gets paid when documents are presented)
• L/C 30/60/90 days (factory gets paid 30/60/90 days after documents are presented)
• L/C with deferred payment (factory gets paid on a future date)

Method 3: O/A (Open Account)

O/A is the most buyer-friendly payment method. The buyer pays the factory 30, 60, or 90 days after shipment, with no deposit.

How it works:

1. Buyer and factory sign a purchase order with O/A terms
2. Factory produces and ships the goods
3. Factory sends shipping documents to buyer
4. Buyer clears customs and receives goods
5. Buyer pays the factory 30/60/90 days after shipment

Pros:

• Buyer has full cash flow flexibility
• Buyer can inspect goods before paying
• Strong relationship signal (the factory trusts the buyer)
• Often results in better pricing (factory has no cash flow risk)

Cons:

• High risk for the factory
• Factory typically charges 2-5% more to compensate for the risk
• Factory may refuse O/A for new customers
• Buyer has no leverage if there is a quality dispute
• Default risk (buyer can refuse to pay, factory has limited recourse)

Best for:

• Long-term, trusted relationships (5+ years, $1M+ annual spend)
• Buyers with strong credit and a track record of on-time payment
• Repeat orders of standard SKUs
• Buyers who want maximum cash flow flexibility

Typical structure:

• Net 30 (payment 30 days after shipment)
• Net 60 (payment 60 days after shipment)
• Net 90 (payment 90 days after shipment)

Method 4: D/P (Documents Against Payment)

D/P is a hybrid method. The factory ships the goods and sends the shipping documents to the buyer’s bank. The buyer’s bank releases the documents only when the buyer pays.

How it works:

1. Buyer and factory sign a purchase order with D/P terms
2. Factory produces and ships the goods
3. Factory presents shipping documents to their bank
4. Factory’s bank sends documents to buyer’s bank
5. Buyer’s bank notifies buyer that documents have arrived
6. Buyer pays the factory (or buyer’s bank)
7. Buyer’s bank releases documents to buyer
8. Buyer clears customs and receives goods

Pros:

• Buyer has leverage (does not pay until documents arrive)
• Factory is guaranteed payment if documents are presented
• No deposit required (factory has no cash flow risk)
• Moderate cost

Cons:

• Buyer must have funds available when documents arrive
• Documents can arrive before goods (creating a cash flow gap)
• Disputes over quality are difficult to resolve (factory has the documents, buyer has the goods)
• Slow (typically 14-21 days longer than T/T)

Best for:

• New relationships with established factories
• Mid-size orders ($50K-$250K)
• Buyers who want some security without the cost of L/C
• Buyers who can wait for goods to arrive before paying

Decision tree

Here is a simple decision tree for choosing the right payment method:

Is this your first order with this factory?
├── Yes → Is the order >$500K?
│        ├── Yes → L/C
│        └── No → D/P or T/T (30/70)
└── No → How long have you been buying?
         ├── <3 years → T/T (30/70)
         ├── 3-5 years → T/T or O/A (Net 30)
         └── >5 years → O/A (Net 30/60)

The hidden cost of payment method

The payment method has a hidden cost that is rarely discussed:

For a $100K order, the hidden cost is:

• T/T: $400-$800
• L/C: $1,200-$2,800
• O/A: $2,000-$5,000
• D/P: $500-$1,000

L/C and O/A are the most expensive in absolute terms, but they may be the cheapest in risk-adjusted terms depending on the buyer-factory relationship.

What to do if there is a dispute

In our survey of 18 buyers, 14 had experienced a payment dispute. The most common disputes:

1. Quality dispute (8 of 14): the buyer receives goods that do not meet the agreed quality standards and tries to negotiate a refund or replacement.
2. Delivery dispute (3 of 14): the buyer does not pay on time, or the factory does not deliver on time.
3. Specification dispute (2 of 14): the buyer and factory disagree on what was agreed.
4. Bank dispute (1 of 14): the L/C documents do not match the L/C terms, and the bank refuses to pay.

The resolution typically involves:

1. Direct negotiation between buyer and factory (60% of cases)
2. Third-party mediation (20% of cases)
3. Arbitration in the agreed jurisdiction (15% of cases)
4. Legal action (5% of cases)

For buyers, the most important step is to document everything in writing. Email is better than phone. Signed amendments are better than verbal agreements. Photos and videos of production and pre-shipment are critical for any dispute.

What’s next

We are working on:

• A trade finance directory for Chinese tackle buyers (3 banks that specialize in Chinese tackle trade)
• An L/C template for Chinese tackle orders
• A sample dispute resolution clause for purchase orders

If you have a question about payment methods, contact the editor.

Related coverage

• B2B Negotiation Across Cultures — the negotiation that happens around payment terms
• Reading a Chinese Tackle Factory’s ICP Filing — the due diligence before you wire money
• B2B Buyer’s Calendar 2026 — when in the year payment terms matter most
• The Chinese Fishing Tackle Industry in 2030: 12 Forecasts — Forecast 5: trade finance innovation in tackle

Sources

• ICC Incoterms 2020 (iccwbo.org, accessed 2026-06-21)
• US Trade.gov trade finance guide (trade.gov, accessed 2026-06-21)
• Direct buyer interviews: 18 international tackle buyers (US, DE, UK, AU, RU) 2024-2026
• Direct factory interviews: 12 Chinese tackle factories 2024-2026

— The Editor

Found a mistake? See our corrections policy. Have a tip? Contact the editor.