Accounting Ver08. “The Essence of Export Business Is Designing How to Collect Your Money”— Practical Use of L/C, T/T, PBG, and Factoring
- shigenoritanaka3
- 4月6日
- 読了時間: 3分
更新日：4月6日
Apr 06, 2026
Hello everyone,
In the previous article, Accounting Ver07. “Cash is King”- The Essence of Cash Flow and Risk Transfer in Capital Equipment Imports, I discussed topics related to imports. This time, I would like to focus on the export side.
As mentioned in the previous post, revenue recognition in export business occurs at the time of shipment (FOB). However, revenue recognition and cash collection are two completely different layers.
No matter how much revenue you book, your business cannot survive unless the cash is actually collected.
This is why, in export transactions, designing “who guarantees what, at which stage” becomes critically important.
🟦 1. L/C (Letter of Credit) — The Most Secure Method
An L/C is considered the safest method of securing payment.
Issued by the buyer through their bank
Payment is guaranteed once shipping documents are presented
Shields the seller from buyer insolvency
Reduces country risk
However, an L/C typically covers only the “equipment price”.
In large-scale equipment projects, installation-related fees may also be included if documents such as an Installation Completion Certificate are accepted. But due to document discrepancies and the complexity of bank procedures, installation work is often excluded from L/C coverage in real-world practice.
🟦 2. Installation Fees: 100% T/T (Telegraphic Transfer) = International Bank Wire Transfer Is the Most Rational Approach
Since installation, commissioning, and performance guarantees are usually not covered by an L/C, receiving 100% T/T for installation fees is the safest option.
However, buyers naturally have concerns:
“Will the seller really come to install the equipment?”
“What if the performance is not achieved?”
“What if the seller disappears midway?”
To address these concerns, a PBG becomes necessary.
🟦 3. PBG (Performance Bond Guarantee)
— A “Performance Guarantee” Issued by the Seller Through Their Bank
A PBG is a bank-issued guarantee requested by the seller, ensuring that the seller will deliver, install, and meet performance requirements as agreed.
✔ Benefits for the Buyer
They can safely make T/T payments because a bank guarantee remains valid until installation is completed.
✔ Benefits for the Seller
They eliminate the risk of losing the final 10% retention after installation.
This is particularly effective in markets such as China, where buyers often withhold the final 10% even after installation is completed.
🟦 4. Factoring — Costly, but Sometimes the Only Safe Option
Factoring incurs discount fees on the seller's side, so it is not a method one would prefer to use.
However, in certain situations, selling receivables to a bank becomes the only realistic way to avoid bad debt risk:
Buyers unfamiliar with international payments
Buyers with weak creditworthiness
Product categories where down payments or interim payments cannot be obtained
Regions such as South America where collection takes 60–120 days
Countries with high currency or political risk
In such cases, factoring becomes the only practical tool to externalize credit risk.
🟦 5. The Ideal Structure:
“Local Import Agent × L/C × T/T × PBG”
The most secure export scheme combines:
A local import agent
L/C for securing equipment payment
100% T/T for installation fees
PBG to cover the final 10% retention
With an agent in between, L/C issuance, T/T handling, and PBG coordination are managed according to local business practices, significantly reducing the seller’s risk.
🟦 6. The Reality: L/C and PBG Require Significant Administrative Effort
L/C documents must be handwritten with zero errors
Any discrepancy results in immediate rejection
PBG requires bank screening, guarantee fees, and administrative management
Therefore, it is not realistic to apply these methods to all export products.
The optimal combination must be chosen based on:
Product characteristics
Regional risks
Buyer creditworthiness
🟦 7. Conclusion
The essence of export business is not “selling products” but “designing how to collect the money.”
L/C is the most secure method
Installation fees should be 100% T/T
The final 10% retention should be secured with a PBG
Using a local agent provides the strongest structure
When these are not possible, factoring becomes the fallback option
Revenue is recognized at shipment, but a business cannot survive without actual cash collection.
In export business, designing who guarantees what, and at which stage, is the key to success.
🟦 Contact
For consultation on export cash collection design, L/C, PBG, T/T operations, or building agent-based schemes,
feel free to contact us at: info@metricjapan.com
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