TT vs LC vs CAD
TT (Telegraphic Transfer), LC (Letter of Credit), and CAD (Cash Against Documents) are the three most common payment terms used in international piping and equipment procurement. Each method distributes risk differently between buyer and seller, and the right choice depends on the commercial relationship, order value, and country risk.
In oil and gas projects, payment terms directly affect cash flow, procurement timelines, and the total cost of materials. TT vs LC vs CAD compare matters for procurement engineers and commercial managers.
TT vs LC vs CAD Comparison
| Feature | TT (Wire Transfer) | LC (Letter of Credit) | CAD (Cash Against Documents) |
|---|---|---|---|
| Full name | Telegraphic Transfer | Letter of Credit | Cash Against Documents |
| Bank involvement | Minimal (transfer only) | High (bank guarantees payment) | Medium (bank holds documents) |
| Buyer risk | High (advance) / Low (after delivery) | Low (pays only if documents comply) | Medium (pays before inspecting goods) |
| Seller risk | Low (advance) / High (after delivery) | Low (bank guarantees payment) | Medium (buyer may refuse documents) |
| Cost | Low (bank fees only) | High (1-3% of LC value) | Low to medium |
| Speed | Fast (1-3 business days) | Slow (document checking, 5-21 days) | Medium (3-7 days) |
| Typical use | Trusted suppliers, small orders | New suppliers, high-value orders | Established relationships, moderate orders |
| Payment timing | Before or after shipment | Upon compliant document presentation | Upon document presentation at buyer’s bank |
Key Differences Explained
TT (Telegraphic Transfer) is a direct bank-to-bank wire transfer. It can be structured as advance payment (risky for the buyer), payment at sight (upon shipping documents), or deferred payment (30-90 days after shipment). TT is the fastest and cheapest method but offers no bank guarantee to either party.
LC (Letter of Credit) involves the buyer’s bank issuing a guarantee to pay the seller, provided the seller presents documents that comply exactly with the LC terms. It is the safest option for both parties but the most expensive and time-consuming. LCs are standard for large piping orders with new or international suppliers.
CAD (Cash Against Documents) is a documentary collection where the seller ships the goods and sends shipping documents through the banking channel. The buyer’s bank releases the documents (including the bill of lading) only after the buyer pays. The bank acts as an intermediary but does not guarantee payment.
When to Use Each Method
Choose TT when:
- The supplier is well-known and trusted
- The order value is relatively small
- Speed is critical and bank processing delays are unacceptable
- Both parties agree on a balanced structure (e.g., 30% advance, 70% on delivery)
Choose LC when:
- Trading with a new supplier or in a high-risk country
- The order value exceeds $100,000 or company policy mandates it
- The seller requires a bank-backed payment guarantee
- The project involves complex procurement milestones
Choose CAD when:
- There is moderate trust between buyer and seller
- The buyer wants document control without LC costs
- The order value does not justify LC banking fees
Payment terms should always be aligned with the chosen Incoterms 2020 delivery term to avoid gaps in cost and risk allocation.
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