Buying Rice on Letter of Credit: How LC, CAD, and TT Terms Actually Work in Agri Trade

By Sufyan · 2026-06-14 · 5 min read

Last March, a buyer in Lagos asked me to ship 4 x 40ft containers of 1121 Sella on 30% TT advance, 70% against scanned BL. I said no. He went somewhere else, got burned for $87,400, and called me back six weeks later asking if we could redo the deal — this time on a confirmed LC.

This is the kind of conversation that happens every week in our office. Buyers want flexible terms. Sellers want security. And somewhere between those two positions sits the actual contract that gets signed.

So let me walk you through how LC, CAD, and TT really work when you're moving rice across borders. Not the textbook version. The version that matters when a vessel is sitting at Karachi port and your bank is asking questions.

TT: Fast, Cheap, and Risky for Whoever Goes First

TT means telegraphic transfer. SWIFT wire. Money moves bank to bank, usually within 1-2 working days.

The split is what matters. A common structure in rice trade is 30% advance TT, 70% against copy of BL. Sometimes 20/80. Sometimes 50/50 for new buyers. I've even seen 10/90 for repeat customers with three years of clean history.

Here's the honest truth about TT — somebody is always exposed. If the buyer pays 100% upfront, the seller could ship garbage or nothing at all. If the seller ships first and waits for payment, the buyer could disappear when the cargo lands. The split is just a negotiation about who carries how much risk.

TT works when there's trust. We use it with about 60% of our repeat buyers in the UAE, Oman, and Kenya. First-time buyer from a country I've never shipped to? I'm not doing TT against BL copy. Sorry.

The cost is the cheap part. A SWIFT wire costs $25-50. Compare that to an LC and you'll see why buyers push hard for TT.

Letter of Credit: The Document Game

An LC is a promise from the buyer's bank to pay the seller's bank, provided the seller presents the exact documents the LC asks for. That's it. The bank doesn't care about the rice. It cares about paper.

This is the part most new buyers don't get. An LC protects the seller against non-payment, but it also protects the buyer because payment only releases when documents prove shipment happened. Both sides win — if the LC is written properly.

The documents we typically present:

Miss one stamp. One spelling error. One date mismatch between the BL and the invoice. The bank raises a discrepancy. Payment gets held. I've had an LC sit for 11 days because the consignee address on our invoice had "Street" written out while the LC said "St." Honestly, banks don't joke around with this.

The cost side of LC vs TT rice trade is where buyers complain. An LC opening fee runs roughly 0.15% to 0.5% of the LC value depending on the country, plus confirmation charges if the seller wants a second bank backing the first one. On a $180,000 shipment, you're easily looking at $1,200-2,800 in total banking costs split between both sides.

Is it worth it? For a first deal with a new counterparty — yes, every time. I used to think LCs were old-fashioned and TT was the future. Then I watched three exporter friends lose serious money on TT-against-BL-copy deals in 2022 and 2023. Changed my mind quickly.

A few things to watch in any letter of credit rice import setup:

CAD: The Middle Path Nobody Talks About Enough

CAD means Cash Against Documents. The seller ships, sends documents through the banking channel, and the buyer pays the bank to release them. Without the documents, the buyer can't clear the container at destination.

It's cheaper than an LC. Faster to set up. No application forms, no collateral with the bank, no document scrutiny by a bank officer in another country.

But here's the catch — CAD doesn't have a bank guarantee behind it. If the buyer simply refuses to pay and walk away from the documents, the seller is stuck with a container sitting at a foreign port, racking up demurrage at $150-200 per day, with the only options being to find another buyer locally (usually at a heavy discount) or ship it back.

We use CAD with buyers we've shipped to 4-5 times on LC and who've never given us trouble. It's a trust-graduation step. LC for new buyers, CAD once they've proven themselves, TT split arrangements once we genuinely know each other.

So Which One Should You Actually Use?

If you're a new buyer importing rice from Pakistan for the first time, open a sight LC. Pay the bank fees. Don't argue. Any serious exporter will work with you on documents and shipment timing, but they're not shipping a $200K container on a 30% advance to someone they met on LinkedIn six weeks ago.

If you've done 3-4 shipments cleanly, ask about CAD. You'll save banking costs and shorten the transaction timeline by 10-15 days.

If you've been buying for two years and the relationship is solid, negotiate a TT structure that works for both sides. Maybe 25% advance, 75% against scanned BL. Maybe 50/50. Whatever fits the cash flow on both ends.

The payment terms agri commodity buyers should care about aren't really about LC versus TT. They're about what stage of the relationship you're in, and whether both parties are being honest about that stage.

What does your bank actually charge for an LC opening in your country? Because that number alone changes the conversation.

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