Payment Methods for China Factories: Mastering TT and LC for Secure Global Sourcing

In the complex world of global garment manufacturing, the way money moves between buyers and China-based factories can either accelerate a project or derail it before a single seam is sewn. For decades, two payment pillars have stood at the center of this ecosystem: Telegraphic Transfer (T/T) and Letters of Credit (L/C). Each method carries its own mix of speed, cost, risk, and administrative steps. Getting this right matters for brands and manufacturers alike—whether you’re sourcing denim, jackets, or high-fashion pieces from a trusted OEM/ODM partner like Newasia Garment, or you’re evaluating suppliers for a new line. This guide unpacks TT and LC in practical terms, demystifies the trade-offs, and provides a clear path to safer, smoother cross-border payments.

What TT and LC really mean in practical terms

Telegraphic Transfer (T/T) is a bank-to-bank transfer of funds, typically initiated by the buyer’s bank to the supplier’s bank. It is fast, straightforward, and widely accepted. In practice, buyers wire funds according to an invoice or pro forma, and the supplier ships after receiving confirmation of the transfer. The speed depends on both banks and time zones, but in many cases it can be completed within 1–3 business days. Fees are usually split between the sender and recipient, and exchange rate fluctuations can affect the final cost.

Letters of Credit (L/C) is a more formal instrument issued by a buyer’s bank guaranteeing payment to the seller, provided that very specific documentary conditions are met. For high-value orders or new supplier relationships, L/C offers a strong risk moat: the bank stands between buyer and seller, and payment is released only when documents—such as a bill of lading, inspection certificates, and compliance documents—conform to the terms of the LC. While LC can protect both sides, it requires careful paperwork, longer processing times, and inherent fees (issuing, advising, amendment, and potentially confirmation charges). When used correctly, LC becomes a powerful risk management tool in the garment supply chain.

Understanding these definitions is the first step. The next section translates theory into the day-to-day decisions buyers and factories face in China’s vibrant manufacturing clusters.

Choosing between TT and LC: a decision framework

Two questions shape the choice:

What is the level of trust and track record with the supplier?
What is the risk tolerance and the capital/operational constraint of the buyer?

If you know your supplier well, have a predictable production schedule, and value speed and simplicity, TT is often the practical default. It minimizes administrative steps, reduces cost on small-to-mid-size orders, and can be done with online banking tools. However, TT is, by design, a payment instrument. It does not create a formal bank-backed guarantee of performance unless you pair it with robust supplier verification, performance milestones, and a strong contract. In a landscape where a misstep can lead to production stoppages or quality issues, this savings on time can come with higher execution risk.

When you are onboarding a new supplier, handling large or complex orders, or dealing with uncertain political or currency environments, an L/C can be a smarter choice. An LC offers a bank-backed framework that aligns payment with documentary compliance and pre-defined delivery milestones. While slower and costlier, LC reduces counterparty risk and can facilitate larger orders, long-term relationships, and supplier credit arrangements. The key is to tailor the LC structure to your actual supply chain needs—whether you need sight, usance, or standby features—and to work with a bank and a trade finance advisor who understands the garment sector specifics (lead times, inspection regimes, and common documentary requirements).

Tip: Always quantify the total landed cost. When evaluating TT versus LC, consider not only the advertised fees but also the time value of money, currency risk, potential for late shipments, and the cost of financing if supplier credit is part of the equation.

Operational details: TT process and best practices

Here is a practical workflow you can follow when you choose T/T for a garment order:

Confirm payment terms in the contract: typical terms include T/T 30, 60, or 90 days after shipment, or T/T against 30% upfront and 70% on documents.
Obtain accurate banking details: supplier’s bank name, branch, account number, SWIFT/BIC code. Make sure the beneficiary matches the exact legal entity on the contract.
Prepare the documents: commercial invoice, packing list, bill of lading, and any required certificates. Some buyers also request a proof of production or a third-party inspection report.
Initiate the transfer: the buyer’s bank issues the SWIFT transfer and notifies the supplier. Include essential references (invoice number, PO, and contract ID) to ensure proper allocation.
Confirm receipt and document alignment: once the funds arrive, the supplier confirms receipt and begins shipment. Track the shipment and share the delivery timeline.
Manage currency risk: if your payment currency is not your operating currency, consider hedging or locking rates in advance to avoid adverse moves.

What to watch for with TT:

Hidden fees: some banks charge intermediary or correspondent bank fees. Confirm who bears these costs in your agreement.
Exchange rate exposure: if you are paying in a foreign currency, small rate differences can affect final cost. A forward contract with your bank can reduce exposure.
Fraud prevention: always verify the supplier’s banking details through a trusted channel. Do not rely on email-only communications for sensitive banking data.

Operational details: LC process and best practices

With a Letters of Credit, the typical life cycle follows these steps:

Contract and LC terms: the buyer and supplier agree on an LC, specifying required documents, delivery milestones, partial shipments, and the currency.
Issuing the LC: the buyer’s bank issues an irrevocable LC in favor of the supplier. The LC can be sight (payment at presentation of compliant documents) or usance (payment at a future date).
Advising and confirmation: the LC is advised to the supplier by a bank. In some cases, a confirming bank adds its own guarantee, improving the supplier’s confidence, especially for new suppliers or higher-risk trades.
Documents and shipment: the supplier ships goods and presents documents (bill of lading, commercial invoice, packing list, quality certificates) to the bank.
Documentary examination: the buyer’s bank checks the documents against the LC terms. If compliant, payment is made or a usance period begins.
Payment and release: upon successful matching, funds are released to the supplier, and the documents are transferred to the buyer.

Common LC variants used in garment trade include:

Irrevocable LC: a permanent commitment by the buyer’s bank, not easily amended without all parties’ consent.
Confirmed LC: a second bank adds its own guarantee, reducing supplier risk in regions with volatile banking environments.
Standby LC: rarely used for a typical order but useful as a credit line or to cover performance guarantees and contract obligations.

Practical tips for LC success:

Start early: process times for LC issuance, amendment, and advisory can add days to the timeline. Begin negotiations well before production starts.
Be precise in document requirements: the LC should specify exact document formats, dates, and tolerances to avoid mismatches and payment delays.
Link LC to real milestones: tie partial shipments, quality inspections, and third-party approvals to specific LC terms to manage risk and cash flow.
Engage a trade finance partner: banks with garment industry experience can help tailor LC structures to your order profile and provide guidance on documentary requirements.

Mitigating risks: supplier credibility, scams, and due diligence

Regardless of whether you use TT or LC, risk mitigation starts before the money changes hands. Here are practical steps:

Pre-screen suppliers: verify business licenses, tax IDs, factory location, production capabilities, and export history. Look for certifications and quality management practices relevant to garments (e.g., BSCI, ISO 9001, or customer-specific standards).
Bank verification: confirm supplier bank accounts directly with the supplier in a formal channel. Avoid changes announced via untrusted emails or messaging apps.
Document alignment: ensure your contract, invoices, packing lists, and bills of lading clearly describe the order, quantities, SKUs, grades, colors, and packing details.
Payment milestones align with production: consider milestone-based payments, inspection-triggered payments, or staged shipments to balance cash flow and performance.
Use independent inspections: partner with third-party inspectors to verify quality before the final payment or shipment. This is especially important for high-value or new-season orders.

In fashion manufacturing, the speed of a global supply chain can expose you to counterfeit documents or misrepresented product specs. The antidote is a layered approach: clear contracts, verified supplier profiles, and a payment framework that aligns with performance milestones. If you’re unsure, consult with a trade finance advisor to map a risk profile that suits your brand and production cadence.

Practical checklists: TT and LC in the field

TT readiness checklist

Validated supplier bank details with a dedicated verification step
Clear invoice and pro forma alignment with agreed terms
Defined currency and cost-plus model to manage FX risk
Transparent fee disclosures from both banks
agreed delivery schedule and contingency plans for production delays

LC readiness checklist

Detailed LC terms covering shipment timing, partial shipments, and document list
Bank counterparties with a proven track record in garment trade
Inspection and quality-control milestones integrated into the LC
Document templates standardized to minimize discrepancies
Contingency plan for amendments and delays

These checklists serve as a practical guardrail. In a fast-moving industry like garment manufacturing, having a repeatable payment and documentation process reduces friction and helps sustain long-term supplier relationships.

Case study: TT vs LC in action with a China-based OEM partner

Imagine a mid-size denim jacket order from a well-established supplier in Guangzhou. The brand has worked with the factory for several seasons; communication is smooth, and the first production run is on track. The buyer’s team is evaluating whether to move to an L/C for this larger, high-value order to secure capacity and ensure on-time delivery during peak season.

Scenario A: All-in with TT. The buyer wires 50% upfront for raw materials, 50% on delivery against a simple invoice. The order ships on time, customs clearance goes smoothly, and products arrive in the destination market with minimal delay. Savings come from lower fees and faster cash flow. However, a hiccup in the last stage—an unexpected quality deviation—emerges. The factory raises a dispute; there is no bank-backed guarantee to fall back on. The buyer negotiates a quick remedy and ships replacement units, paying additional costs but keeping the product calendar intact.

Scenario B: L/C-based. The buyer issues an irrevocable LC with a confirming bank, tying payment to the presentation of compliant documents. The supplier is confident, knowing that the bank stands behind the transaction. The inspection occurs at the supplier’s plant, and the shipping documents align with the LC’s documentary requirements. The order is delivered with high quality and on schedule. The view from the buyer: safer for large volumes and new supplier relationships, better for mitigating fraud risk, and more predictable in terms of cash flow, albeit with higher administrative load and costs.

Lessons learned: for trusted, repeat suppliers with predictable lead times, TT can be efficient and cost-effective. For large orders, new suppliers, or when calendar risk is critical, LC structures—especially with the option of a confirming bank—can deliver greater peace of mind and smoother financing. The sweet spot often lies in a blended approach: use TT for routine orders under strict contract terms, and reserve LC for scale-up phases, new product launches, or complex supply chains.

Frequently asked questions (quick answers)

Q: How long does a T/T transfer take to reach the supplier in China?: A: Typically 1–3 business days after initiation, depending on the banks and time zones. International transfers can sometimes take longer if there are compliance checks or intermediary banks involved.
Q: Can I use an LC for mid-range orders?: A: Yes. LC is scalable and can be sized to the order. For mid-range orders, an irrevocable LC with standard terms is often appropriate.
Q: Are there hidden costs with TT or LC?: A: TT costs include bank transfer fees and currency conversion spreads. LC costs include issuing, advising, amendment, and possible confirmation fees. Always obtain a full fee schedule from your banks and factor them into landed costs.
Q: How can I reduce currency risk with TT or LC?: A: For TT, you can lock exchange rates via forward contracts or use suppliers who quote in your currency. For LC, consider quotations in the same currency as your contract and explore hedging options with your bank.
Q: How do I avoid payment scams?: A: Verify supplier bank details through multiple channels, use vetted third-party inspections, require documentary compliance, and maintain a robust contract with clear dispute resolution mechanisms.

Key takeaways for brands and factories

TT and LC are not mere payment methods; they are risk management tools. TT favors speed and simplicity; LC emphasizes guarantees and documentary control.
Choose TT for established partners, smaller orders, and tighter cash cycles. Choose LC for new suppliers, large orders, or when inventory risk is high.
Integrate payment choice with your contract terms, shipping schedules, and quality-control processes to minimize friction and misalignment.
Build a robust due-diligence routine: supplier verification, bank verification, and document standardization should be non-negotiable.
Coordinate with a trusted trade finance advisor to tailor your bank relationships, LC forms, and currency hedging to your specific product mix and seasonal volatility.

Newasia Garment, with decades of garment manufacturing heritage and a commitment to reliable, scalable OEM/ODM production, emphasizes disciplined payment and risk-management practices as a foundation for long-term partnerships. By aligning finance with production realities, brands can move faster, ship with confidence, and maintain quality across growing product lines.