Choosing how to pay an overseas supplier

When you import goods from overseas, the question of how you pay matters almost as much as how much you pay. Every payment method splits the risk between you, the buyer, and your supplier in a different way, and the wrong choice can leave you carrying cash for goods you have never inspected, or cost you an order because the terms felt too one-sided.

There are four main ways to settle with an overseas supplier, and they sit on a clear risk ladder: cash in advance, documentary collection, letter of credit and open account. This guide walks through each one, explains who carries the risk, and gives you a practical way to choose per supplier rather than applying one rule to everyone.

The risk ladder, end to end

Think of the four methods as a ladder. At one end the supplier is fully protected; at the other end you are. Most of trade finance exists to move risk somewhere in between.

• Cash in advance sits at the supplier-safe end. You pay before goods ship, so your supplier carries almost no risk and you carry the most. It is simple and cheap to execute, but if the goods never arrive your recourse is limited, especially across borders.
• Documentary collection moves one rung towards balance. The exporter ships, then routes the shipping documents through the banking system; you receive them, and the goods, against payment or against a signed promise to pay. It is cheaper than a letter of credit, but the banks act as couriers and do not guarantee that you will be paid or that the goods match the contract.
• Letter of credit offers the most structured protection. A creditworthy bank undertakes to pay your supplier once they present documents that comply with the credit's terms, governed by the ICC's UCP 600 rules. It costs more and demands careful paperwork, but it substitutes a bank's credit for yours.
• Open account sits at the buyer-friendly end. Goods ship before you pay, often 30, 60 or 90 days later, so your supplier carries the risk. It is common only once trust is well established.

What should drive your choice

Rather than picking one method for your whole supply base, weigh four factors for each supplier and each order.

• Relationship maturity. A brand-new supplier you found last month is a different proposition from one you have shipped with for five years. New relationships typically start nearer the cash-in-advance or letter-of-credit end and relax over time.
• Order size. The more cash an order ties up, the more a protective instrument can be worth its cost. A small trial order rarely justifies the admin of a letter of credit; a large container load might.
• Country and counterparty risk. Where enforcement is harder or the supplier is unproven, structure matters more. Where both are strong, lighter methods are often fine.
• Cost and effort. Letters of credit carry bank charges and paperwork on both sides; collections are cheaper; direct transfers for cash-in-advance or open account are the simplest of all. Match the protection to what is actually at stake.

A healthy supply base usually mixes methods, tightening terms for newer or higher-risk suppliers and loosening them as confidence grows.

Going deeper on each method

Each rung of the ladder has its own mechanics, conventions and pitfalls. Once you have a shortlist of methods for a given supplier, it is worth reading the detail before you commit.

• If you are paying in advance, understand how deposit-and-balance staging works and how much cash you are putting at risk before inspection.
• If you are weighing a structured instrument, compare how a letter of credit shifts risk to a bank against the lighter, cheaper documentary collection.
• Whatever method you use, the trade documents themselves, such as the commercial invoice, packing list and bill of lading, do the work of proving the deal and clearing customs, so getting them right underpins every option.

The deeper guides in this hub cover each of these in turn.

How Altery fits

Whichever method you choose, most of them still come down to moving money to your supplier in their currency, on your timing. That is the part Altery is built for.

For cash in advance and open account, Altery executes the settlement leg directly. You can hold a multi-currency business account in USD, EUR and GBP, convert on your own timeline rather than at the moment an invoice lands, and send traceable transfers to suppliers via SWIFT, SEPA and local payment rails. Real-time balances and categorised spend let you see exactly what has gone where, and you can ring-fence funds in dedicated pots so the cash for a specific order is set aside before you commit.

For letters of credit and documentary collections, Altery is complementary rather than a replacement: those instruments are issued and handled by banks, and Altery does not issue them. What Altery can do is settle the everyday multi-currency payment leg and manage the FX alongside the bank's process. Across multiple buying entities, multi-entity management keeps each one's payments and balances separate.

Altery is not a bank, and this guide is general information, not advice. Use it to frame the questions to ask, then confirm the specifics for your own suppliers and trades.

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