LC vs TT (and the Rise of Blockchain Payments): A 2025 Playbook for Bangladeshi Importers & Exporters

By TRW Law Firm — Bangladesh’s largest international law firm

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Executive Summary:
Letters of Credit (LCs) shift counterparty risk from buyer to bank, but come with documentation intensity, time, and cost. Telegraphic Transfers (TTs) move money faster and cheaper, yet push more performance risk onto the counterparty unless mitigated by strong contracts, trade credit insurance, or escrow. The world’s move toward TT-dominant terms and blockchain-enabled, programmable payments is driven by speed, working-capital efficiency, digitization of documents, and modern risk tools. Bangladesh, historically LC-centric, is gradually adopting hybrid models (UPAS, collections, milestone TT) and preparing for digital LCs and tokenized settlement as regulatory rails mature.

What Are LC and TT—In One View

Letter of Credit (LC)

An LC is a bank’s conditional promise to pay the seller if the seller presents complying documents within the LC’s terms. It decouples payment from the buyer’s credit, anchoring it to a bank undertaking under internationally recognized rules (commonly UCP 600 and eUCP for electronic presentations). Variants include Sight, Usance/Deferred, Confirmed, Transferable, Back-to-Back, and Standby LC.

Why businesses like LCs:
[■] Risk transfer to a bank (especially with a confirming bank in the seller’s country).
[■] Discipline around documents and shipment milestones.
[■] Financing add-ons (discounting, forfaiting, UPAS structures).

Why they hesitate:
[■] Fees (issuance, advising, confirmation, amendment, discrepancy).
[■] Time to draft, amend, and check; risk of discrepancies delaying payment.
[■] Operational friction (paper-heavy unless truly eUCP).

Telegraphic Transfer (TT)

TT is a bank-to-bank electronic payment (typically via SWIFT/ISO 20022 rails). It can be advance (pre-shipment), progress/milestone, or post-shipment (open account). TT relies on the underlying contract rather than a documentary undertaking from a bank.

Why businesses like TTs:
[■] Speed and lower cost; fewer documentary failures.
[■] Straightforward for repeat trades and familiar counterparties.
[■] Easier to automate with ERPs and e-invoicing.

Where risk sits:
[■] Seller risk on advance TT (buyer may delay shipment).
[■] Buyer risk on post-shipment TT (seller may underperform).
[■] Needs mitigants: escrow, retention, penalties, performance bonds, or trade credit insurance.

LC vs TT — Deep Dive on Risk, Cost, Time, and Control

1) Risk Allocation

• LC: Bank obligation (subject to compliance with terms). Seller’s non-payment risk is largely bank credit risk (plus “discrepancy” risk). Buyer’s risk: paying against documents, not goods (mitigated by careful document list and inspection certificates).
• TT: Counterparty risk dominates. For the buyer on post-shipment terms: quality/quantity risk; for the seller on advance TT: delivery risk by buyer (chargeback or delays).

Modern mitigants for TT:
[■] Trade credit insurance (insures receivables).
[■] Escrow or escrow-like milestone payments.
[■] Bank guarantees/standby LCs paired with TT.
[■] Strong contract: inspection rights, penalties, retention, and dispute resolution.

2) Cost Components

• LC: Issuance fee, advising, confirmation fee (risk-based), amendment fees, document checking, discrepancy fees, courier, and potential confirmation margin. Financing (discounting/UPAS) adds cost but improves cash.
• TT: Bank transfer fees + FX spread; far fewer incidentals. Insurance or escrow adds cost but usually still below LC total cost for repeat flows.

3) Time to Payment

• LC Sight: Payable on presentation; in practice a few days if documents are clean.
• LC Usance: Payment at maturity (e.g., 60–180 days), but discountable.
• TT: Same-day to 2 business days cross-border, faster on instant corridors.

4) Documentation Burden

• LC: Strict documentary compliance (invoice, B/L or AWB, packing list, insurance, origin, inspection, etc.). Errors = delay/charges.
• TT: Minimal bank-level docs; rely on commercial documents and KYC/AML. The diligence burden shifts to contract drafting and supplier management.

5) Disputes & Remedies

• LC: Disputes are about documents, not goods. Remedies center on UCP 600 compliance, strict notice rules, and court/arbitration for fraud or non-conformity outside the documents.
• TT: Contract governs; proof of actual performance matters. Remedies: damages, specific performance (rare), or arbitration/court under governing law. Interim relief is often crucial.

Where Incoterms Fit (Because Shipping Terms Drive Payment Logic)

• FOB/CFR/CIF: Sellers often accept LC/collection because B/L is central; TT post-shipment is common with trusted buyers (release B/L upon payment or via telex release on escrow).
• EXW/FCA: TTs are common; control shifts earlier to buyer’s forwarder.
• DAP/DDP: Contractual protections and insurance are vital if moving away from LCs; milestone TT with delivery proofs works well.

Why the World Is Shifting from LC to TT (and Beyond)

1. Working Capital & Cost: Buyers and sellers seek cheaper, faster, and predictable cash cycles. TTs reduce friction; open account terms win when trust or insurance exists.
2. Digitization: e-invoicing, e-B/L, ERPs, and data-rich logistics reduce the need for bank-adjudicated documents for everyday trades.
3. Risk Tools Matured: Credit insurance, supplier platforms, and escrow replicate some LC protections at lower cost and latency.
4. Global Supply Chains: Repeat trade lanes favor relationship capital and automated payments over bespoke LC paperwork.
5. Payment Rails Evolution: ISO 20022 data standards, instant cross-border corridors, and API-driven treasury mean TT-style flows embed easily into enterprise systems.

The Next Curve: Blockchain (DLT), Tokenized Money, and Programmable Trade

What’s changing:

• Tokenized deposits and bank-issued tokens represent money on permissioned chains—settling near-instantly with atomic delivery vs. payment.
• Programmable escrow: Funds release on data conditions (e.g., e-B/L transfer, IoT temperature chain intact, third-party inspection pass).
• On-chain LCs/guarantees: Smart-contract equivalents trigger payment when compliant e-documents are notarized on-chain; eUCP-style rules adapt to digital presentation.
• Documentary digitization: Electronic Bills of Lading (e-B/L), digital certificates, and verifiable credentials reduce fraud and courier lag.

Business benefits:
[■] Speed: settlement in minutes/hours.
[■] Clarity: single source of truth for documents, with tamper-evidencing.
[■] Risk control: automated conditions + auditable trails.
[■] Interoperability: APIs to ERPs, insurers, shippers, and banks.

Legal reality check:

• Enforceability requires recognition of e-documents/e-signatures, regulatory clarity on tokens/stablecoins, FX compliance, and clear choice of law/seat of arbitration.
• Banks, not just startups, are launching DLT rails—improving trust and compliance integration.

Bangladesh: Where We Are and What’s Next

Bangladesh has long been LC-heavy for goods imports due to bank practice, regulatory comfort, and FX prudence. That paradigm is shifting—gradually—as corporates and banks blend TT efficiencies with risk safeguards that regulators accept.

Current Realities

• LC dominance in goods: Especially for first-time counterparties, large consignments, and regulated sectors.
• TT usage rising: For repeat suppliers, smaller consignments, services/royalties, and post-shipment where buyer and seller have history.
• Hybrid structures:
• UPAS LC (Usance Payable at Sight): Seller gets paid at sight; buyer pays bank at maturity—bank funds the gap.
• Documentary collections (D/P, D/A): Between LC and open account—bank handles documents but gives no undertaking.
• TT + SBLC: Cash moves by TT; risk backstopped by a standby LC or bank guarantee.
• Milestone TT with escrow: Release funds on third-party confirmations.

Regulatory & Banking Posture

• FX discipline remains strong; banks scrutinize documentation, counterparties, and purpose of remittance.
• Digitization: Banks are upgrading SWIFT/ISO 20022 processes; e-document acceptance is improving but varies by institution.
• Prospects for DLT: Expect controlled pilots—e.g., tokenized deposit rails among local banks for interbank settlement and digital document verification. Full retail blockchain payments cross-border will hinge on central bank stance, AML/CFT controls, and interoperability with RTGS and SWIFT.

Bottom line: Bangladesh is moving from a pure LC culture to an LC-plus world—TT, collections, UPAS, and digital LCs—with a near-term focus on compliance-safe modernization rather than radical overnight change.

Choosing Between LC, TT, Collections, or Blockchain-Enabled Options

(Decisioning with TRW’s board-level lens)

Use an LC when:

[■] Counterparty risk is high or untested.
[■] The contract is complex and document proof can stand in for physical inspection.
[■] You need bankable financing (discounting, forfaiting).
[■] The seller insists on a bank undertaking (e.g., new commodity trade lane).

Use TT (with mitigants) when:

[■] You have repeat trades and performance history.
[■] You want velocity and lower cost.
[■] You can layer escrow, insurance, or SBLC for specific risks.
[■] Milestone-based shipments or services suit staged releases.

Consider Documentary Collections when:

[■] You want bank handling of documents without LC cost.
[■] Counterparty is cooperative; risk is moderate.

Explore Blockchain/Digital LC when:

[■] Trading partners (and banks) can handle e-documents and smart contract triggers.
[■] You want programmable escrow and visibility for multiple stakeholders.
[■] You can secure legal opinions on enforceability and regulatory comfort.

Practical Playbooks

A) Buyer in Bangladesh → Seller Overseas (Mid-Value, Repeat Orders)

1. Start on LC for the first 1–2 shipments to establish quality and timetable discipline.
2. Transition to TT post-shipment with 5–10% retention until inspection acceptance.
3. Add trade credit insurance or SBLC if seller’s leverage grows.
4. Move to milestone TT with e-B/L release and courier-free documentation as banks accept e-flows.

B) Seller in Bangladesh → Buyer Overseas (Scaling Volumes)

1. Seek confirmed LC early for new buyers or frontier markets.
2. As history builds, offer open account with credit insurance; discount receivables for cash acceleration.
3. Use escrow or digital escrow for custom machinery or long-lead items.
4. Pilot digital presentations (eUCP) with buyers’ banks to cut discrepancy risk and courier delays.

C) Capital Equipment Import with Complex Acceptance Tests

• LC with milestone draws (factory test, dispatch, installation, SAT).
• Alternatively TT with escrow + engineer certificates; SBLC for performance.

D) High-Volume Commodities

• UPAS LC to balance seller cash and buyer tenor.
• For repeat lanes, TT at B/L issuance with credit insurance and e-B/L release flows.

Governance, Compliance, and Contracts: What to Lock Down

For LC structures:
[■] Exact document list and drafting: no ambiguity in names, dates, quantities, tolerances, Incoterms.
[■] Amendment discipline: re-preview with suppliers/forwarders before issuance.
[■] eUCP where available; align bank acceptance policies.

For TT and Collections:
[■] Strong sales/purchase contracts with quality, inspection, penalties, and governing law + arbitration seat.
[■] Sanctions, AML, KYC undertakings; origin declarations; authentic carrier data.
[■] Escrow terms or retention mechanics, plus dispute resolution fast-track.
[■] Insurance: cargo, credit, and sometimes political risk for certain lanes.

For Blockchain-enabled deals:
[■] Identify the legal nature of tokens/records, governing law, and enforceability.
[■] Off-chain fallback: if a data oracle fails, what happens?
[■] Clear data rights and privacy allocations; regulator-aligned onboarding/KYC.

Working Capital & Treasury Angle

• LC Sight: seller cash fast; buyer cash tied unless financed.
• LC Usance (discounted): seller cash fast; buyer pays later (bank funds).
• TT Post-Shipment: if buyer pays quickly, seller DSO low; buyer enjoys simplicity.
• TT Milestones: map cash to project risks; great for services/capex.
• Tokenized settlement: near-instant, but watch FX conversion windows and accounting policy for digital assets vs tokenized deposits.

FAQs (SEO-tuned)

Q1: Is TT always cheaper than LC?
Generally yes, per transaction. But add the cost of risk mitigants (insurance/escrow). For new counterparties or volatile markets, LCs may be cheaper overall when you price in risk.

Q2: Can I mix LC and TT?
Absolutely. Common blends include UPAS LC (bank funds the tenor), TT with SBLC, or collections for mid-risk lanes.

Q3: Are digital LCs legally safe?
When aligned with eUCP and local evidence laws—and when banks accept digital presentation—yes, provided you have clear governing law and seat and your bank’s policy is updated.

Q4: What about crypto for cross-border trade?
Differentiate between tokenized bank money (regulated, promising) and public crypto (volatile, regulatory sensitive). For corporates, focus on bank-issued tokens/stable settlement and permissioned DLT integrated with banks.

Q5: Where does Bangladesh stand now?
Bangladesh is modernizing cautiously: LC remains central for many goods, while TT, collections, UPAS, and digital documents rise with trusted partners and better controls.

Summary Table — LC vs TT vs Blockchain (At a Glance)

How TRW Law Firm Helps (What We Actually Do)

• Deal Calibration: We design the right mix—LC, TT, collections, UPAS, guarantees, insurance, escrow—per counterparty and lane.
• Drafting & Negotiation: Bullet-proof LC terms, TT contracts, escrow agreements, and inspection/acceptance frameworks.
• Bank & Regulator Interface: Align with Bangladesh Bank rules, bank credit/risk teams, and documentary standards (including eUCP where available).
• Digitization & DLT Readiness: e-document workflows, arbitration-ready clauses, and legal opinions for digital LC/tokenized settlement pilots.
• Disputes: LC discrepancy fights, TT non-performance claims, injunctions, asset attachment, and negotiated recoveries.

If you want to see how we frame trade finance, disputes, and digital transformation across practices, explore tahmidurrahman.com (internal reference).

Implementation Checklist (Cut-and-Use)

For Buyers (Bangladesh):
[■] Decide instrument by lane (LC for new/complex; TT+escrow for repeat).
[■] Lock Incoterms and inspection standards in purchase orders.
[■] Prepare bank approvals (LC lines, UPAS, TT limits); ensure FX documentation.
[■] Build milestone matrices for TT (what doc triggers what payment).
[■] Maintain sanctions/AML/KYC files for counterparties.
[■] Pilot e-documents with cooperative banks (e.g., e-B/L release processes).

For Sellers (Bangladesh):
[■] Seek confirmed LC initially; negotiate tolerance clauses and accepted discrepancies.
[■] Move repeat buyers to open account + insurance or TT + SBLC.
[■] Standardize document packs to reduce LC discrepancy risk.
[■] Adopt e-documentation to accelerate cash and reduce courier risk.
[■] Keep a dispute-ready trail (QA reports, photos, IoT, third-party certificates).

TRW’s View on 2025–2028: What Will Likely Happen

• LCs remain vital for unfamiliar lanes and large capital shipments, but shrink as a share of total transactions.
• TT/open account will dominate repeat trade, backed by better insurance and escrow.
• Digital LC/e-docs adoption will accelerate, reducing discrepancies and courier lag.
• Permissioned blockchain will underlie document notarization and programmable escrow; tokenized bank money will power instant settlement between banks.
• In Bangladesh, expect bank-led digitization (e-docs, improved data rails), more UPAS, and cautious DLT pilots—building toward mainstream acceptance as legal, FX, and AML comfort converge.

Engage TRW — Let’s Design the Right Trade Instrument for You

1. Share your counterparty map, lanes, and deal values.
2. We propose an instrument mix (LC/TT/collections/UPAS/escrow/insurance) with costs, timelines, and legal documents.
3. We coordinate with your banks and regulators, draft airtight contracts, and stand ready to enforce if performance breaks.

TRW Law Firm — Trade Finance, Banking & Digital Payments Team
Phone: +8801708000660 • +8801847220062 • +8801708080817
Email: info@trfirm.com • info@trwbd.com • info@tahmidur.com
Global Locations:

• Dhaka: House 410, Road 29, Mohakhali DOHS
• Dubai: Rolex Building, L-12 Sheikh Zayed Road

This article is for general guidance only and does not constitute legal advice. For a tailored instrument strategy for your trade flows, contact TRW.