Getting Paid for Exports: Letter of Credit vs Advance Payment
Payment terms decide who carries the risk of a shipment going wrong. Compare advance payment, letters of credit, documents against payment and open account for Cambodian exporters.
Every export negotiation contains one question the price does not answer: who carries the risk? Payment terms are where that risk is allocated, and exporters routinely give away more of it than they intended.
This guide compares the main methods, what each costs, and the document discipline a letter of credit demands.
The five methods, ranked by risk to the exporter
Letters of credit
A letter of credit is a bank's promise to pay against documents, not against goods. That distinction is the whole discipline of using one: the bank does not care whether your goods are good, only whether the documents match the credit exactly.
The sequence:
- Sales contract agrees an LC and names the issuing bank
- Buyer's bank issues the credit, advised to you through a Cambodian bank
- You check every field against what you can actually produce
- You ship within the stated period
- You present documents to your bank, which forwards them to the issuing bank
- Issuing bank examines documents; if compliant, pays
Costs typically include an advising fee, a negotiation or presentation commission, and a discrepancy fee if documents are refused. Ask your bank for the full schedule before you agree the price, because these charges come out of your margin.
The discrepancies that cause refusal
| Discrepancy | Why it happens | Prevention |
|---|---|---|
| Shipment date after the latest shipment date | Production slipped | Request an amendment early, not after sailing |
| Invoice value differs from the credit | Freight or discount added | Match exactly; amend the credit if terms changed |
| Description differs by a word | Copy-typing | Copy the credit's wording verbatim |
| Missing or late document | Certificate of origin delayed | Track every document against a checklist |
| Insurance cover below the required percentage | Policy placed at 110% instead of 120% | Read the credit's insurance clause |
| Presented after the expiry date | Documents held for corrections | Present within the period the credit allows |
A refused presentation is not a loss, but it converts a clean payment into a negotiation, and the buyer learns that your documentation is unreliable.
Documents against payment and acceptance
Under D/P, your bank sends documents to the buyer's bank, which releases them only when the buyer pays. Under D/A, the buyer accepts a bill of exchange and receives documents immediately, paying later.
D/P is workable for moderate values with buyers you know. D/A is effectively unsecured credit: if the buyer does not pay at maturity, you hold an accepted bill and a legal problem.
Open account
Your goods ship, the invoice follows, payment arrives in 30, 60 or 90 days. This is how mature supply relationships work, and it is what large buyers ask for. Before agreeing, ask what happens if the buyer simply stops paying — the answer usually involves export credit insurance, which has a cost and a claim process.
Practical guidance
- New buyer, any value: advance payment or LC.
- Repeat buyer, first year: LC or 30% deposit with balance against documents.
- Established buyer, several clean cycles: D/P, then open account at 30 days.
- Always: a written contract naming the Incoterm, the payment method, the currency and who bears bank charges.
Payment terms and delivery terms interact. If you sell CIF, you arrange freight and insurance; if you sell FOB, the buyer does. Getting that wrong turns a clean LC into an amendment. The Incoterms guide covers which term fits which payment method.
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More in Export and Shipping →General information only. Check current rules with the official authorities.