21/10/2025
Choosing a payment method that actually works
Suppliers want certainty of payment. Buyers want time and room to manage cash. If trust is thin or the ticket is large, use a Letter of Credit. If the contract needs a safety net but cash is not due now, use a Bank Guarantee or a Standby Letter of Credit. If the relationship is strong and exposure is modest, use Open Account with clear terms and basic controls.
What LC, SBLC or Bank Guarantee, and Open Account mean
A Letter of Credit is a bank commitment to pay the seller when documents match the stated terms under UCP 600. Variants include sight, usance, UPAS, transferable, and revolving.
A Bank Guarantee or Standby LC is a promise to pay if the applicant defaults, payment is triggered by a draw statement that meets the wording, often under ISP98.
Open Account is the simplest path, the seller ships, issues an invoice, and the buyer pays later on agreed terms.
When to use each option
Use an LC when the counterparty is new, country risk is higher, the amount is material, or the seller needs to finance production or inventory. Use a BG or SBLC when a framework contract requires a performance, warranty, or payment backstop, it protects against default rather than serving as day to day payment. Use Open Account when the buyer has a proven payment record and the exposure sits within your limit. If the exporter needs cash at shipment, a sight LC or UPAS with confirmation and discounting pays on presentation. A standby does not pay routine invoices. Open Account pays when the buyer pays on terms.
