What we recommend at our mill

LC vs TT for Cashmere B2B: 4 Payment Methods Compared (When to Use Each)

A B2B cashmere buyer choosing between Letter of Credit, Telegraphic Transfer, Documentary Collection, and Open Account is usually deciding three things at once: how much bank cost they will pay, how much supplier risk they are willing to carry before the goods ship, and how many weeks they are willing to wait after the goods arrive.

This guide compares the four methods on all three axes, gives the order-value thresholds where each one stops making sense, and covers the cashmere-specific failure mode — a mill that ships 3,000 pieces of 19.5μm yarn as 15.5μm against an LC that specified 14.5μm, and what documentation does or does not catch it.

The short version

Method	Bank cost (% of order)	Supplier risk to buyer	Cash released	Use when
T/T 30/70	0.3-1.0%	Full (30% paid before ship)	After receipt of B/L	Repeat orders, order under $30,000
L/C at sight (irrevocable)	1.0-3.0%	None (bank pays only on compliant docs)	On document presentation	First orders, orders over $50,000, strict fiber spec
Documentary collection (D/P)	0.5-1.5%	Medium-High (bank pays on docs, no bank guarantee)	On document presentation	Established suppliers, mid-size orders
Open account (O/A 30-90)	0%	Full (supplier extends credit)	30-90 days after invoice	Long relationships, repeat orders over $80,000

The single most common mistake is choosing T/T on a first order with a new mill. The second most common is choosing an L/C on a repeat order where both sides already know the quality, which costs 1-3% of order value for protection nobody needs.

Method 1: Telegraphic Transfer (T/T), the 30/70 standard

How it works. The buyer sends 30% of the order value by wire before production starts. The mill ships against the balance plus the shipping documents. The buyer sends the remaining 70% when it receives the bill of lading (B/L) — typically 3-5 weeks after the goods leave the port.

Bank cost. Typical wire fees are $25-45 per transfer plus a 0.3-1.0% intermediary spread, so a $40,000 order costs roughly $250-550 in total transfer fees across both legs.

Risk profile. The buyer carries full supplier risk on the 30% deposit. If the mill fails to deliver, that 30% is gone. The 70% is protected only in the sense that it has not been sent yet.

When T/T 30/70 makes sense.

Repeat orders where the mill has shipped consistently to spec at least twice
Orders under $30,000, where an L/C’s bank fees (minimum $400-600 in issuance and negotiation charges alone) become a disproportionate percentage of the order value
Orders where the buyer has verified fiber quality independently (a third-party fiber test on the bulk, or a mill visit)

The cashmere-specific trap. T/T has no document discipline attached to it, so fiber specification is enforced only by the mill’s own QC. On a 3,000-piece cashmere yarn order, a mill can pass its own weight and count checks while shipping 19.5μm fiber against a 14.5μm specification. The buyer finds out at the lab, 6 weeks after the mill got the full payment. This is the single most common B2B cashmere quality dispute and it is not catchable by any payment method except a properly drafted L/C with a fiber test certificate as a required document.

Method 2: Letter of Credit at sight, the irrevocable form

How it works. The buyer instructs its bank to open an irrevocable L/C in the mill’s favour. The mill ships and presents documents (commercial invoice, packing list, B/L, certificate of origin, and — critically for cashmere — a fiber test certificate or GSP certificate). The buyer’s bank checks the documents. If they comply, the bank pays the mill immediately. If they do not, the bank refuses and the buyer does not pay.

Bank cost. Issuance fee is typically 0.5-1.5% of the credit value, with a minimum of around $300-500. Negotiation fees add 0.5-1.0%, and there are often courier and document-examination charges of $50-100 each. Total bank cost on a $50,000 L/C is commonly $800-1,500.

Risk profile. Near-zero for the buyer if the documents are drafted correctly. The bank’s obligation is to check documents against the terms of the credit — not to check the goods. This distinction matters more in cashmere than in almost any other commodity, because the quality dimension of cashmere is not visible in a packing list.

The cashmere-specific L/C drafting points.

Specify fiber diameter in microns, not just “cashmere”. “100% cashmere” is not a specification. “100% cashmere, average fiber diameter 14.5μm ±0.5μm, measured per ISO 18135 on a 30,000-fiber sample” is.
Require the test certificate as a presented document. If the certificate is not on the document list, the mill can ship 19.5μm and present a compliant document set, and the bank will pay.
Name the test method and the lab. A third-party lab (SGS, Bureau Veritas, Intertek, or a named Chinese lab like CTW or the National Wool Quality Inspection Center) removes the argument about which test standard was applied.
Specify the down content. Cashmere grades are quoted both by average diameter and by down content (typically 90-95% for commercial, 98%+ for luxury). Specify both or the mill can ship 85% down at 14.5μm against an implied 95% premium expectation.

When an L/C makes sense.

First orders with a new mill where you have no track record
Orders over $50,000 where the absolute fiber risk justifies the 1-3% bank cost
Any order where the fiber specification is unusual (blends, unusual counts, tight micron bands)
Orders where the buyer intends to inspect at the mill before loading — the L/C’s document discipline is what makes the inspection results enforceable

When an L/C is wasted money.

Third or later order from the same mill with a clean quality history
Orders under $20,000, where the minimum L/C fees exceed the realistic loss on a sub-spec shipment
Repeat orders where the mill has already been audited and the fiber certificate is submitted for record rather than enforcement

Method 3: Documentary collection (D/P or D/A)

How it works. Structurally identical to an L/C but there is no bank guarantee. The buyer’s bank releases documents to the mill’s bank against payment (D/P) or acceptance of a draft (D/A). The mill gets paid. The buyer’s protection is only the bank’s document check, but the bank is not obligated to pay if documents do not comply.

Bank cost. 0.5-1.5%, with a lower floor than an L/C because there is no issuance fee.

Risk profile. Between T/T and L/C. The mill gets paid once documents clear, but the buyer’s bank does not have a payment obligation it must honour. In practice this means the buyer loses the mill’s leverage — a mill that knows you are on D/P has less incentive to hold the goods to spec than one facing an irrevocable L/C.

When D/P makes sense. Established supplier relationships where the mill does not need bank-backed assurance and the buyer wants most of the L/C document discipline at lower cost. In cashmere this is rarely the right choice, because the entire risk case for an L/C rests on enforcing fiber specification, and D/P does not give the buyer the enforcement leverage.

Method 4: Open account (O/A 30-90)

How it works. The mill ships the goods and invoices. The buyer pays 30-90 days after the invoice date. No bank instrument, no documents, no guarantee.

Bank cost. Zero.

Risk profile. The buyer carries full risk on the entire order value. The mill carries the credit risk, which is why mills charge a premium for it or decline it entirely.

When O/A makes sense. Only when the relationship is mature — typically the fourth or fifth repeat order, or when the mill actively offers it as a relationship differentiator. If a mill offers O/A on a first order, that is a signal to run the audit rather than a signal to relax.

The cashmere-specific risk on O/A. With 60-90 days of payment exposure after the mill has already been paid by nobody, a mill facing cash-flow pressure has an incentive to ship the goods it has on hand rather than wait for a new production run. The 60 days is exactly the window in which quality drift happens.

At our Ordos facility we work with all four methods, and the pattern in our buyer base is clear: T/T 30/70 for repeat orders, L/C at sight for first orders and for any order where the fiber spec is tighter than 15.5μm.

Our own position on an L/C is straightforward — we do not charge a premium for it, and we accept an L/C that specifies fiber diameter and requires a test certificate without arguing the terms. The cost of the L/C is a few percent of order value; the cost of a sub-spec shipment that reaches your customer is typically an order of magnitude higher.

If you want to discuss which method fits a specific order, include the fiber specification, order value, and delivery window in your brief and we will tell you which method we would use on our side.