Payment Terms for Coffee Imports: T/T, Letter of Credit and CAD

Payment Terms for Coffee Imports: T/T, Letter of Credit and CAD explains how importers, roasters, distributors, wholesalers and private-label buyers can structure payment when purchasing green coffee, roasted coffee, instant coffee or customised coffee products from an overseas supplier. Payment terms determine when money is transferred, which documents control the transaction, how commercial risk is divided and whether the exporter can begin production, release documents or ship the goods.

In international coffee trade, the most common payment structures include telegraphic transfer, usually written as T/T, letters of credit and cash against documents, commonly abbreviated as CAD. Each method offers a different balance of cost, speed, banking control, documentation and risk. The most suitable option depends on the value of the order, the history between buyer and seller, the country involved, the product type, the production cycle and the Incoterm used.

A first-time buyer may be asked to pay a deposit before production and the remaining balance before shipment. A larger importer may negotiate payment against shipping documents. Established businesses may use a letter of credit for high-value container programmes. This guide compares the main payment methods used in coffee imports and explains how buyers can protect cash flow without creating unacceptable risk for the exporter.

Why payment terms matter in coffee imports

Payment terms influence much more than the date on which money changes hands. They affect production planning, raw-material purchasing, packaging procurement, shipment release, document control, bank charges and the ability of both parties to manage risk.

For the exporter, payment terms determine whether sufficient funds are available to:

• Purchase coffee cherries or green coffee
• Reserve a specific grade or lot
• Arrange milling and grading
• Buy private-label packaging
• Schedule roasting and packing
• Book inland transport
• Prepare export documentation
• Pay port and shipping costs

For the importer, payment terms determine how long capital remains committed before the coffee arrives and whether the buyer has documentary control before releasing the full value of the transaction.

The main payment methods used in coffee trade

The three methods most frequently discussed for new or developing coffee-import relationships are T/T, Letter of Credit and CAD.

What is T/T payment?

T/T means telegraphic transfer, although modern payments are normally executed electronically through the international banking system. The buyer instructs its bank to transfer funds directly to the seller’s bank account.

T/T can be structured in several ways:

• One hundred percent payment before production
• One hundred percent payment before shipment
• Deposit before production and balance before shipment
• Deposit before production and balance against copies of shipping documents
• Partial payment before shipment and remaining amount after arrival

The exact structure must be written clearly in the quotation, proforma invoice, sales contract and purchase order.

One hundred percent T/T in advance

Under full advance payment, the buyer transfers the complete order value before the seller begins production or releases the goods. This structure offers strong protection to the exporter because payment risk is removed before the shipment is prepared.

It is commonly requested when:

• The buyer is new
• The order is relatively small
• The product is highly customised
• The packaging is printed specifically for the buyer
• The destination presents elevated payment risk
• The exporter has limited credit information about the importer

For the buyer, full advance payment creates the greatest exposure because funds are transferred before the goods are received. The importer therefore needs strong confidence in the supplier, factory, specification and contract.

Advantages of full advance T/T

• Simple banking procedure
• Fast payment confirmation
• Lower bank charges than a Letter of Credit
• Useful for samples and small trial orders
• Allows the supplier to purchase raw materials immediately
• Reduces production delays caused by financing

It can be practical for low-value orders when the cost and complexity of documentary payment methods would be disproportionate.

Risks of full advance T/T

• The buyer transfers funds before receiving the goods
• Recovery can be difficult if the supplier fails to ship
• Product quality may differ from the approved sample
• Shipment delays can tie up working capital
• Documentation errors may appear after payment
• Private-label packaging may be difficult to resell if the project fails

Before using full advance payment, the buyer should conduct supplier verification, approve representative samples and obtain a detailed written contract.

T/T deposit and balance

A deposit-and-balance structure divides payment into two or more stages. The buyer pays an initial percentage to confirm the order and the remaining amount at a later milestone.

Common structures include:

• Thirty percent deposit and seventy percent before shipment
• Fifty percent deposit and fifty percent before shipment
• Thirty percent deposit and seventy percent against shipping-document copies
• Twenty percent deposit, sixty percent before shipment and twenty percent after arrival

Percentages vary according to the supplier, buyer history, order value, product complexity and market conditions.

Why coffee suppliers request a deposit

A coffee supplier may need to commit cash before production begins. The deposit helps cover costs that cannot easily be recovered if the buyer cancels.

These costs can include:

• Green coffee reservation
• Custom blend components
• Printed bags
• Labels and cartons
• Roasting and packing setup
• Quality testing
• Export preparation

For customised OEM and private-label coffee, a deposit is especially common because the product and packaging may have limited value to another customer.

When should the T/T balance be paid?

The balance can be linked to several milestones. Each creates a different risk allocation.

Payment against copies of the bill of lading is common, but the contract should define exactly which documents must be supplied before the balance becomes due.

Documents commonly reviewed before T/T balance payment

The buyer may request scanned or electronic copies of:

• Commercial invoice
• Packing list
• Bill of lading draft or issued copy
• Certificate of origin
• Certificate of analysis
• Phytosanitary certificate when applicable
• Fumigation certificate when applicable
• Container loading photographs
• Quality inspection report
• Weight certificate

The buyer should not rely on a single document. Names, quantities, weights, container numbers and shipment references should be consistent across the complete set.

What is a Letter of Credit?

A Letter of Credit, commonly abbreviated as L/C or LC, is a bank-issued undertaking to pay the seller when the seller presents documents that comply with the stated conditions. The issuing bank acts on behalf of the buyer, while the exporter presents documents through its own bank or an advising bank.

The Letter of Credit does not guarantee the physical quality of the coffee. It controls payment through documents. If the documents comply with the credit terms, payment may be made even if a later commercial dispute arises over the goods.

Parties involved in a Letter of Credit

• Applicant: the importer requesting the Letter of Credit
• Beneficiary: the exporter entitled to payment
• Issuing bank: the buyer’s bank opening the credit
• Advising bank: the bank authenticating and advising the credit to the exporter
• Confirming bank: an additional bank guaranteeing payment when confirmation is added
• Nominated bank: the bank authorised to examine documents or make payment

Some banks may perform more than one of these roles.

How a Letter of Credit works

1. Buyer and seller agree on product, price, shipment and payment terms.
2. The buyer applies to its bank for the Letter of Credit.
3. The issuing bank sends the credit to the advising bank.
4. The exporter reviews all terms before production or shipment.
5. The exporter ships the coffee according to the credit conditions.
6. The exporter presents the required documents.
7. Banks examine the documents for compliance.
8. Payment is released according to the credit type.

The exporter should not ship until it has reviewed the Letter of Credit and confirmed that every condition can be met.

Sight Letter of Credit

Under a sight Letter of Credit, payment is due after compliant documents are presented and accepted. It does not always mean immediate payment on the same day, because banks require time to examine documents and process funds.

A sight credit may suit:

• New high-value trading relationships
• Full-container coffee shipments
• Markets where bank control is preferred
• Transactions requiring documentary discipline
• Buyers and sellers seeking balanced risk

Usance or deferred-payment Letter of Credit

A usance Letter of Credit provides payment after a stated period, such as a number of days from the bill of lading date, invoice date or document acceptance date.

This gives the buyer additional time to receive, process or sell the coffee before payment becomes due. However, the exporter takes delayed-payment exposure unless the receivable is discounted or guaranteed by a suitable bank.

Confirmed and unconfirmed Letters of Credit

An unconfirmed Letter of Credit relies primarily on the issuing bank’s payment undertaking. A confirmed Letter of Credit includes an additional undertaking from another bank, often in the exporter’s country.

Confirmation may be requested when:

• The issuing bank is unfamiliar to the seller
• Country or transfer risk is considered significant
• The exporter requires stronger payment security
• The seller intends to obtain financing against the credit

Confirmation increases banking cost, and the contract should state which party pays it.

Advantages of a Letter of Credit

• Bank-controlled payment process
• Clear documentary conditions
• Useful for high-value transactions
• Can provide financing options
• Reduces direct payment dependence on the buyer
• Can protect the buyer by requiring specified shipping documents

For large coffee-import programmes, a properly drafted Letter of Credit can create a structured framework for both parties.

Disadvantages of a Letter of Credit

• Higher bank charges
• More administrative work
• Risk of document discrepancies
• Strict deadlines
• Possible delays in payment
• Need for experienced banking and export teams
• Does not independently verify physical coffee quality

A poorly drafted credit can become difficult or impossible for the exporter to comply with.

Common Letter of Credit discrepancies

A discrepancy occurs when the documents do not match the Letter of Credit terms.

Common discrepancies include:

• Late shipment
• Late document presentation
• Incorrect company name
• Quantity or weight mismatch
• Different product descriptions across documents
• Missing certificate
• Incorrect bill of lading wording
• Unauthorised partial shipment
• Incorrect Incoterm
• Inconsistent container or seal number
• Insurance coverage below the required level

Even a minor spelling or date difference can create a discrepancy if the Letter of Credit is drafted too strictly.

How buyers can make a Letter of Credit workable

1. Use clear and achievable conditions.
2. Avoid requesting documents that cannot be issued.
3. Allow realistic production and shipment time.
4. Use consistent product descriptions.
5. Define quantity tolerances where appropriate.
6. Allow partial shipment only when commercially acceptable.
7. Confirm the correct port names.
8. Set a realistic presentation period.
9. Agree bank charges in advance.
10. Send a draft to the seller before issuance.

The seller should review the draft and request amendments before relying on the credit.

What is CAD?

CAD generally means cash against documents. Under this structure, the seller ships the goods and submits shipping documents through banking channels. The buyer receives or gains control of the documents after making payment according to the collection instructions.

CAD is commonly associated with documentary collection, especially documents against payment. However, terminology can vary between banks and trading companies, so the contract should describe the actual procedure rather than rely only on the abbreviation.

How CAD works

1. Buyer and seller agree on CAD terms.
2. The seller ships the coffee.
3. The seller submits the original documents to its bank.
4. The remitting bank forwards them to the collecting bank.
5. The buyer is notified that documents are available.
6. The buyer pays the collection amount.
7. The bank releases the documents.
8. The buyer uses the documents to clear or obtain the cargo.

Banks handle documents and collection instructions but do not normally guarantee that the buyer will pay.

CAD compared with a Letter of Credit

Advantages of CAD

• Lower banking cost than a Letter of Credit
• Documents remain under banking control until payment
• More structured than an unsecured open-account sale
• Suitable for repeat transactions with reasonable trust
• Less complex than Letter of Credit administration

CAD can provide a practical middle position between advance payment and full documentary credit.

Risks of CAD for the exporter

The buyer may refuse to pay or accept the documents after the goods have already been shipped. The exporter then faces cargo storage, demurrage, return, resale or discounting costs.

Seller risks include:

• Buyer rejection after shipment
• Market-price decline
• Port storage charges
• Difficulty finding an alternative buyer
• Perishable quality risk for roasted products
• Custom packaging that cannot be resold
• Destination import restrictions

CAD is therefore usually more appropriate when the buyer has a proven record and the product can be resold if necessary.

Risks of CAD for the buyer

The buyer may need to pay before physically inspecting the goods. Banks examine documents but do not verify flavour, roast quality, moisture, defects or packaging performance.

The buyer should protect itself through:

• Approved samples
• Written specifications
• Pre-shipment inspection
• Independent quality testing when needed
• Clear claim procedures
• Correct insurance
• Verified shipping documents

Documents commonly used under CAD

• Commercial invoice
• Packing list
• Original bill of lading
• Certificate of origin
• Certificate of analysis
• Phytosanitary certificate where required
• Fumigation certificate where required
• Insurance document where applicable
• Weight or inspection certificate

The collection instruction should state whether documents are released only after full payment and whether partial payment is permitted.

T/T, Letter of Credit and CAD comparison

Which payment term is best for a first coffee order?

There is no single best term for every first order. A practical structure depends on value, product customisation and supplier verification.

Common first-order approaches include:

• Full T/T for samples and low-value trial orders
• Deposit and balance against shipping-document copies
• Letter of Credit for a high-value first container
• CAD only when both parties have sufficient confidence and document control is workable

For private-label coffee, the buyer may need to fund packaging before production because the supplier cannot reuse branded materials.

Payment terms for green coffee imports

Green coffee is often traded in larger quantities and can sometimes be resold more easily than finished branded products. This may provide more flexibility in payment negotiations.

Possible structures include:

• T/T deposit and balance before shipment
• T/T balance against bill of lading copy
• Letter of Credit at sight
• CAD for established buyers
• Deferred payment for long-standing relationships

Buyers should connect payment milestones to lot approval, pre-shipment sampling and loading documentation.

Payment terms for roasted and private-label coffee

Roasted coffee and private-label products are less easily resold because of freshness, destination labels, branded packaging and market-specific product information.

Suppliers may therefore require:

• Higher deposit percentages
• Payment for packaging in advance
• Balance before shipment
• Separate ownership terms for unused packaging
• Non-refundable development charges

Businesses planning branded production should align payment terms with their OEM, private-label, packaging and export structure.

Payment terms for instant coffee and premixes

Instant coffee, three-in-one products and customised premixes may require factory batch commitments and ingredient purchases. Production minimums can be substantial, especially for printed sachets.

The payment structure may include:

• Deposit for formulation and production reservation
• Advance payment for printed film
• Balance after finished-product quality approval
• Final payment before document release

The contract should address responsibility for unused ingredients and packaging if the buyer changes the formulation or cancels the project.

Incoterms and payment terms are different

Incoterms define delivery responsibilities, costs and risk transfer between seller and buyer. Payment terms define when and how the seller is paid. They are related but not interchangeable.

For example:

• FOB can be combined with T/T, CAD or Letter of Credit
• CIF can be combined with advance payment or documentary payment
• EXW does not automatically mean payment in advance
• Payment against documents does not change the Incoterm

The sales contract should state both the Incoterm and the payment structure separately.

Bank charges

International payment methods create bank charges that should be assigned clearly.

Possible charges include:

• Transfer fee
• Correspondent-bank fee
• Receiving-bank fee
• Letter of Credit issuance fee
• Advising fee
• Confirmation fee
• Amendment fee
• Document examination fee
• Discrepancy fee
• Collection fee

The contract should state whether charges are paid by the buyer, seller or shared. The seller should receive the full invoice amount unless deductions are expressly agreed.

Currency and exchange-rate risk

Coffee contracts are often priced in a major international currency. Exchange-rate movements can affect the final cost between quotation, payment and delivery.

Buyers should consider:

• Quotation validity
• Payment currency
• Exchange-rate exposure
• Bank conversion margins
• Timing of deposit and balance
• Hedging policy for larger contracts

The contract should specify the invoice currency and should not allow unilateral conversion into another currency.

Supplier bank-account verification

Payment fraud is a serious risk in international trade. Buyers should verify bank details independently before transferring funds.

Recommended controls include:

1. Confirm the beneficiary name matches the contracting company.
2. Compare bank details with the signed proforma invoice.
3. Verify changes using a known telephone number.
4. Do not rely only on an email announcing new bank details.
5. Check the bank country and company registration.
6. Use dual internal approval for transfers.
7. Send a small verification transfer when appropriate.

A sudden request to pay an unrelated company or personal account is a major warning sign.

Proforma invoice controls

The proforma invoice should be reviewed before any deposit is paid.

It should clearly show:

• Seller’s legal name and address
• Buyer’s legal name and address
• Product description
• Quantity
• Unit price
• Total value
• Packaging format
• Incoterm and named place
• Payment schedule
• Beneficiary bank details
• Estimated shipment period
• Quotation validity

Any inconsistency between the proforma invoice, quotation and contract should be corrected before payment.

Payment milestones and quality approval

Payment should be connected to measurable milestones rather than vague promises.

Quality procedures and payment controls should support the same documented quality, compliance and traceability system.

Pre-shipment inspection

A pre-shipment inspection can reduce buyer risk before the final payment is released.

The inspection may review:

• Product identity
• Quantity and weight
• Packaging
• Lot numbers
• Moisture and physical quality
• Roast colour and grind size
• Sensory conformity
• Container condition
• Loading process
• Document consistency

The contract should identify who appoints and pays the inspector and what happens if the goods fail inspection.

Retention samples

Buyer and seller should retain coded samples of the approved product and commercial production. These samples can support dispute resolution if the buyer later claims that the shipment differs from the approved profile.

Retention procedures should define:

• Sample quantity
• Sealing method
• Lot reference
• Storage conditions
• Retention period
• Testing method in case of dispute

Late payment and shipment delays

The contract should explain what happens when the buyer pays late or the seller ships late.

Possible provisions include:

• Revised shipment schedule
• Storage charges
• Interest on overdue amounts
• Right to suspend production
• Right to withhold documents
• Cancellation conditions
• Responsibility for freight changes

Payment delays can cause the loss of vessel bookings, increased storage costs and quality risks for roasted coffee.

Claims do not automatically suspend payment

A buyer may believe that a quality claim allows payment to be withheld. This is only true if the contract provides such a right.

The agreement should define:

• Claim notification period
• Required evidence
• Independent testing procedure
• Acceptable remedies
• Credit note process
• Replacement conditions
• Whether undisputed amounts remain payable

Clear claim rules reduce the risk of payment becoming a bargaining tool after shipment.

Open-account terms

Under open-account terms, the seller ships the goods and allows the buyer to pay after a specified period. This offers strong cash-flow benefits to the importer but creates significant credit risk for the exporter.

Open account is usually considered only when:

• The relationship is well established
• The buyer has strong financial records
• Credit insurance is available
• Annual volume is substantial
• Past payments have been reliable

New buyers should not expect open-account terms without a proven trading history.

How payment terms can improve over time

A trading relationship may begin with full advance payment and become more flexible after successful transactions.

Improved terms should follow evidence of reliable payment, stable forecasting and low claim frequency.

Red flags in payment requests

• Payment requested to a personal account
• Beneficiary name does not match the supplier
• Bank details change immediately before payment
• Pressure to transfer without a contract
• Refusal to provide company registration details
• Unusually large advance payment for an unverified supplier
• Different bank accounts on different documents
• Request to split payments among unrelated entities
• No explanation of payment milestones
• Refusal to provide a formal proforma invoice

Buyers should stop the transfer process until inconsistencies are resolved.

Questions buyers should ask before agreeing payment terms

1. What percentage must be paid as a deposit?
2. What costs does the deposit cover?
3. When is the balance due?
4. Which documents trigger payment?
5. Are original documents released before or after payment?
6. Which bank charges apply?
7. Who pays Letter of Credit amendment fees?
8. Can the supplier accept CAD?
9. Is a confirmed Letter of Credit required?
10. What happens if shipment is delayed?
11. What happens if inspection fails?
12. Are packaging payments refundable?
13. How are quality claims handled?
14. Can terms improve after repeat orders?
15. Which legal entity receives the payment?

A practical payment strategy for a new coffee importer

1. Verify the supplier’s legal identity and bank account.
2. Approve representative samples.
3. Prepare a written product specification.
4. Start with a controlled trial order.
5. Use simple packaging where possible.
6. Agree a reasonable deposit.
7. Link the balance to defined documents or inspection.
8. Confirm the Incoterm separately.
9. Define all bank charges.
10. Inspect documents before transferring the balance.
11. Keep payment records and bank confirmations.
12. Check goods immediately after arrival.
13. Document claims within the agreed period.
14. Renegotiate terms only after successful transactions.

Final assessment

T/T, Letter of Credit and CAD each serve a different purpose in coffee imports. T/T is simple, fast and economical, but its risk depends heavily on when the buyer transfers the balance. A Letter of Credit offers stronger documentary structure and bank involvement, but it is more expensive and requires precise compliance. CAD provides document control at a lower cost than a Letter of Credit, but the bank does not normally guarantee that the buyer will pay.

For samples and small trial orders, advance T/T may be commercially practical. For customised coffee, a deposit is often necessary to fund raw materials and packaging. For larger or higher-risk container shipments, a carefully drafted Letter of Credit may provide a better balance. CAD can be suitable for repeat business when both parties have established reasonable trust.

The payment method should be supported by supplier verification, approved samples, written specifications, clear document requirements, pre-shipment controls and a detailed sales contract. Buyers should evaluate total risk rather than selecting a method only because it has the lowest banking fee or the longest payment period.

Companies preparing to import Vietnamese green coffee, roasted coffee, instant coffee or private-label products can submit a customised wholesale coffee inquiry with their target product, order value, destination, preferred Incoterm and proposed payment structure.