Every long distance sale runs into the same problem: the seller will not ship before being paid, the buyer will not pay before receiving. Each payment method is a way of splitting that risk between the two, with or without a bank in the middle. Choose the wrong one and you finance the other side without knowing it, or lose your money.
Here are all the payment methods used in fuel and commodity trading, from the most favourable to the seller to the most favourable to the buyer.
The overview
| Payment method | Who carries the risk | When to use it |
|---|---|---|
| Advance payment | The buyer, entirely | Small amounts, known and verified supplier |
| Cash and carry | The buyer, briefly | Ex depot purchase, product visible and lifted at once |
| Confirmed letter of credit | The banks | First deal, large amount, risky country |
| Unconfirmed letter of credit | The buyer's bank | Strong issuing bank |
| SBLC or bank guarantee | The bank, on default | Repeat deliveries, deferred payment |
| Documentary collection | The seller, partly | Established relationship, resaleable goods |
| Open account | The seller, entirely | Long standing customers, groups, credit insurance |
1. Advance payment
The buyer pays all or part before shipment, by bank transfer. For the seller it is ideal. For the buyer it is total trust: if the seller does not deliver, all that remains is a lawsuit.
A deposit with the balance against documents is a common compromise. Paying 100 percent upfront to a supplier you have never met, on the strength of a website and scanned documents, is the leading cause of loss in this business.
2. Cash and carry
Pay and take away: the buyer pays in full and lifts the product immediately. It is the normal way to buy ex depot. The product sits in an identified tank, the buyer pays, the depot issues the release order, the trucks load.
The buyer's risk is limited on one condition: that the product is really there and that the seller really owns it. That is checked with the depot itself, never on a document supplied by the seller.
Some sellers extend short credit to large customers. The Dangote refinery, for instance, announced in July 2026 ten days of credit for orders of at least 250,000 litres.
3. Documentary collection
The seller ships, then hands the documents to its bank, which forwards them to the buyer's bank. That bank only releases them to the buyer against payment (documents against payment) or against acceptance of a draft payable later (documents against acceptance).
The banks guarantee nothing: they pass documents along. If the buyer does not turn up, the goods are in port, far from the seller, running up charges. Collection is cheap, but it assumes the goods can be resold elsewhere. It is governed by the International Chamber of Commerce's uniform rules for collections.
4. The letter of credit
This is the central tool of the trade. The buyer's bank undertakes to pay the seller, provided the seller presents the stipulated documents, compliant and on time. The bank pays against documents, not against goods.
The rules are the ICC's UCP 600. Three points to remember: a credit is irrevocable even if it does not say so; banks have at most five banking days to examine documents; and the slightest difference between documents and credit, called a discrepancy, allows payment to be refused.
Its variants:
Sight or usance. At sight, the seller is paid on presentation of compliant documents. Under usance, it is paid 30, 60 or 90 days later: the buyer obtains credit, guaranteed by the bank.
Confirmed. A second bank, usually in the seller's country, adds its own undertaking. The seller is no longer exposed to the issuing bank or its country. For a credit issued by a little known bank, international sellers almost always require it.
Transferable. The beneficiary, often a trader, can have all or part of the credit transferred to its own supplier. The credit must expressly say so, and it can only be transferred once. It is the tool of the intermediary without capital.
Back to back. The trader uses the credit received from its buyer as support to have a second one opened in favour of its supplier. These are two separate credits: the trader's bank takes a real risk and often refuses it to a newcomer.
We explain what each document proves in our article on letters of credit between Africa and abroad.
5. Standby letters of credit and bank guarantees
A standby letter of credit (SBLC) is not there to pay: it is there to guarantee. The buyer pays normally, by transfer, on each delivery. If it fails to pay, the seller draws on the SBLC and the bank pays instead. It suits contracts with repeat deliveries, where opening a letter of credit per cargo would be too heavy.
A demand guarantee plays the same role. In the other direction, the seller sometimes provides a performance bond, for a percentage of the contract agreed between the parties, which compensates the buyer if it fails to deliver.
6. Open account
The seller delivers, invoices and waits for payment at 30, 60 or 90 days. It is the method of long standing relationships and large groups. All the risk sits with the seller, which covers itself with credit insurance or sells its receivables to a specialist.
Scams to recognise
Fuel trading attracts highly organised fake sellers. The Port of Rotterdam has given their method a name: storage spoofing. Websites imitate those of real tank storage companies and offer product that does not exist. In 2025, fraudulent offers with a total value of 2.5 billion euros were reported to the port's task force; traders' actual losses are estimated at no less than 10 million euros a year, and more than 1,250 fraudulent websites are listed.
The warning signs never change:
- a price well below the market;
- an imposed "procedure" with fees to pay before seeing the product: tank rental, dip test, inspection "authorisation";
- storage documents that cannot be verified with the terminal itself;
- a seller who refuses a letter of credit and accepts only a transfer;
- chains of intermediaries, none of whom has ever seen the product.
The rule is simple: verify the stock with the terminal, through its official contact details, and never pay a fee for the right to verify.
Why it is harder in Africa
Getting a letter of credit requires a bank willing to commit. Trade finance is short on the continent. The African Development Bank and Afreximbank put the gap at about 81 billion dollars in 2019, and more recent estimates give a range of 74 to 92 billion for 2024. Applications from small and medium sized enterprises are often rejected, 30 percent of them in West Africa according to their survey, mainly for weak creditworthiness and insufficient collateral.
The result: a serious African buyer is often asked for a confirmed credit, which costs more, or for advance payment. And a serious African seller struggles to get its cargo financed.
Our reading
The payment method is not an administrative detail: it is the contract itself. A seller who demands a confirmed letter of credit is not insulting the buyer, it is speaking the normal language of the trade. A seller who refuses any bank and wants only a transfer has something to hide, or has no goods.
Our view is that African companies must learn to present themselves to banks as counterparties: kept accounts, written contracts, a record of transactions settled on time. A transferable credit, properly negotiated in the contract, makes it possible to start without large capital. But it has to be requested before the credit is issued, not after.
Frequently asked questions
What is the difference between a letter of credit and an SBLC?
A letter of credit is a means of payment: the bank pays against compliant documents. An SBLC is a guarantee: the bank only pays if the buyer defaults.
What does cash and carry mean in fuel trading?
Paying in full and lifting immediately. It is the usual way to buy fuel ex depot: payment, release order, truck loading.
What is a confirmed letter of credit?
A credit to which a second bank, usually in the seller's country, adds its own undertaking to pay. It protects the seller against the risk of the issuing bank and its country.
What is a transferable letter of credit?
A credit the beneficiary can have transferred, once, to its own supplier. It must be expressly designated transferable when issued.
How do you recognise a fuel trading scam?
A price that is too low, fees to pay before seeing the product, storage documents that cannot be verified, refusal of a letter of credit. Stock is verified directly with the terminal, through its official contact details.
What we do
GraceRoad buys and sells fuel and commodities on payment terms both sides can accept: letter of credit, bank guarantee, or cash and carry ex depot for parcels. We verify the product and the counterparty before any payment. Tell us about the deal: product, volume, country, bank.
Read next: fuel cargo hidden costs: demurrage, pumping, lightering and due diligence on an African supplier.
Sources: International Chamber of Commerce, Uniform Customs and Practice for Documentary Credits (UCP 600: irrevocability, five banking day examination period, confirmation, transferable credit), Uniform Rules for Collections, rules on standbys and demand guarantees; Port of Rotterdam Authority, statement of 6 February 2026 on storage spoofing (2.5 billion euros of offers reported in 2025, at least 10 million euros of losses a year, more than 1,250 fraudulent websites); African Development Bank and Afreximbank, trade finance in Africa survey, reported by Global Trade Review, 23 September 2020 (81 billion dollar gap, rejection rates, reasons); Global Trade Review, 2025 (estimate of 74 to 92 billion dollars for 2024); Legit.ng, 30 July 2026 (Dangote refinery ten day credit).