Payment Methods for Korean Wholesale: T/T, L/C, PayPal Complete Guide

Choosing the right payment method for your Korean cosmetics wholesale orders affects your cash flow, risk exposure, and supplier relationship. Each method has distinct advantages depending on your order size, relationship stage, and risk tolerance. This guide covers every option in detail.

Telegraphic Transfer (T/T) / Wire Transfer

T/T is the most common payment method in Korean wholesale trade. It involves a direct bank-to-bank transfer of funds.

How It Works

1. Supplier sends a proforma invoice with banking details
2. Buyer initiates a wire transfer through their bank
3. Funds are received in the supplier's Korean bank account (typically within 2-5 business days)
4. Supplier ships goods after confirming payment receipt

Typical T/T Terms by Relationship Stage

Stage	Terms	Risk Level (Buyer)
First order	100% upfront	High
Orders 2-3	50% deposit, 50% before shipment	Medium-High
Orders 4-6	30% deposit, 70% against B/L copy	Medium
Established (6+ months)	30% deposit, 70% Net 30 after shipment	Medium-Low
Strategic partner (1+ year)	Net 30-60 after shipment	Low

Pros

• Low transaction fees (USD 20-50 per transfer)
• Fast processing (2-5 business days)
• Widely accepted by all Korean suppliers
• No complex documentation required

Cons

• High risk for buyers on upfront payments (no built-in protection)
• Exchange rate fluctuations between transfer initiation and receipt
• Difficult to recover funds if a dispute arises
• Bank intermediary fees can add up for smaller transfers

Tips for T/T Payments

• Always request the supplier's bank details on company letterhead
• Verify account details via a phone call before the first transfer
• Use the proforma invoice number as the payment reference
• Keep SWIFT confirmation receipts for all transfers
• Consider using a forward contract to lock exchange rates for large orders

Letter of Credit (L/C)

Letters of Credit provide the highest level of protection for both buyer and seller in international trade. A bank guarantees payment upon presentation of specified documents.

How It Works

1. Buyer applies for an L/C at their bank (issuing bank)
2. Issuing bank sends L/C to the supplier's bank (advising bank) in Korea
3. Supplier ships goods and presents required documents to advising bank
4. Advising bank verifies documents and forwards to issuing bank
5. Issuing bank releases payment to supplier
6. Buyer receives documents and clears customs

When to Use L/C

• Orders exceeding USD 50,000
• First-time transactions with new suppliers
• When buyer or supplier creditworthiness is uncertain
• For transactions involving long production or shipping times
• When government regulations require L/C (some countries mandate this)

Types of L/C Used in Korean Trade

• Irrevocable L/C: Cannot be changed without both parties' consent (standard)
• Confirmed L/C: Adds a second bank's guarantee (for added security)
• Sight L/C: Payment upon document presentation (most common)
• Usance L/C: Payment deferred 30-180 days after document presentation (acts as financing)

Costs

• L/C issuance fee: 0.5-2.0% of L/C value
• Amendment fees: USD 50-100 per change
• Advising fee: 0.1-0.25% (paid by supplier, often passed to buyer)
• Discrepancy fees: USD 50-100 if documents do not match L/C terms

Pros

• Strong protection for both parties
• Bank acts as trusted intermediary
• Can serve as trade financing tool (Usance L/C)
• Widely understood and governed by international rules (UCP 600)

Cons

• High fees relative to order value for smaller shipments
• Complex documentation requirements
• Time-consuming process (1-3 weeks to establish)
• Document discrepancies can delay payment

PayPal Business Payments

PayPal is increasingly accepted by Korean suppliers for smaller orders and sample shipments, though it remains less common for large wholesale transactions.

When PayPal Works Best

• Sample orders under USD 2,000
• Initial trial orders with small MOQ brands
• Transactions where speed is prioritized over cost
• When the buyer lacks a trade finance relationship with a bank

PayPal Costs

• Transaction fee: 3.4-4.4% + fixed fee (varies by currency)
• Currency conversion fee: 2.5-4.0% above mid-market rate
• Total effective cost: approximately 6-8% of transaction value

Pros

• Fast setup and transfer (minutes to hours)
• Buyer protection on eligible transactions
• No need for bank wire infrastructure
• Familiar interface for international commerce

Cons

• High fees erode margins significantly
• Many Korean brands view PayPal as less professional
• Transaction limits may restrict larger orders
• Dispute resolution can be slow and unpredictable
• Currency conversion rates are unfavorable

Escrow Services

Escrow services hold buyer funds until both parties confirm the transaction is complete. This is gaining traction in B2B cosmetics trade.

How Escrow Works

1. Buyer deposits funds with the escrow service
2. Supplier ships goods knowing funds are secured
3. Buyer inspects goods and confirms satisfaction
4. Escrow releases funds to the supplier
5. If there is a dispute, the escrow service mediates

Costs

• Typically 1-3% of transaction value
• May include additional fees for currency conversion and dispute resolution

Pros

• Balanced protection for both buyer and seller
• Builds trust in new trading relationships
• Transparent process with clear milestones
• Lower cost than L/C for mid-size orders

Cons

• Not as widely accepted as T/T or L/C in Korea
• Inspection and approval process can delay supplier payment
• Limited escrow providers specializing in cosmetics trade
• May require both parties to register on the same platform

Choosing the Right Payment Method

Decision Framework

Order value under USD 2,000 (samples/trial):

• PayPal or T/T with full upfront payment
• Quick and simple, accept the higher per-unit cost

Order value USD 2,000-20,000 (initial wholesale):

• T/T with 50/50 or 30/70 split
• Escrow if working with a new, unverified supplier
• Build payment history for better terms

Order value USD 20,000-50,000 (established wholesale):

• T/T with favorable terms (30% deposit, Net 30 balance)
• Consider escrow for new product lines or new suppliers

Order value above USD 50,000 (major orders):

• L/C for maximum protection
• Usance L/C if you need extended payment terms
• T/T Net 30-60 only with trusted long-term partners

Protecting Yourself

Regardless of payment method, take these precautions:

1. Verify the supplier's business registration through Korean government databases (DART system) or platform verification on Hannaru
2. Start with smaller orders and scale up as trust develops
3. Document everything including proforma invoices, payment confirmations, shipping documents, and communication records
4. Use platform-based communication to maintain a record of all agreements
5. Purchase cargo insurance for shipments above USD 5,000
6. Understand Korean banking holidays that may delay transfers (Lunar New Year, Chuseok)

Currency Considerations

Korean Won (KRW) fluctuates against major currencies. For wholesale buyers:

• Most Korean suppliers quote in USD to simplify international trade
• If quoted in KRW, negotiate a fixed exchange rate or conversion date
• Use forward contracts through your bank for orders with long lead times
• Monitor KRW/USD trends; a weaker Won benefits buyers
• Factor in 2-4% for currency conversion costs in your landed cost calculations

Connecting with brands through hannaru.com provides a transparent environment for discussing payment terms directly with brand owners, removing the ambiguity that often comes with trading through intermediaries.