"T/T or L/C?" is the wrong question. Every payment term answers a narrower one: at the moment the money leaves, what does the buyer hold? A signed contract, a copy of a bill of lading, or the original bill of lading after a bank has checked the documents against a credit. Each answer puts a different risk on a different party at a different date. Two Korean rule sets then add consequences of their own: one decides whether the financing cost of a usance term is dutiable, the other decides what has to be filed when you pay in advance.
One boundary: this post stays on payment mechanics and the two Korean rule sets attached to them. Currency hedging is left for a later post.
The difficulty: six terms, six different moments of exposure
The table is our reading of the rule texts cited below it.
A B/L copy is not a weaker original. Legally it is nothing: it carries neither title nor a right to delivery. Under 상법 (the Korean Commercial Act), 제861조 applies to bills of lading the rules that, in 제129조, bar claiming the goods without surrendering the document, in 제132조 require any disposal of the goods to go through it, and in 제133조 make handing it over equivalent to handing over the goods. A copy does none of this. Paying "against B/L copy" means paying while the seller still holds the originals, or the right to release the cargo. That is the Korean-law position; a given bill may be governed by another law. A copy-triggered balance can still be a sensible last tranche of a staged first order — our SiC powder buying checkpoints suggest that split — provided everyone knows what it buys: evidence that the goods shipped, not control over them. Which Incoterm puts the transport document and the policy in whose hands is in FOB, CIF or DDP.
Collections involve banks but no bank promise to pay. Under the ICC's Uniform Rules for Collections, URC 522, Article 1(b), banks "shall have no obligation to handle either a collection or any collection instruction". Under Article 10, goods consigned to a bank without its prior agreement remain "at the risk and responsibility of the party despatching the goods". D/P protects the seller only against releasing title unpaid; D/A leaves it relying on the buyer's word until maturity.
A letter of credit is the only term here where a bank is committed to pay. UCP 600 defines a credit as "a definite undertaking of the issuing bank to honour a complying presentation", and under Article 7(b) the issuing bank is "irrevocably bound to honour as of the time it issues the credit". Article 4 separates the credit from the sale contract, Article 5 says banks "deal with documents and not with goods", and Article 34 disclaims responsibility for the genuineness of documents and for "the description, quantity, weight, quality, condition" of the goods. That rulebook is not about to change: at its March 2026 meeting the ICC Banking Commission announced that its national committees had voted against revising UCP 600.
The quality consequence belongs to our due diligence checklist. The forgery consequence is discussed less. Global Trade Review's 2020 analysis of the Singapore trader Hin Leong reported forged bills of lading, contracts and invoices, including export contracts presented to 15 banks under 58 import letters of credit that were "not supported by any underlying sale transaction", with liabilities to banks and other creditors of about US$3.5bn. A document that complies on its face proves nothing about whether the goods exist.
Why the terms are not symmetrical
For the bank, an import L/C is low-risk. ICC's Trade Register has put import L/C default rates at around 0.1% or below — 0.08% in ICC's December 2016 release, 0.10% for 2008–2021 in a secondary table; the figures differ by period and weighting. For the trading parties the live risks are elsewhere: discrepancies, delay and the goods.
Discrepancies fall on the exporter, and China's state export credit insurer does not insure them. The ICC's Introduction to UCP 600 records that when the revision began, "approximately 70% of documents presented under letters of credit were being rejected on first presentation." Those surveys pre-date 2007, and we found no current ICC or bank figure, so this is not today's rate. The insurance position is current. China's state export credit insurer covers L/C exports against issuing-bank insolvency, default and refusal to accept under its short-term comprehensive policy (version 3.0, posted May 2024), but excludes losses where the bank refuses "因单证不符或单单不符" — because documents do not comply with the credit or with each other. It also excludes false or invalid credits, and gives no cover unless a credit limit was approved before shipment. A mill paid by T/T avoids all of that.
China's FX rules favour clean, direct payments. SAFE, China's foreign-exchange regulator, sets the principle in its current-account guideline: "谁出口谁收汇、谁进口谁付汇" — the party that exports is the one that collects — on a genuine trade basis. The 2020 edition also required exporters to report advance receipts outstanding more than 30 days and deferred receipts beyond 90 days. SAFE issued amendments and further rules in 2023 and 2024, and we did not verify that those provisions are unchanged. The direction holds either way: an advance from the actual buyer, shipped promptly, creates the least work for a Chinese exporter; third-party payment or long credit creates the most.
One common explanation is wrong: that capital controls stop Chinese exporters from giving guarantees to foreign buyers. SAFE's 2014 cross-border guarantee rules (汇发〔2014〕29号) define two registered categories and an "other forms" category. As we read the definitions, a Chinese bank guaranteeing a Chinese exporter's obligation to a Korean buyer generally falls into "other forms", and Article 25 says those need no SAFE registration unless SAFE specifies otherwise. What stands in the way is more likely the mill's own bank line and the fees, not the regulator.
On the Korean side, the two main terms draw on different resources. An import L/C is a bank guarantee, so it uses the buyer's credit line; one bank's Seoul branch, for example, says it weighs the applicant's credit standing and collateral before opening a credit. In 2018 the Financial Supervisory Service (금융감독원) told banks to explain collateral options to low-credit SMEs, because some had routinely required cash deposits before opening import L/Cs. A T/T advance uses the buyer's cash instead.
Usance: find out who is actually lending
Korean trade finance divides usance by who extends the credit. Under shipper's usance (무역인수), the exporter waits until maturity. Under banker's usance (은행인수), a bank pays the exporter and the importer repays the bank at maturity; it is split into overseas banker's usance and domestic banker's usance, 내국수입유산스. 외국환거래규정 (the Foreign Exchange Transaction Regulation, 재정경제부고시 제2026-103호, in force 16 September 2026) defines the latter in 제1-2조 제45호 as credit a Korean bank extends to the domestic importer for the tenor of the bill, by accepting or negotiating the exporter's draft under a usance credit it opened, or through 수입인수금융 (import acceptance financing).
Under banker's usance the Chinese seller is paid at sight; it is not supplier credit. KTNET (한국무역정보통신) put the test plainly in a 2018 trade Q&A: if the importer bears the discount, it is banker's usance; if the exporter does, shipper's. The credit's reimbursement wording shows which. Banker's usance tells the bank to reimburse itself "AT SIGHT BASIS REGARDLESS OF THE DRAFT'S TENOR"; shipper's usance says the proceeds will be remitted at maturity. And even under shipper's usance, UCP 600 Article 12(b) lets a nominated bank prepay or purchase the accepted draft, so the seller can collect early at its own discount cost — a cost likely to surface somewhere in the price.
Fees are published; the interest is not. Korean bank fees vary by bank and credit grade. Standard Chartered Korea lists an L/C opening fee of 0.25% per three months and an acceptance fee of 0.40% per three months, each with a KRW 15,000 minimum, plus a USD 80 discrepancy fee. Woori Bank lists an acceptance fee of 1.2%–2.4% a year by credit grade. The usance discount itself is market-linked and not published as a fixed figure, so we give none. Korean trade-practice material describes the overseas accepting bank's acceptance-and-discount cost, the A/D charge, as ultimately borne by the applicant. What deferred payment does to working capital is in Inventory Buffering and the Cash Conversion Cycle.
The customs side: usance interest is dutiable unless three conditions are met
Neither "never dutiable" nor "always dutiable" is right.
관세법 (the Customs Act; 법률 제21490호, in force 2 October 2026) 제30조제2항 deducts from the price actually paid certain amounts that can be clearly distinguished, and its item 4 is 「연불조건(延拂條件)의 수입인 경우에는 해당 수입물품에 대한 연불이자」 — interest on deferred payment for the goods. 관세법 시행령 제20조의2제3항 allows that deduction only where all three conditions hold:
- the interest is distinguished from the amount actually paid or payable for the goods;
- the financing agreement was made in writing; and
- the goods are sold at the declared price, and the rate does not exceed the rate prevailing for such financing in the country where, and at the time, it was provided.
The same paragraph of the Act counts indirect payments as part of the price, and 제20조의2제1항 says what they include — among them, in item 4, a financing cost the seller would normally bear but the buyer pays, and in item 1, any part of the price paid to a third party at the seller's request.
So a mill that offers "90 days" by raising the unit price has made the interest dutiable, because it is not distinguished. A shipper's usance with the interest on a separate line, under a written finance term, at a market rate, can be deducted. Whether a banker's-usance charge the buyer pays is a cost "normally borne by the seller" is a question of fact on which we found no Korea Customs Service ruling; ask your 관세사 (licensed customs broker) before assuming either answer. The same three conditions come from the WTO Valuation Committee's Decision 3.1 on interest charges (1984), and Canada's customs memorandum D13-3-13 (2014) illustrates the reverse case: where a vendor sells only on credit terms, or builds "net 30" into the price, deferral is part of the price, not a separable finance charge.
The Korean FX side: what an advance payment triggers
Under 외국환거래규정 제4-2조, a payer gives its foreign-exchange bank documents proving the reason for and amount of a payment. Among the exceptions in 제4-3조, item 5 covers payment before the transaction: evidence can follow, but the payment must be settled (정산) with documents within a set period, and settlement may be waived for up to 10% of the amount. Which documents a bank asks for at remittance is up to the bank; we found no current bank page listing them.
An ordinary advance needs no Bank of Korea report. Older guidance still gives a USD 20,000 threshold. It is out of date. Since 10 February 2025, 제5-8조제1항제2호 requires a report to the Governor of the Bank of Korea only where more than USD 100,000 per contract is paid more than one year before receipt of the shipping documents or goods. A 30% deposit on goods that ship within months is nowhere near it.
Paying someone other than the seller does trigger reporting. If a mill asks for payment to an affiliate or a differently named account, 제5-10조 generally requires a report to your bank above USD 5,000 and up to USD 10,000, and to the Bank of Korea above that, subject to exemptions that, as far as we read them, do not cover this case. Those reports go monthly to the National Tax Service and the Korea Customs Service — and under 시행령 제20조의2제1항제1호 the amount counts toward dutiable value.
Protecting an advance
An advance payment guarantee works only if you pay the account it names. Such guarantees can be issued subject to ICC's Uniform Rules for Demand Guarantees, URDG 758. Deutsche Bank's 2018 sample pays on first written demand supported by a statement of the applicant's breach, but enters into effect only "if and to the extent the advance payment … is credited in full without reserve to Applicant's account" with the guaranteeing bank. Send the advance to a different account the seller names later, and the guarantee may never take effect. A standby letter of credit, commonly issued under ICC's ISP98 rules, does a similar job. Both draw on the mill's own bank line, which is the more likely obstacle. Routing the advance through an escrow account at a foreign-exchange bank is, under 제5-10조 item 22, outside the third-party-payment report altogether.
K-SURE's import insurance is narrower than its name. 한국무역보험공사 (K-SURE) offers 수입보험(수입자용), compensating a Korean importer that cannot recover an advance because of political or credit risk. Its product page scopes it to "주요자원" such as iron, copper, zinc, coal and crude oil, plus certain capital goods, with shipment within two years of the advance. The 2024 government support booklet caps the advance at 30% of the contract, with cover of 100% (97.5% for mid-sized firms, 95% for large ones). We could not see the full eligible-goods list or confirm the 2024 terms still apply, so we cannot say whether a given ceramic or chemical powder qualifies; ask K-SURE. Its 금융기관용 and 글로벌공급망 variants insure the bank's loan to the importer, not the importer's advance. The refund clause for an export licence that never arrives is in Procurement Strategy Under Export Controls.
What to write down
- Choose the term by what you will hold. Paying before shipment, you hold a contract: get a refund obligation and, where the amount justifies it, a guarantee. Paying against a copy, you have evidence of shipment, not control.
- Stage the first order. A deposit, an inspection-linked tranche and a later balance keep leverage no bank instrument provides; the structure and the inspection side are in our due diligence checklist.
- If you open an L/C, keep the document list short and consistent. Under UCP 600 Article 14(d), data across documents "need not be identical to, but must not conflict"; under 14(c), a presentation that includes an original transport document must be made within 21 calendar days of shipment, and in any event before expiry. Every extra document is one more way for the presentation to fail.
- Name who decides on a waiver before the goods ship. Under Article 16(b), an issuing bank that finds a discrepancy may ask you to waive it, but asking does not extend its five banking days under 14(b). The decision has to be made inside that window.
- Write the usance type into both the credit and the contract, check the reimbursement wording, and get the bank's fee schedule. If interest is charged, put it on a separate line under a written finance term at a market rate, or accept that it is dutiable.
- Pay only the contracting seller, to the account in the contract and any guarantee. A redirected payment triggers an FX report, adds to dutiable value and can leave a guarantee without effect.
Frequently Asked Questions
Is a usance L/C credit from the supplier?
Only under shipper's usance. Under banker's usance the Chinese seller is paid at sight, and the Korean buyer bears the discount and acceptance costs and repays the bank at maturity. The credit's reimbursement clause shows which you have. Even under shipper's usance the seller can discount the accepted draft early (UCP 600 Article 12(b)).
Is usance interest included in Korean customs value?
It depends on the paperwork. Under 관세법 제30조제2항제4호 and 시행령 제20조의2제3항 it is deducted only if it is distinguished from the price, set out in a written financing agreement and charged at no more than the rate prevailing at the time, with the goods sold at the declared price. Interest built into the unit price is dutiable, as are financing costs the seller would normally bear but the buyer pays. For a banker's-usance charge, confirm with a 관세사.
Do we need to report a prepayment to the Bank of Korea?
Not for an ordinary deposit. Since 10 February 2025 the report under 외국환거래규정 제5-8조 applies only when more than USD 100,000 per contract is paid more than one year before documents or goods arrive; the USD 20,000 figure in older guidance is outdated. You still give your bank evidence, and an advance must be settled with documents afterwards.
The bank says the documents are discrepant. Should we waive?
Historically most applicants did: a 2000 study of 500 transactions at five US banks, as cited in later literature, found a waiver rate above 90%. Whether you should depends on what the discrepancy says about the goods. A misspelling is no reason to refuse a good lot; a wrong lot number or a late shipment date may be. Decide quickly, because the bank's five banking days are not extended while it waits for you. A waiver accepts the documents; it settles nothing about the material.
References (Public Sources)
- ICC, UCP 600 (Publication 600, in force 1 July 2007), including the ICC Introduction, and URC 522 (1995 revision), both read in full from hosted copies. Le Thuc Linh Bui, "Understanding the rejection of presented documents period in UCP 600" (LESIJ, 2023), for its citation of R. J. Mann, "The Role of Letters of Credit in Payment Transactions", Michigan Law Review vol. 98 (2000).
- Korean law from 국가법령정보센터 via its open API, 3 October 2026: 관세법 (법률 제21490호, 시행 2026-10-02) 제30조; 관세법 시행령 (대통령령 제36140호) 제20조의2; 「관세평가 운영에 관한 고시」 (관세청고시 제2025-37호), searched and found to contain no provision on deferred-payment interest; 외국환거래규정 (재정경제부고시 제2026-103호, 시행 2026-09-16) 제1-2조, 제4-2조, 제4-3조, 제5-8조, 제5-10조; 상법 제129조, 제132조, 제133조, 제861조.
- Canada Border Services Agency Memorandum D13-3-13, "Customs Valuation: Interest Charges for Deferred Payment" (7 January 2014), as an illustration of the WTO Valuation Committee's Decision 3.1 on interest charges (adopted 26 April 1984).
- KTNET (한국무역정보통신) trade Q&A on shipper's and banker's usance (13 August 2018); an SME import-finance guide published by a Japanese bank's Seoul branch (2015), for the usance taxonomy; undated fee pages of Standard Chartered Bank Korea and Woori Bank, accessed 3 October 2026; a bank's Seoul branch pages on L/C opening and credit lines; 이투데이 (31 October 2018) on the Financial Supervisory Service's L/C collateral measure.
- SAFE, 《经常项目外汇业务指引（2020年版）》, and SAFE pages on the 2023 and 2024 changes, not reconciled article by article; SAFE, 《跨境担保外汇管理规定》 (汇发〔2014〕29号). China's state export credit insurer, short-term comprehensive export credit insurance, version 3.0 product description (May 2024).
- Deutsche Bank sample Advance Payment Guarantee under URDG 758 (Version 1-18, 2018). K-SURE 수입보험 product pages (accessed 3 October 2026) and the K-SURE section of the Ministry of SMEs and Startups 2024 support-programme booklet.
- ICC Trade Register press release (14 December 2016) and a secondary table of 2008–2021 Register figures. Global Trade Review: analysis of the Hin Leong fraud (19 August 2020) and report (29 April 2026) on the ICC Banking Commission's vote against revising UCP 600, announced at its 19 March 2026 meeting; corroborated by DocCredit World (15 April 2026) on the Commission's 2026–2027 action plan.
We found no current statistic on how Korean imports split between payment methods, and no current first-presentation discrepancy rate, so neither appears above.
Nami Tech Solutions (NTS) works project by project, not from standing inventory, and deals with the manufacturer directly in Chinese. On payment, what we do is structural: the order is set up so that payment follows inspection of the material at a designated address in China, so a non-conforming lot can be refused before it moves rather than argued about after it lands.
