Comparison between cash on delivery, letter of credit and PayPal: How do small and medium-sized enterprises choose the settlement method for export?

1. Overview of three settlement methods
2. Cash on Delivery (COD)
   The buyer pays the purchase price directly after receiving the goods

The risk is mainly borne by the seller

Applicable to transactions with high trust or small transactions

2. Letter of Credit (L/C)
   Payment method guaranteed by the bank as an intermediary

The buyer’s bank promises to pay if the documents are met

The risk is relatively balanced, but the procedures are complicated and the fees are high

3. PayPal
   Internationally popular electronic payment platform

Instant payment, easy operation

The buyer’s protection policy may be unfavorable to the seller

2. Comparison of three settlement methods
   Comparison dimensions Cash on Delivery (COD) Letter of Credit (L/C) PayPal
   Risk level Seller’s risk is extremely high Risk is relatively balanced Seller has certain risks
   Capital turnover Slow payment collection Payment after documents are consistent Instant payment
   Costs and expenses High transportation cost High bank fees (1-3%) High handling fee (3-4.5%)
   Operation complexity Simple Very complex Simple and convenient
   Applicable amount Small transaction Large transaction Small and medium-sized transactions
   Applicable areas Local or neighboring countries Global Mainly European and American markets
   Dispute resolution Difficult to recover Based on UCP600 rules Favoring buyers
   III. Selection suggestions for small and medium-sized enterprises
3. Situations where cash on delivery (COD) is selected:
   Long-term and stable cooperative relationship with buyers

Small transaction amount

Short transportation distance, controllable logistics

Large product profit margin, able to bear risks

2. Situations where letter of credit (L/C) is selected:
   First transaction and large amount (recommended more than 50,000 US dollars)

High political and economic risks in the buyer’s country

High degree of product customization, difficult to resell

The company has professional foreign trade personnel to handle documents

3. PayPal is chosen in the following situations:
   For European and American individual consumers or small B customers

Single transaction amount is less than 10,000 US dollars

E-commerce transactions that need to be completed quickly

Enterprises can bear the possible refund risk

IV. Risk management suggestions
Combined use: large transactions can require 30% advance payment + 70% letter of credit

Insurance credit insurance: COD transactions can be insured with export credit insurance

Strict review of buyers: verify the credit of buyers through banks, chambers of commerce and other channels

Focus on the international situation: high-risk countries give priority to letters of credit

Gradually build trust: new customers start with small PayPal transactions and gradually transition to letters of credit

V. Summary
Small and medium-sized enterprises should choose a settlement method based on transaction amount, buyer credit, product characteristics, target market and other factors. Generally speaking:

Small retail: PayPal is preferred

Medium-amount new customers: 30% advance payment + 70% payment on copy of bill of lading

Large transactions: Letter of credit is safer

Trust old customers: Cash on delivery can be used flexibly

As trading relationships are established, settlement methods can be gradually adjusted to balance risks and costs.