Quick answer: Use TT with a 30/70 structure for orders below roughly USD 150,000 or with a supplier you have verified; use a letter of credit for first orders above about USD 250,000 or where your bank or board requires it. LC fees run 0.15 to 0.75 percent of credit value, so the protection must exceed the cost.
Payment method is the last decision most importers think about and the first one that determines what happens when something goes wrong. The vehicle specification decides whether the truck performs; the payment structure decides who carries the loss if it does not, if it arrives late, if the documents are wrong, or if the supplier fails between deposit and shipment. Those are different risks and the two instruments allocate them very differently.
There is a widespread assumption among first-time importers that a letter of credit is simply the "safe" option and telegraphic transfer is the "risky" one. That is not quite right, and the misunderstanding costs money. An LC is a documentary undertaking by a bank to pay against conforming documents, not a guarantee that the goods are correct, complete or even loaded. A TT with a properly structured milestone schedule, tied to an inspection report and a bill of lading draft, can in practice give a buyer better real protection on specification than a badly drafted LC gives on paperwork. The right question is not which instrument is safer in the abstract, but which one allocates your specific risks at an acceptable cost.
What Do LC and TT Actually Cost Compared?
Start with the arithmetic, because the fee difference is real and it is not trivial on a fleet order. Telegraphic transfer costs a flat sending fee, typically USD 20 to USD 60 per transfer from the buyer's side, plus an intermediary bank deduction of USD 15 to USD 40, plus the foreign exchange spread. On a USD 500,000 order paid in two tranches, total banking cost is usually under USD 300.
A letter of credit costs materially more and the cost scales with value. Expect an issuing fee, an advising fee at the beneficiary bank, amendment fees each time the credit must be changed, a discrepancy fee if documents are rejected and re-presented, and a confirmation fee where the buyer or the beneficiary requires a confirming bank. There is also the internal cost of the credit: a margin deposit or a drawdown on the buyer's credit facility, plus several days of treasury and documentation work on both sides.
| Cost element | TT, 30/70 structure | Letter of credit | Comment for budgeting |
|---|---|---|---|
| Bank fees on a USD 500,000 order | USD 150 to 300 total | USD 2,500 to 11,000 total | LC fees are 0.15 to 0.75 percent plus confirmation |
| Confirmation, where required | Not applicable | 0.5 to 1.5 percent of credit value | Required where the beneficiary does not accept the issuing bank's risk |
| Amendment fees | None | USD 60 to 150 per amendment | Specification changes late in production become expensive |
| Discrepancy and re-presentation fees | None | USD 80 to 200 per presentation | The most common source of frustration and delay |
| Capital tied up | Deposit only, 20 to 30 percent | Often full margin or facility drawdown | Materially affects cash flow on large orders |
| Administrative time | Hours | Several days per transaction | Documentation must be exactly conforming |
| Settlement speed | Same day to 2 days | 5 to 15 banking days for document examination | Affects production release and vessel booking |
The conclusion from the table is not that LC is bad value. It is that LC must be bought for a reason. On a USD 80,000 single-unit order, an LC costing USD 1,200 to USD 2,000 buys documentary discipline that a well-run TT milestone schedule largely duplicates. On a USD 1.5 million fleet order with a supplier the buyer has never met, the same percentage buys something genuinely difficult to replicate: a bank examining documents before funds move, and a named beneficiary whose identity the bank has verified.
How Is Risk Actually Allocated Under Each Method?
This is the part that first-time importers get wrong. Both instruments leave some risk with the buyer, and the differences are specific rather than general.
| Risk | Under TT, 30/70 | Under LC at sight | Practical mitigation |
|---|---|---|---|
| Supplier takes deposit and does not produce | Buyer bears the loss of the 30 percent deposit | Bank pays only against documents; deposit may still be paid outside the credit | Verify the entity, use a deposit that is proportionate, request a bank guarantee for large deposits |
| Goods do not match the contract specification | Buyer can withhold balance until inspection passes | Bank pays against documents regardless of physical conformity | Make an independent inspection certificate a required document or a condition of balance release |
| Documents are wrong or incomplete | Buyer reviews drafts before paying | Bank rejects, supplier must re-present; delay and fees | Agree the document list in advance and review drafts before presentation |
| Shipment delayed past the agreed date | Buyer can hold the balance | Credit expiry may lapse; extension requires an amendment | Set a latest shipment date with adequate margin and a realistic expiry |
| Payment fraud or redirected bank details | Highest exposure; funds are unrecoverable once sent | Lower; the bank verifies the beneficiary | Confirm beneficiary details by voice before every transfer |
| Quality defect found after arrival | Buyer bears it unless a retention was agreed | Buyer bears it; the LC has closed on payment | Agree a 3 to 5 percent retention held 30 to 60 days after delivery |
| Currency movement between order and payment | Buyer bears it | Buyer bears it unless hedged | Fix the rate or hedge large orders |
Two rows deserve emphasis. The first is specification risk: an LC does not protect against it at all. Banks deal in documents, not trucks. A perfectly conforming document set can accompany a truck with the wrong axle ratio, and the bank will pay. The only effective protection is making an independent inspection certificate a condition, either as a required document under the credit or, under TT, as a condition of releasing the balance. The second is fraud risk, where TT is materially more exposed and the mitigation is procedural rather than financial: verify the beneficiary by voice, every time.
What Is the Standard 30/70 TT Structure and When Should You Deviate?
The market standard for Chinese vehicle exports is a 30 percent deposit and 70 percent balance. The deposit releases the production slot and the supplier's procurement of the chassis, engine and body; the balance falls due before shipment, against documents. The exact split and the exact trigger for each tranche matter more than the headline numbers.
| Milestone | Typical share | Trigger | Document the buyer should hold |
|---|---|---|---|
| Order confirmation | 10 to 30 percent | Signed proforma invoice and specification sheet | Countersigned specification, proforma invoice, supplier entity details |
| Production release | Included in deposit | Production slot allocated, chassis and engine reserved | Build slot confirmation with VIN allocation where available |
| Pre-shipment, standard | 70 percent balance | Inspection report, photo and video set, bill of lading draft | Inspection report, VIN list, packing list draft, bill of lading draft |
| Alternative, three-tranche | 30 / 40 / 30 | Deposit, then production complete, then pre-shipment | Adds a production-completion checkpoint and photo set |
| Retention, optional | 3 to 5 percent | Held 30 to 60 days after arrival | Delivery note, defect punch list, release confirmation |
| Large fleet orders | 20 / 80 or 10 / 90 | Negotiated on orders above roughly ten units | Same document set, with staged shipment schedule if split |
Three rules govern whether a given structure is safe. First, no balance payment should ever be released before the buyer holds an inspection report and a bill of lading draft; that single discipline prevents most of the disputes that reach us. Second, the deposit should be proportionate to what is genuinely at risk during production; a 30 percent deposit on a USD 2 million order is a large exposure and warrants either a bank guarantee or a smaller deposit with a staged production payment. Third, if the order ships in more than one vessel, the payment schedule should follow each shipment rather than the order as a whole.
What Is the Difference Between LC at Sight and Usance LC?
An LC at sight obliges the bank to pay the beneficiary within a short period, conventionally about five banking days, after a compliant document set is presented. It is the standard form and it is what most exporters expect. The buyer's exposure is that funds leave shortly after shipment, which on a 35 to 45 day voyage means the money is out well before the trucks arrive.
A usance LC defers payment for an agreed period, commonly 30, 60, 90 or 180 days after presentation or after bill of lading date. The exporter is paid at maturity, or can discount the acceptance and be paid earlier at a cost. For an importer, usance converts the transaction into supplier-financed working capital: the trucks can be delivered, registered and put to work before the cash leaves. For a fleet buyer putting 20 trucks into revenue service, 90 days of float can be worth more than the entire LC fee.
The cost of usance is the discount rate applied across the period, and it is usually borne by the beneficiary unless the credit specifies otherwise. Where the exporter will not accept usance, a common compromise is a sight LC for the majority of the value with a usance tranche for the balance, or simply a negotiated retention held outside the credit.
Should You Use Escrow or a Hybrid Structure?
Escrow in cross-border vehicle trade is less common than buyers expect, and for good reason: the sums are large, the instruments are designed for smaller transactions, and the goods are physical assets subject to inspection rather than digital deliverables. Escrow works best in narrow circumstances.
- Small orders and first transactions. For a single unit or a two-unit order with an unfamiliar supplier, escrow through a recognised provider adds a neutral holder at a cost typically between 0.5 and 1.5 percent of the value.
- Deposit protection. Holding the deposit in escrow until production evidence is provided is a reasonable structure where the buyer cannot verify the supplier's standing.
- Where neither side will concede. Where the buyer will not accept TT and the supplier will not accept LC terms, escrow can break the deadlock, but the release conditions must be drafted precisely or the funds simply become stuck.
A more common and usually better structure is a hybrid. The deposit moves by TT because speed matters at the production planning stage; the balance moves under an LC, so that the bank examines the document set before funds are released; and a retention of 3 to 5 percent is held outside both, released 30 to 60 days after delivery against a defect punch list. This gives speed where speed helps, documentary control where the money is large, and a genuine post-delivery remedy, which neither instrument alone provides.
What Red Flags Should You Avoid?
Most losses in cross-border vehicle payment are not caused by instrument choice. They are caused by procedural failures around the instrument, and they are highly predictable:
- Payment to a personal or third-country account. A legitimate exporter is paid to its own corporate account in its own name in its own country. A request to pay a personal account, or an account in an unrelated jurisdiction, is disqualifying.
- Bank detail changes sent by email only. This is the single most common fraud vector. Any change to beneficiary name, bank, account number or SWIFT must be confirmed by voice with a known contact, and ideally by a second channel.
- Refusal of pre-shipment inspection. A supplier that will not allow inspection before the balance is released is telling you how the transaction will end.
- Demand for 100 percent prepayment. No established exporter needs it, and no buyer should accept it on a first order.
- A price materially below the market. A quotation 15 to 25 percent below comparable offers is usually a specification reduction, a payment fraud, or a supplier who will not be there at delivery.
- Vague specification document. If the proforma invoice does not state engine model, gearbox, axle ratio, emission level and body specification, there is nothing to inspect against and nothing to claim on.
- Pressure to pay before a named deadline unrelated to the order. Manufactured urgency is a well-established tactic. Real production slots do not require payment within hours.
How Does Fenghan Structure Payment for Export Orders?
Shaanxi Fenghan Trading Co., Ltd. works with TT and LC routinely and will accommodate either, including confirmed and usance credits. The standard sequence for a TT order is a 30 percent deposit against a countersigned specification sheet and proforma invoice, followed by a 70 percent balance released after the buyer receives the pre-shipment inspection report, the photograph and video set, the VIN and build sheet cross-check, and the bill of lading draft. For fleet orders we will discuss staged structures, including 20/80 and multi-shipment schedules, and a retention where the buyer wants post-delivery cover.
For LC orders, we ask that the documentary requirements be agreed before the credit is issued, because amendment after issuance is the most common cause of avoidable delay. Our team provides the draft document set for review before presentation, which removes most discrepancy risk. Where a buyer's bank requires an inspection certificate, we accommodate the buyer's nominated inspector.
Whatever the instrument, the specification sheet is the document that matters most. Whether the order is a fleet of SAGMOTO tractor trucks prime mover units or a mixed batch that includes SAGMOTO dump truck models 6x4 8x4, the engine model, gearbox, axle ratio, emission level, cab type, body specification and tyre size must be written into the document both sides sign. That sheet is what the inspection checks against, what the contract claims are measured against, and what the payment milestones are tied to.
Conclusion
Choose the instrument on order size and on relationship, not on habit. TT with a 30/70 structure is faster, far cheaper and, when tied to an inspection report and a bill of lading draft, gives a buyer genuine leverage on the thing that matters: whether the truck is right. An LC costs 0.15 to 0.75 percent of value plus confirmation, and buys documentary control plus bank-verified identity, which is worth having on a large first order but does nothing at all about specification.
Whichever you choose, three disciplines carry most of the risk reduction. Never release the balance before the inspection report and bill of lading draft are in hand. Agree a retention of 3 to 5 percent for 30 to 60 days after delivery so that a post-arrival defect has a remedy. And verify beneficiary details by voice before every single transfer.
Payment method does not make a bad supplier good, and no instrument substitutes for a written specification both parties signed. Get the specification right, structure the milestones so that money follows evidence rather than dates, and the choice between LC and TT becomes a manageable cost decision instead of a bet.
Frequently Asked Questions
Should you pay by LC or TT when importing trucks from China?
Pay by TT with a 30/70 structure for orders below roughly 150,000 USD or from a supplier you have verified, and use a letter of credit for first orders above about 250,000 USD or where your bank requires it. An LC costs 0.15 to 0.75 percent of the credit value in fees, so it must protect more risk than it costs.
What is the standard 30/70 TT structure for truck imports?
A 30 percent deposit releases production and a 70 percent balance is paid against the pre-shipment inspection report and the bill of lading draft. Some exporters accept 20/80 or 10/90 for fleet orders above ten units, but the balance should never be paid before documents are presented.
How much does a letter of credit cost for a truck import?
Budget 0.15 to 0.75 percent of the credit value in issuing, advising and amendment fees, plus 0.5 to 1.5 percent for confirmation where a confirming bank is required. On a 500,000 USD order that is roughly 2,500 to 11,000 USD, before any margin deposit your bank requires.
What is the difference between LC at sight and usance LC?
An LC at sight requires the bank to pay within about 5 banking days of receiving compliant documents, while a usance LC defers payment for 30 to 180 days. Usance gives the importer time to take delivery and start earning before funds leave, at a cost of the discount rate across the usance period.
What payment red flags should I watch for when importing trucks from China?
Walk away from any request to pay a personal or third-country account, any supplier refusing inspection before balance release, any demand for 100 percent prepayment, and any bank detail change sent by email without voice verification. Confirm beneficiary name, bank and SWIFT by phone before every transfer.