International Payments with Chinese Partners: Comparing L/C and T/T and Anticipating the Risks

China has been Vietnam's largest trading partner for years, with bilateral turnover reaching hundreds of billions of USD annually. Behind those impressive numbers lies a reality many Vietnamese businesses have paid dearly for: payment disputes and risks. Late payments, rejected documents, goods shipped but money never arriving, or money sent but goods that never come — all of it traces back to the choice and design of the international payment method at the negotiation stage.

This article compares the two most common payment methods in Vietnam–China trade — L/C (letter of credit) and T/T (telegraphic transfer) — within the foreign exchange frameworks of both countries, so businesses can pick the right tool for each transaction.

Table of contents

• 1. FX framework: Vietnam vs China
• 2. L/C: mechanics, role and risks
• 3. T/T: mechanics, role and risks
• 4. L/C vs T/T comparison table
• 5. Fraud risks and practical controls
• 6. Recommendations
• 7. Bank document checklist and transfer timing
• 8. FAQ
• 9. When to work with a lawyer
• References

1. FX framework: Vietnam vs China

Every international payment by a Vietnamese business must go through a bank licensed for foreign exchange, under the Foreign Exchange Ordinance 2005 (28/2005/PL-UBTVQH11, amended by Ordinance 06/2013/PL-UBTVQH13). The core principle: current transactions (trade in goods and services) may be freely conducted through banks, but must be backed by documents proving the legitimacy of the transaction — contracts, commercial invoices, customs declarations, bills of lading. Commercial banks are the first gatekeepers: no documents, no transfer.

A distinctive feature of Vietnam–China trade is the border-trade CNY settlement channel. Circular 19/2018/TT-NHNN on FX management for Vietnam–China border trade, amended by Circular 55/2024/TT-NHNN (effective 01/02/2025), allows licensed banks with border banking branches to settle in Chinese yuan (CNY). This is a vital channel for businesses in Vietnam's northern border provinces, cutting USD conversion costs.

On the Chinese side, foreign exchange is administered by the State Administration of Foreign Exchange (SAFE) under the PRC Regulations on Foreign Exchange Administration (amended 2008). China maintains relatively tight control over capital flows, especially large outbound payments — Chinese partners transferring money abroad typically must complete tax filing and FX registration procedures at their domestic bank. This explains why many transactions get "stuck" at the stage where the Chinese partner cannot yet remit funds, even though the contract is signed.

2. L/C: mechanics, role and risks

A letter of credit is the issuing bank's (the buyer's bank) commitment to pay the seller when the seller presents documents complying with the L/C terms. L/Cs operate under UCP 600 — the ICC's Uniform Customs and Practice for Documentary Credits (2007 revision) — when incorporated into the credit.

The point businesses must never forget: banks pay against documents, not against the actual goods (the independence principle). Whether the goods are good or bad is not the bank's concern; as long as the document set is "clean" (no discrepancies), payment is made.

Common L/C types in Vietnam–China trade:

• Irrevocable L/C: cannot be amended or cancelled without all parties' consent — the standard; use this.
• Confirmed L/C: adds the payment commitment of a second bank (usually in the seller's country). Especially important when the Chinese issuing bank is small or the Vietnamese seller worries about country risk.
• Deferred payment / usance L/C: payment after a tenor (e.g. 90 days after shipment) — effectively seller-extended credit to the buyer.
• Transferable L/C: useful for intermediary trading companies.

L/C risks cluster around three points. First, documentary risk: a single minor discrepancy (goods description not matching the L/C word for word, shipment date exceeded, one missing ancillary document) is enough for the bank to refuse payment — and the buyer may exploit this to force a price discount. Second, issuing-bank risk: if the buyer's bank fails, an unconfirmed L/C becomes worthless paper. Third, cost and time: L/C opening fees, confirmation fees and document examination fees add up, and opening an L/C can take weeks.

3. T/T: mechanics, role and risks

Telegraphic transfer (T/T) is a straight bank-to-bank money transfer: the buyer instructs its bank to remit funds to the seller's overseas account. No bank commitment, no documentary conditions — the money moves directly.

In Vietnam–China practice, T/T is typically structured in two tranches: a partial advance payment on signing — commonly 30% — and the balance when goods are shipped (against a copy of the bill of lading) or after the buyer receives and inspects the goods. This structure reflects negotiated risk allocation: the seller wants money upfront for production comfort; the buyer wants to hold cash until the goods are certain.

T/T risks are the mirror image of L/C risks: the risk sits with people and goods, not documents. A buyer prepaying 100% bears the full risk of non-delivery or substandard goods — and once money has left Vietnam, recovery is near impossible without security mechanisms. Conversely, a seller shipping before receiving full payment risks the buyer going silent. T/T offers no bank standing behind the deal — everything depends on counterparty credibility and contract quality.

4. L/C vs T/T comparison table

5. Fraud risks and practical controls

Vietnam–China trade has no shortage of cases where Vietnamese businesses lost deposits to phantom "suppliers" or received containers of the wrong goods. Practical controls:

1. Verify the partner before signing: check the business license (营业执照) and unified social credit code through official channels; for large orders, engage an independent verification provider or a lawyer in China.
2. Never prepay 100% to a new partner: structure payment by milestones (30% upfront – 70% against shipping documents) or use a confirmed L/C.
3. Documents are the lifeblood of L/C: assign someone to pre-check the document set before presentation; every L/C term must be feasible (e.g. the document presentation period must allow time for customs procedures).
4. Penalty and dispute clauses: contracts must include penalties for late delivery/late payment and a clear arbitration clause (VIAC in Vietnam, or SIAC/HKIAC for large deals, are common choices).
5. Beware of bank-detail changes: any emailed request to change the beneficiary account must be verified through an independent channel (phone, known contact) — a classic remittance fraud.

6. Recommendations

No method is "best" for every deal — only best-suited to each situation:

• New partner, large value, bespoke goods: irrevocable L/C confirmed by a reputable bank.
• Established partner, regular transactions: milestone T/T (partial prepayment + balance on delivery) to save cost and time.
• Standard goods, small value: partial prepayment T/T suffices, but still with a complete contract.
• Selling to a new Chinese partner: insist on a confirmed L/C or a high prepayment ratio; do not ship until payment is secure.

Whichever method you choose, the iron rule is: every payment term must be written into the contract — currency, timing, conditions, beneficiary bank, and remedies for payment default.

Currency choice. Most Vietnam–China contracts settle in USD, but CNY settlement is increasingly common and can reduce one conversion leg for the Chinese side. Some banks now offer direct VND–CNY channels that cut a dollar-conversion spread — ask your bank for a quote comparison before fixing the currency. On large or recurring orders, even a 0.3% spread difference compounds into significant savings over a year. Whichever currency you choose, fix it in the contract together with who bears exchange-rate movement between signing and payment — a 2–3% swing on a large order is real money. Avoid contracts that let one side unilaterally pick the currency at payment time.

7. Bank document checklist and transfer timing

Before instructing a remittance, prepare the full set your bank will ask for:

1. The signed contract (bilingual where applicable) showing the payment terms.
2. Commercial invoice from the Chinese seller matching the contract value and currency.
3. Customs declaration / bill of lading (for payment against shipment) or the advance-payment justification the bank requires.
4. The enterprise's FX dossier: business registration, and any prior approvals if the payment relates to a loan or capital transaction.

On timing: international T/T to China typically credits within 1–3 business days; L/C issuance takes longer because the bank must review the application and the credit terms. Build these lead times into the contract's shipment schedule — a buyer who pays late because the bank was still reviewing documents is still in breach vis-à-vis the seller.

8. FAQ

Q: Should I choose L/C or T/T when dealing with Chinese partners?

A: There is no one-size-fits-all answer. L/C is safer for sellers but costly and demands perfect documents; T/T is fast and cheap but risky with 100% prepayment to an unvetted partner. With new partners, use an irrevocable L/C confirmed by a reputable bank; once the relationship is established, move to T/T with partial prepayment plus payment against shipping documents.

Q: Is paying in Chinese yuan (CNY) permitted?

A: Yes, within Vietnam–China border trade, Circular 19/2018/TT-NHNN (amended by Circular 55/2024/TT-NHNN, effective 01/02/2025) allows CNY settlement through licensed banks with border banking branches. Outside border areas, international payments remain mainly in USD and other convertible currencies via FX-licensed banks.

Q: What is the biggest risk of L/C in Vietnam–China trade?

A: Documentary risk: L/C pays against documents, not actual goods. Discrepant documents entitle the bank to refuse payment. There is also issuing-bank failure risk and documentary fraud — sellers must tightly control document preparation and choose a reputable confirming bank.

Q: Is 100% T/T prepayment to a Chinese supplier legal?

A: Vietnamese law does not prohibit prepaying 100% to a foreign partner; it is a commercial arrangement. But full prepayment means the buyer bears all the risk: non-delivery, substandard goods, or a disappearing supplier. Mitigate by negotiating partial prepayment (e.g. 30%), with the balance paid against shipping documents, plus penalty and dispute resolution clauses.

Q: Where are international payment disputes with Chinese partners resolved?

A: It depends on the dispute resolution clause. Vietnamese businesses typically choose commercial arbitration (e.g. VIAC in Vietnam, or Singapore/Hong Kong arbitration) rather than Chinese courts. The key is having a valid arbitration clause from the outset.

9. When to work with a lawyer

Work with a lawyer when: preparing to sign a high-value contract with a new Chinese partner and needing a safe payment structure; drafting or reviewing L/C terms, penalty clauses and arbitration clauses in bilingual contracts; facing a payment dispute (non-payment, bank refusal under an L/C); or needing to verify a partner's legal standing in China. FLAT Law Firm's China Desk supports businesses across Vietnam–China transactions — contact our hotline 0988424851.

References

• Foreign Exchange Ordinance 2005 (No. 28/2005/PL-UBTVQH11), amended by Ordinance No. 06/2013/PL-UBTVQH13.
• Circular 19/2018/TT-NHNN on FX management for Vietnam–China border trade; amended by Circular 55/2024/TT-NHNN (effective 01/02/2025).
• UCP 600 — Uniform Customs and Practice for Documentary Credits, ICC (2007).
• PRC Regulations on Foreign Exchange Administration (amended 2008).
• Cross-checked via the Official Gazette and thuvienphapluat.vn at the time of writing (27/9/2026).

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