Payment Methods in International Trade: 4 Options, from Letters of Credit to Export Credit Insurance

There are four main payment methods in international trade: cash in advance, letter of credit (L/C), documents against payment, and cash against goods. The safest is the letter of credit, because the buyer’s bank gives an irrevocable undertaking to pay once the stipulated documents are presented in full. Where competitive markets demand open account terms, Export Credit Insurance from the Export Credit Bank of Türkiye (Türk Eximbank) shifts the collection risk to the state. The method you choose directly shapes the financial health of any business shipping abroad.

Collection risks every exporter faces

Manufacturers in Türkiye’s organised industrial zones run broad export portfolios, from electronics supply chains serving Europe to white goods components and automotive parts. At this scale, the wrong payment method can turn into a cash flow crisis that lasts months, or even into receivables that are never collected.

Three factors shape the choice of payment method:

• Buyer reliability: agreeing to cash against goods with a first-time buyer is a high risk.
• Country risk: in politically or economically fragile markets, a bank guarantee is essential.
• Shipping time: with long transit times, the L/C expiry date and presentation periods need careful structuring.

The decision matters most for products with a high unit value. Even on a short shipment from Türkiye to Western Europe, an unclear buyer payment profile without the right safeguard can lead to serious losses.

Letter of credit (L/C): bank-backed payment for exporters

In international trade, the seller’s biggest worry is not getting paid; the buyer’s is not getting the goods. A letter of credit balances this two-sided risk through the banks and protects both parties: the buyer’s bank gives an irrevocable undertaking to pay once the stipulated documents are presented in full.

Common mistakes with letters of credit

A frequent mistake among supplier companies is not reading the L/C draft closely before the bank issues it. A date mismatch, a wrong port name or an incomplete document description leads to discrepancies, and the money can stay blocked for weeks. A systematic review at the draft stage can prevent these technical errors.

Basic document checklist for a discrepancy-free L/C:

• Amount and currency on the export invoice match the L/C exactly
• The port of loading on the bill of lading matches the port named in the L/C
• The number of items on the packing list is consistent with the invoice
• The body issuing the certificate of origin is the one named in the L/C
• The presentation period leaves enough time for transport

Türk Eximbank export credit insurance: cover for open account trade

You cannot insist on a letter of credit in every market. In competitive markets, buyers usually ask for open account or cash against goods terms. In that case, Türk Eximbank’s Export Credit Insurance pays out most of the export value if the buyer goes bankrupt or fails to pay.

Türk Eximbank rates countries in risk classes from 0 to 7 and sets a limit for each. For a manufacturer in Türkiye selling to Western Europe, the insurance puts a concrete safeguard behind offering open account terms to new customers. Current country risk classes and cover details are on Türk Eximbank’s official website.

The 4 payment methods compared

Forfaiting and discounting: turning a deferred L/C into cash early

Suppliers to large groups face another problem: the working capital squeeze caused by long payment terms. With forfaiting, you assign the receivable documents under a deferred letter of credit to a bank and receive cash before maturity. It speeds up the cash cycle, especially on L/Cs with terms of 90 to 180 days.

For exports priced in euros or dollars, pairing the payment method with currency forward contracts to hedge exchange rate risk completes the collection strategy. The goal is not just money that reaches your bank account, but money that reaches it without losing value.

Securing payment is only one part of export strategy. To reach the right buyers, manage market entry and lighten the operational load, take a look at our Export Consulting service.