The core difference: who carries the risk
When you import goods from a foreign supplier, you and the supplier face a classic trust problem. You do not want to pay before you know the goods are shipped and correct. The supplier does not want to ship before knowing they will be paid. How you resolve this determines whether you use a TT or a Letter of Credit.
A Telegraphic Transfer (TT) — also called a SWIFT payment or wire transfer — is simply a bank transfer in foreign currency. There is no document check, no conditional payment. You instruct your bank to send money; your bank sends it. If you pay before the goods ship and the supplier disappears or ships the wrong goods, you bear the loss. If the supplier ships first and you do not pay, they bear the loss. Most importers use TTs with payment terms such as "30% deposit, 70% against copy BL" (bill of lading), accepting some pre-shipment risk on the deposit.
A Letter of Credit (LC) inserts both buyer's and seller's bank into the process as independent verifiers. The importer's bank issues the LC — a conditional payment guarantee — to the supplier. The supplier only receives payment when they present exactly the shipping documents specified in the LC. Until those documents are presented and verified, no money moves. Both sides are protected: the supplier knows payment is guaranteed if they ship correctly; the buyer knows money only leaves if a compliant shipment has been made.
Side-by-side comparison
| Factor | Telegraphic Transfer (TT) | Letter of Credit (LC) |
|---|---|---|
| Bank fees | R350–R600 per TT | 0.1%–0.5% of LC value (issuance) + handling |
| Setup time | Minutes (if facility is set up) | 3–7 business days to issue |
| Supplier risk | High (advance) or low (post-shipment) | Very low — payment guaranteed vs documents |
| Buyer risk | High (advance) or low (post-shipment) | Low — only pays against compliant documents |
| APN required? | Yes if advance payment > R50,000 | No (not an advance payment) |
| Best for | Trusted repeat suppliers; small/medium orders | New suppliers; large orders; high-risk markets |
| Supplier acceptance | Universal | Common for established exporters; some small factories resist |
| Bank facility needed | Forex TT facility | LC facility (separate approval; uses credit line) |
How a Letter of Credit works in practice
Here is the typical flow for a South African importer using a Documentary Letter of Credit (the most common type — also called a Commercial LC or DC):
- You apply to your SA bank (the issuing bank) to open an LC in favour of your supplier. You specify the amount, currency, expiry date, shipment deadline, and the exact documents you require (e.g. bill of lading, commercial invoice, packing list, certificate of origin).
- Your bank issues the LC and transmits it via SWIFT to the supplier's bank (the advising or confirming bank in the supplier's country).
- The supplier ships the goods and collects the shipping documents from the carrier, freight agent, and inspection body.
- The supplier presents the documents to their bank, who checks them against the LC terms. If they match ("compliant presentation"), the bank pays the supplier.
- The supplier's bank sends the documents to your SA bank. Your bank debits your account and reimburses the supplier's bank.
- You receive the documents and use the original bill of lading to claim the goods from the shipping line at the port.
LC costs in detail — what SA importers actually pay
LCs are more expensive than TTs. Here is a breakdown for a R500,000 (approximately USD 27,000) import order in 2026:
| Fee item | Typical amount |
|---|---|
| LC issuance commission (0.15% of value) | ~R750 |
| Handling / SWIFT transmission fee | R500–R800 |
| Document examination fee | R500–R1,200 |
| LC amendment fee (if changes are needed) | R400–R800 per amendment |
| Discrepancy fee (if documents are non-compliant) | USD 50–100 |
| Total (clean transaction) | ~R2,000–R3,000 (0.4%–0.6% of order value) |
By comparison, a TT on the same R500,000 payment costs approximately R350–R600 in bank fees — plus the risk exposure if you are paying in advance.
When to use a TT vs an LC
| Situation | Recommended method |
|---|---|
| Trusted supplier you have traded with for 2+ years | TT (open account or deposit + BL copy) |
| First order with a new overseas supplier | LC or documentary collection |
| Large order (> R500,000) regardless of relationship | LC recommended |
| Supplier in a high-risk jurisdiction | Confirmed LC (both banks guarantee payment) |
| Small order under R100,000 | TT (LC costs uneconomical) |
| Custom-manufactured goods, long lead time | LC or deposit TT + balance on BL |
Get a live FX rate before instructing your bank
Whether you use a TT or LC, knowing the current USD/ZAR rate helps you calculate your rand exposure before committing to the transaction.
See live FX rates →Frequently asked questions
Does an LC require a credit facility at my bank?
Yes. Issuing an LC uses your bank credit line because your bank is guaranteeing payment on your behalf. The bank will typically require cash cover (100% deposit of the LC value upfront) or an approved LC/trade finance facility. An approved facility is better — it means your bank does not tie up your cash while the goods are in transit. Applying for an LC facility is separate from the basic TT facility. Speak to your business banker.
What is a "confirmed" LC and when do I need one?
A confirmed LC means the supplier's local bank (the confirming bank) also adds its guarantee to the payment, on top of your SA issuing bank's guarantee. This is used when the supplier's country has political or banking system risk — they are not confident that a SA bank guarantee alone is sufficient. Confirmation adds extra cost (the confirming bank charges a fee) but makes the LC as good as cash for suppliers in high-risk markets.
What is a "discrepancy" in an LC and what happens?
A discrepancy occurs when the supplier presents documents that do not exactly match the LC terms — a different port of loading, a slightly different goods description, a missing certificate. When this happens, the bank notifies both parties. The importer can waive the discrepancy (accept the documents anyway) or refuse. Discrepancies are extremely common in LC transactions — statistics suggest 50–70% of first presentations have at least one discrepancy. Getting the LC terms drafted clearly upfront reduces this.
Is a Documentary Collection a middle option between TT and LC?
Yes. A Documentary Collection (DC) sits between the two. The supplier ships, then gives the shipping documents to their bank with instructions to release them to you only after you pay (Documents against Payment / DP) or accept a draft (Documents against Acceptance / DA). It is cheaper than an LC (no bank guarantee) but gives the supplier some protection: you cannot claim the goods without paying. It is common for medium-trust relationships and is governed by ICC URC 522 rules.
Can I combine a TT with an FEC?
Absolutely — and it is common practice. You can book a Forward Exchange Contract to lock in the rand rate for a TT payment you plan to make in 60 or 90 days. The FEC removes currency risk; the TT is the payment method. They are independent tools that work together. See our FEC guide for details.
Related guides
- How to Pay a Foreign Supplier from South Africa (SARB Rules + Steps)
- Advance Import Payment (APN) Explained: The R50,000 Rule
- Forward Exchange Contracts (FEC) for Importers: Locking in the Rand
- Trade Finance for South African SMME Importers
- How Rand Volatility Affects Your Landed Cost (and How to Hedge)
- All paying-suppliers & forex guides →
Sources: SARB Exchange Control Manual; SARS; Authorised Dealer banks; ICC UCP 600 (Letters of Credit). Last updated June 2026. This article is informational only — confirm current fees and rules with your bank.