When purchasing olive oil, choosing the right payment method is crucial and can be costly if done incorrectly. Pay too early, and you risk losing your money if the shipment never arrives. Paying too late could affect your relationship with the supplier, result in the order being refused, or lead the supplier to increase the price to cover their costs.
The right payment method depends on how well you know the supplier, the value of the shipment, and the level of protection both parties require. A first order from a new supplier requires stronger safeguards than a routine purchase from a long-term partner. As trust builds over several successful orders, terms are likely to become cheaper and more flexible.
This guide explains the main payment methods used in the olive oil trade, how much protection each offers, and when each one makes sense.
Payment terms vs. Incoterms
Payment terms and Incoterms are not the same thing; they are separate agreements that manage different parts of a transaction. Payment terms determine when and how the supplier is paid, whereas incoterms determine who pays transport costs, who arranges shipping, and when the risk of loss or damage transfers from seller to buyer.
Advance payment (TT)
Advance payment, usually by telegraphic transfer (TT), is the simplest and most common payment method in the olive oil trade. The buyer pays before shipment, either in full or through a deposit followed by a final balance payment. It is fast and inexpensive, useful for repeat business.
The downside is that it places most of the risk on the buyer. Once the money reaches the supplier's account, recovering it is difficult if the goods are never shipped or fail to match the contract. For first orders, buyers usually reduce this risk by paying a deposit and settling the balance after shipment.
Payment by deposit
Most olive oil transactions do not require full payment in advance. A common arrangement is a 30% deposit, with the remaining 70% payable after shipment, typically upon the buyer's receipt of a copy of the bill of lading or the shipping documents. This gives the supplier enough security to reserve the oil and begin production while limiting the buyer's financial exposure before shipment.
Documentary collection (D/P and D/A)
Documentary collection offers more protection than a simple bank transfer and is also less expensive than a letter of credit. Under Documents against Payment (D/P), the supplier's bank releases the shipping documents after the buyer has paid. Those documents are then needed so that the buyer can collect the shipment.
Under Documents against Acceptance (D/A), the buyer receives the documents after signing a promise to pay on a future date. Banks exchange documents between the two parties, they don't guarantee payment, and so this process works best if the two parties already trust each other.
Letter of credit (L/C)
A letter of credit is the standard payment method for large international transactions and first-time supplier relationships. The buyer's bank promises to pay the supplier once the supplier presents the documents specified in the credit, protecting the supplier from non-payment while protecting the buyer from paying before shipment. It does not require a prior relationship between the two parties and is a very safe method. However, letters of credit are more expensive and require precise paperwork.
When selling premium olive oil, buyers may require documents such as a certificate of analysis, a certificate of origin, and an independent inspection certificate before payment is released.
Escrow
Escrow uses an independent third party to hold the buyer's funds until agreed-upon conditions have been met. Once shipment, inspection or delivery has been verified, the escrow provider releases payment to the supplier. This option promises strong protection and easy administration, making it ideal for first-time supplier relationships and online B2B marketplaces.
Open account
Open account terms allow the buyer to receive the olive oil before making payment, commonly within 30, 60 or 90 days. The buyer gets maximum protection while the supplier absorbs almost all of the financial risk. For this reason, suppliers usually use open-account terms for long-standing customers with a proven payment history.
Which payment method is best?
The right payment method for an olive oil order depends on the amount of trust between parties and the order value. For a first order from a new supplier, a letter of credit or escrow may be the most reasonable, since there is no established business relationship. For a small trial order, a deposit plus TT is a good option. With established suppliers, documentary collection or TT works well. With long-term suppliers whom you know well, a good choice is open account.
How big is the order? A large, one-off shipment may justify the cost of a letter of credit, whereas small, regular orders could use faster, cheaper wire or open-account terms.
How stable is the supplier's country? Currency controls or political or banking instability may lead to the use of structured protection under an L/C, which can be confirmed by a bank in a stable jurisdiction.
As a commercial relationship develops, payment terms normally become more flexible as routine and trust build.
Avoiding payment fraud
Supplier verification is always needed, regardless of the payment method. Before sending money:
- Verify the supplier's legal registration and references before paying
- Confirm bank account details through a known channel
- Avoid paying 100% in advance to an unverified supplier
- For large orders, consider an independent pre-shipment inspection to verify grade, quantity, and packing
- Unusually low prices could be a bad sign; look into them
