Are there uncontrollable risks in using L/C settlement for transit trade?
Importing from China?
Need help with sourcing, customs or shipping?
Your China Import Partner
Reliable sourcing and import agency services.
I am a foreign trade practitioner engaged in transit trade of small commodities from Southeast Asia to Europe. This year, I just received a new transit order, and the partner requires L/C settlement. However, I have only done L/C business for direct export before. I heard that due to third-country transit and many intermediaries involved, the risk of L/C in transit trade is much higher than that in direct trade.
For example, will intermediaries add soft clauses in documents? If cargo is detained at the transit port, will it affect L/C payment? If there are document discrepancies, can I directly fail to get the payment? I am now very tangled, fearing losing both money and goods, and want to know whether L/C in transit trade is safe and if there are ways to avoid these risks in advance.
DavidYears of service：3Customer Rating：5.0
Business Development AdvisorStart a Chat
Many people mistakenly believe that L/C is bank credit，so using L/C in transit trade is worry-free. However，transit trade actually involves multiple parties and has a longer risk chain. If pre-audit is ignored，it is easy to fall into soft clause traps，such as requiring unobtainable third-party certificates. Once triggered，payment will be refused，and subsequent chain losses like port detention fees and cargo right disputes will follow.
The core risks of L/C in transit trade are concentrated in three links: first，the compliance of third-party documents，such as whether the origin certificate and inspection certificate from the transit country meet the requirements of the issuing bank，second，cargo control—intermediaries may transfer cargo rights through bill of lading endorsement，leading to your loss of control over the cargo，third，ambiguity of payment conditions—the issuing bank may refuse payment on the grounds of "documents not conforming to L/C"，and the document circulation cycle in transit trade is longer，resulting in higher correction costs.
To avoid these risks，first，implement the Confirmed L/C plan—choose a confirming bank of the same level as the issuing bank to ensure double bank credit endorsement，second，establish a document pre-audit mechanism—submit all documents to the negotiating bank for review in advance to correct discrepancies early，finally，adopt a cargo right locking plan—require the bill of lading to be made "to order" and endorsed by your party，and select a public warehouse with customs supervision qualification at the transit port to ensure full control of the cargo throughout the process.
In 2026，you can also combine new cross-border payment regulations，use CIPS RMB cross-border settlement to replace part of foreign exchange receipts and payments to reduce exchange rate difference risks. At the same time，purchase export credit insurance to cover losses such as payment refusal and cargo damage，further strengthening the safety line.
RobertYears of service：6Customer Rating：5.0
Warehouse Management AdvisorStart a Chat
The L/C risk in transit trade is largely related to the consistency of customs declaration documents. In 2026, the customs systems of major global ports have realized cross-border data linkage, and the document review standards for transit trade have been further tightened. Especially core documents such as third-country origin certificates, transit warehouse storage certificates, and transport bills of lading must fully match the L/C terms.
If there are issues like "discrepant cargo description", "missing transit information", or "incorrect consignee information", not only will the issuing bank refuse payment, but also trigger customs price review, and even lead to cargo detention. It is recommended that before opening the L/C, submit all customs declaration document templates to the negotiating bank for pre-audit, and require intermediaries to provide the storage filing certificate of the transit port to ensure that the L/C terms fully align with the customs declaration requirements, so as to avoid the risk of document discrepancy in advance.
JohnYears of service：6Customer Rating：5.0
Export Tax Rebate AdvisorStart a Chat
The L/C safety in transit trade is directly related to cargo control in logistics links. In 2026, congestion at some transit ports of international shipping still exists. Once the cargo is detained at the port, not only will high container detention fees and over-due free storage period fees be incurred, but also the bill of lading may be submitted overdue, directly affecting L/C payment.
It is recommended to clearly stipulate the free storage period at the transit port and the responsible party for container detention fees in the L/C terms; require the bill of lading to be made "to order" and endorsed by your party; use a cross-border logistics tracking system to real-time monitor the transit status of the cargo, and ensure that all documents are reviewed before the cargo arrives at the transit port to avoid loss of cargo control. In addition, prioritize high-quality direct transit routes to reduce the stay time in transit links and lower the risk of cargo detention.
CharlotteYears of service：4Customer Rating：5.0
Currency Exchange AdvisorStart a Chat
The L/C safety in transit trade also involves cross-border tax compliance. In 2026, the implementation standards of the BEPS Multilateral Convention are further tightened, and global tax authorities have stricter reviews on transfer pricing of related transactions in transit trade. Once the transaction pricing does not conform to the arm's length principle, not only will the tax authority adjust and collect additional taxes, but also the issuing bank may question the authenticity of the transaction and thus refuse to pay the L/C.
It is recommended that before opening the L/C, clarify the pricing basis of the transaction, keep good purchase vouchers, sales vouchers, and expense lists of transit links; require intermediaries to provide tax filing certificates of the transit country to ensure tax compliance of the entire transit process. In addition, use VAT deferment to reduce tax costs in transit links and avoid the impact of tax risks on L/C payment.
EllaYears of service：10Customer Rating：5.0
Senior Financial AdvisorStart a Chat
The core of L/C safety in transit trade lies in cross-border payment and receipt compliance. In 2026, the CIPS RMB cross-border payment system has covered more than 100 countries and regions globally. Using RMB settlement for transit trade can effectively reduce exchange rate difference risks and improve payment and receipt efficiency.
It is recommended to stipulate the use of CIPS for payment and receipt in the L/C terms; clarify the settlement currency and exchange rate locking method, such as signing a forward foreign exchange settlement and sale agreement in advance to lock losses caused by exchange rate fluctuations. In addition, strictly comply with domestic foreign exchange management regulations, keep all payment and receipt vouchers, trade contracts, and transport documents to ensure "four flows consistency"—cargo flow, capital flow, document flow, and information flow are fully matched, avoiding investigation by foreign exchange management departments and affecting L/C payment.
EmilyYears of service：3Customer Rating：5.0
Client Success AdvisorStart a Chat
The L/C safety in transit trade cannot do without the bottom-line guarantee of legal clauses. In 2026, the efficiency of cross-border arbitration for international trade disputes has been further improved, but transit trade involves legal systems of multiple countries, so once a dispute occurs, the rights protection cost is high. It is recommended that before opening the L/C, carefully check all possible soft clauses, clearly exclude all unobtainable or unenforceable clauses, such as requiring unverifiable third-party certificates or setting ambiguous payment conditions.
At the same time, require the issuing bank to provide an irrevocable L/C and add a "handling method for document discrepancy" clause, such as allowing correction within 3 working days after finding discrepancies to avoid direct refusal of payment. In addition, sign a third-party performance bond, require intermediaries to provide a bank guarantee to ensure compliance in transit links; and purchase L/C insurance to cover risks such as payment refusal, cargo damage, and intermediary default.
SophiaYears of service：7Customer Rating：5.0
Senior Customs AdvisorStart a Chat
The L/C safety in transit trade is directly related to on-site inspection control at the transit port. In 2026, the customs inspection rate at major global transit ports has been further increased. Once the cargo is randomly inspected, complete document information needs to be provided; otherwise, the cargo will be detained, and even high storage fees will be incurred, directly affecting the L/C payment timeliness.
It is recommended to clearly stipulate the inspection requirements of the transit port in the L/C terms, such as requiring the provision of cargo MSDS, packaging certificate, third-country origin certificate, etc. At the same time, communicate with the inspection agency at the transit port in advance to ensure that the cargo's packaging, labeling, and description fully meet the requirements of the L/C and customs. In addition, keep good records of cargo seals, inspection reports, unpacking photos, etc., to ensure that all documents are completely consistent with the actual cargo, avoiding inspection discrepancies.
OliviaYears of service：5Customer Rating：5.0
Senior Customs AdvisorStart a Chat
The L/C safety in transit trade also involves the physical safety of cargo transportation. In 2026, the cargo damage rate in international shipping is still high, especially for fragile goods and dangerous goods.
Once the cargo is damaged in transit, it will lead to inconsistency between the actual cargo and the document description, resulting in refusal of payment by the issuing bank. It is recommended to choose appropriate packaging materials according to the type of cargo—for fragile goods, use EPE buffer foam and hard cartons for reinforcement; for dangerous goods, package according to UN standards and obtain a professional dangerous goods classification identification report.
At the same time, prepare a complete MSDS report to ensure that the packaging meets international shipping requirements. In addition, clearly mark the cargo description, batch number, destination, transit port, etc., on the packaging to ensure full consistency with the L/C terms, avoiding packaging discrepancies.
AlexanderYears of service：10Customer Rating：5.0
Senior Trade AdvisorStart a Chat
The L/C safety in transit trade is directly related to export tax refund compliance. In 2026, the national customs and tax systems have realized data interconnection, and the review standards for export tax refunds have been further tightened. Especially for transit trade tax refunds, complete document information needs to be provided, such as purchase contracts, sales contracts, transit port storage certificates, transport bills of lading, payment and receipt vouchers, etc. Otherwise, the tax authority will initiate an inquiry, affecting the tax refund progress, or even leading to the cancellation of the tax refund.
It is recommended that before opening the L/C, clarify all document requirements to ensure compliance with relevant export tax refund regulations; keep all document information and file them according to requirements. In addition, use cross-month declaration to optimize the tax refund process and avoid failure of tax refund due to document discrepancies, which affects the company's capital flow.