Every international trade has a gap: the seller wants to be paid before the goods leave, the buyer wants the goods before paying. Payment terms decide who carries that gap, and trade finance exists to narrow it.
Advance payment
The buyer pays some or all of the price before shipment, usually by bank transfer. It is safest for the seller and riskiest for the buyer. A partial advance with the balance against documents is a common middle ground.
Letter of credit (LC)
The buyer’s bank undertakes to pay the seller when the seller presents documents that comply with the credit’s terms. The bank deals in documents, not goods, so every detail must match: description, quantities, dates and ports. A confirmed LC adds a second bank’s undertaking, often in the seller’s country. LCs are widely used for larger or first-time trades. Most are issued subject to the ICC’s UCP 600 rules.
Documentary collection (D/P and D/A)
Banks handle the documents but do not guarantee payment. Under documents against payment (D/P), the buyer pays to receive the documents that release the goods. Under documents against acceptance (D/A), the buyer accepts a bill to pay at a later date. Cheaper than an LC, with more risk for the seller.
Open account
The seller ships and invoices, and the buyer pays on agreed credit terms, such as 30, 60 or 90 days. It suits established relationships. Sellers often manage the risk with credit insurance or receivables finance.
Where trade finance fits
Purchase finance can fund a buyer’s payment to the supplier. Working capital can cover a supplier’s production period. Receivables finance can release cash from invoices on open account. Whether finance is available, and on what terms, is decided by the finance provider after its own assessment.
If a trade needs finance, say so early. You can discuss trade finance with TP4 separately from a product request.
General information, not legal, tax or financial advice. Updated October 2026.