Drilling Rig Payment Terms: T/T vs L/C Explained in Full

In March a buyer in Mombasa sent me a photo of a rig sitting under a tarpaulin at the container terminal. Twelve days it had been there. Customs were done. The shipping line was calling every morning about storage.

The bank was holding the documents.

His letter of credit described the goods as One (1) unit water well drilling rig, model WD-W600, 600 m capacity. Our commercial invoice said WD-W600 Water Well Drilling Rig, 1 set. The packing list said three packages but did not repeat the model.

The bank’s document checker did exactly what he is paid to do. He found the words did not match. Rejected. Returned. Shipment stranded at the port while two banks exchanged messages about the difference between “one unit” and “1 set”.

Here is the part that still bothers me. That buyer had spent three weeks pushing me down by US$800 on the rig price. The twelve days of storage, the two amendment attempts and his own lost site time cost him several times that.

Price is the number everyone argues about. Terms are where the money actually moves.

What Payment Terms Are Really Doing

A rig order is two strangers, eight thousand kilometres apart, each holding something the other wants. The buyer has money and no machine. The supplier has a machine and no money.

Payment terms are the mechanism that decides who carries the risk while the machine is in the middle of that gap. That is all they are. Every term you will be offered is a different answer to one question: if this goes wrong at 60% completion, who is out of pocket?

Buyers tend to read terms as a trust problem. Suppliers tend to read them as a cash flow problem. Both are right, and the useful conversation happens when both sides look at the same risk map.

The Four Terms You Will Actually Be Offered

Almost every rig quotation in this industry lands on one of these four. Anything else is a variation.

Term	How it works	Who carries the risk	Where you see it
100% T/T in advance	Full payment before production starts	Buyer carries everything	Small tooling orders, first contact with an unverified supplier, custom builds for a new buyer
30% deposit, 70% before shipment	Deposit releases material and production, balance releases the bill of lading	Split: buyer risks the deposit, supplier risks the finished machine	The default for full rigs. Most of our orders sit here
L/C at sight	Bank pays against a compliant document set, usually within five banking days of presentation	Shared, mediated by two banks	Government tenders, first orders above roughly US$50,000, markets with currency controls
Usance L/C 60–90 days, or D/P	Documents released against acceptance or payment at a future date	Supplier or supplier’s bank finances the buyer	Repeat buyers, distributors, competitive tenders

There is a fifth arrangement that shows up often enough to name: 70% against a copy of the bill of lading rather than before shipment. It reads like a small change. It is not. It moves the balance risk onto the supplier after the rig has left the factory, which is why it is normally reserved for buyers with a payment history.

The 30/70 Split, Explained Without Sales Language

Thirty percent is not a goodwill gesture. It buys steel, a diesel engine, a hydraulic pump, a rotary head and the wage bill for the weeks the machine occupies a bay. On a full-hydraulic rig that is most of the material cost.

Seventy percent before shipment is the buyer’s last real lever, and it is worth keeping. Once the container is on the water, your leverage is a phone call and a clause.

What most buyers never ask is what the 70% is actually released against. That is the clause that decides whether the split protects you or just splits your exposure. Put three things in writing:

1. The inspection standard. Not “quality acceptable to buyer”. Name the test: mast raise and lower under load, rotary head torque check, feed cylinder travel, winch brake test, hydraulic pressure at the pump, a timed run at working pressure. Then say who witnesses it.

2. The evidence package. Video of the test run, photographs of the serial plate, gauge readings on camera, and a packing list that matches the invoice line by line. This costs a supplier half a day. It has saved more deals than any discount.

3. The failure path. If the test fails, who decides, who pays for the rework, and how long does the buyer wait before the deposit is returnable. Most proforma invoices are silent here, and silence always favours the party holding the money.

An L/C Is Not a Payment. It Is a Document Check.

This is the single most misunderstood thing in export sales, and I have watched it cost buyers five figures.

A letter of credit is an undertaking by a bank to pay a stated amount against a stated set of documents, under rules the banks have agreed among themselves, principally UCP 600. The bank never sees your rig. It never meets your engineer. It does not know a rotary head from a mud pump and does not want to.

It checks paper.

So the question is never “is my rig good”. The question is “does my document set match the credit, character for character”. Those are different questions, and a perfect machine with a sloppy invoice fails the second one.

Two practical consequences follow.

The credit is written before production starts. Whatever wording ends up in it becomes the specification your paperwork must hit three months later. If it says “600 m capacity” and your test certificate says “rated 600 m in HQ”, you have a discrepancy. Fix the credit at draft stage, when an amendment is cheap and nobody is standing at a port.

Presentation has a clock on it. Under UCP 600, if the credit does not say otherwise, documents must be presented within 21 calendar days of the shipment date and always inside the credit’s validity. Miss it and the bank’s undertaking expires while your container is still moving.

The Five Fields That Cause Most Rejections

I have now sat through enough of these to see the pattern. It is nearly always the same five fields, and none of them are technical.

Field	What goes wrong	How to close it
Goods description	Credit says “one unit”, invoice says “1 set”; credit adds a model that the invoice omits	Copy the credit’s description into the invoice verbatim. Do not improve the English
Quantity and unit	Credit specifies sets, packing list counts packages; nothing states the relationship	State both on the packing list: “1 set, 3 packages”
Model and serial	Model appears on the invoice but not on the packing list or test certificate	Repeat the exact model string on every document
Commodity classification	Invoice says “drilling rig”, credit says “machinery for boring or sinking” with an HS heading	Agree the HS line before the credit is issued; the classification logic is in our rig HS code guide
Dates and shipment terms	Latest shipment date already passed at booking; partial shipment not allowed but the rig needs two containers	Set the date after the production schedule, and allow partial shipment in writing

The fifth row catches more people than the first four combined. A 600 m water well rig with a mast and a tooling package does not always fit one container. If the credit forbids partial shipment and the booking splits, you are in breach before the first box is loaded. Our shipping breakdown covers how the container maths usually falls, and it belongs in the same conversation as the credit.

What Each Route Actually Costs

Nobody quotes this honestly, so here is the structure rather than a fake number.

Bank charges vary too much between countries, banks and credit ratings to print a table of figures that would survive contact with your own bank. What does not vary is where the charges come from. Ask for an all-in number in writing, on your bank’s letterhead, before you choose the route.

Cost item	30/70 T/T	L/C at sight	Notes
Transfer fees	Two wires, sending and receiving charges	One reimbursement between banks	Small and predictable on T/T; often absorbed inside the balance
Opening commission	None	Charged by the issuing bank as a percentage of the credit value, sometimes per quarter	The main L/C cost. Get it quoted against your own credit line
Advising and confirmation	None	Advisor’s fee, plus confirmation if the seller’s bank is asked to add its own undertaking	Confirmation is worth it when the issuing bank is unfamiliar
Amendment	None	Charged per amendment, at both ends	Two amendments can exceed the price you negotiated away
Discrepancy	None	Charged per discrepancy, and the bank may also hold payment pending acceptance	The hidden killer. See the five fields above
Courier and document handling	One courier for originals, if required	Two or three, plus presentation	Budget it, do not discover it
Working capital	Deposit is spent on material; balance arrives before shipment	Supplier may need pre-shipment finance while documents travel	Either the supplier finances it or the price carries it

Run the arithmetic on a US$45,000 rig order and the shape becomes obvious. Under 30/70, the buyer parts with US$13,500 to start and US$31,500 against the bill of lading, and pays two wire fees. Under an L/C, the same US$45,000 leaves the account later but arrives with an opening commission, an advising fee, possibly a confirmation fee, and a live exposure to amendment and discrepancy charges.

The L/C is not expensive because banks are greedy. It is expensive because you are buying a bank’s balance sheet between two parties who do not trust each other yet. That has a price, and on a first order above US$50,000 it is often worth paying.

Where the Two Systems Meet: Pre-Shipment Inspection

Most L/Cs for machinery ask for an inspection certificate. That is the point where the bank’s paper world and your actual rig have to agree, and it is the part buyers underestimate.

What a serious supplier can produce without drama: a signed test report with gauge values, video of the mast cycling and the head turning, photographs of the serial plate matching the invoice, and a packing list that maps each package to a line item. Third-party inspection by SGS, Bureau Veritas or Intertek is a different service with its own schedule and fee, and it has to be booked before the crate is closed, not after.

The discipline is the same one that separates a good used machine from a bad one, which we wrote about in the used rig inspection checklist. Paper does not replace eyes. It just proves the eyes were there.

What to Send Us Before We Quote

Payment terms are agreed faster when the commercial frame is already clear. Six items settle most of it:

1. The buying entity, exactly as it will appear on the credit. A trading name and a registered name that differ by one word is a discrepancy waiting to happen.

2. Port of discharge and incoterm. FOB, CFR or CIF changes who books the vessel and who owns the risk at the rail. Say which one, and say the port.

3. The technical frame. Depth, finished diameter, formation, and whether you need the rig alone or the full package with rods, bits, mud pump and spares. Our rig range runs from the 65 kW WD-W260 up to the 600 m WD-W600 water well rig and the wireline core machines such as the WD-C600, and the commercial terms differ by class.

4. Whether an inspection certificate is required, and by whom. This decides the production buffer, because inspection slots get booked out.

5. Target shipment window. Not the date you hope for. The date the credit will state.

6. Which payment route your bank will actually support, not which one your procurement manual prefers. In several markets the practical answer is 30/70 T/T because opening a credit takes longer than building the rig.

Tooling is usually where first orders start, and it is also where terms are simplest. A container of rods, bits and hammers from our drilling tools range is a low-value, fast-moving order; nobody opens a letter of credit for it.

Which Term Fits Which Buyer

Buyer situation	Sensible default	Reason
First order, tooling only, under about US$15,000	100% T/T, or 30/70 if production is custom	L/C costs more than the risk it removes at this size
First order, full rig, no trading history	30/70 T/T with a named inspection	Deposit caps the buyer’s exposure; the 70% keeps the supplier honest
First order above roughly US$50,000	L/C at sight	The bank’s undertaking is worth its cost at this value, and it satisfies most internal treasury rules
Government or state utility tender	L/C at sight, often with a performance bond	Usually not negotiable; the tender document decides
Repeat buyer, three or more clean orders	30/70, then 70% against B/L copy, then usance	Terms should loosen with a payment record, not with time
Market with currency controls	L/C, confirmed, with a clear presentation window	Local transfer approval is the real bottleneck, not the supplier
Buyer using an agent or consolidator	Deposit from the end buyer, balance from the agent, named in the contract	Ambiguous payer identity is the most common dispute we see

Red Flags, on Both Sides of the Table

Buyers get warned about suppliers constantly. Less is written about the reverse, and both lists are short.

From a buyer, be careful when: a supplier demands 100% T/T to a personal account; refuses a video inspection before the balance; issues a proforma invoice with no model, no serial format and no packing basis; or quotes a price well below the class of machine you asked for and then adds “options” after the deposit lands.

From a credit, be careful when: it requires a certificate “issued by the applicant” without a stated standard, which is a soft clause and effectively lets the buyer block payment; the issuing bank has no correspondent relationship with your bank; partial shipment is forbidden on an order that needs two containers; or the latest shipment date sits before your confirmed production finish.

None of those are exotic. All of them are visible at draft stage, which is the only stage where they are cheap to fix.

Questions Buyers Actually Send

Can I pay the balance after the rig arrives and runs?

Rarely, and only with a payment history. The balance before shipment is not distrust; it is the supplier’s only security once the container is loaded. What you can reasonably ask for is a balance released against a B/L copy, which shifts the timing by a few days without moving the risk all the way to arrival. If a supplier agrees to full payment on arrival on a first order, ask yourself what the machine is actually worth to them.

Does an L/C protect me if the rig turns out to be faulty?

No. This is the sentence I most often have to say twice. An L/C protects you against non-shipment and against documents that do not comply. It says nothing about whether the rotary head holds torque after six months. Quality protection comes from the specification in the contract, the inspection certificate, the warranty terms, and the spare parts supply behind them. Treat the credit as a payment mechanism, not a quality guarantee.

Who pays the bank charges?

By default, the applicant pays charges in the issuing country and the beneficiary pays charges outside it. That default is often unfavourable to the seller, and it is negotiable. Put one line in the contract: all bank charges outside the buyer’s country for the buyer’s account. Then the price you agreed is the price you receive.

Can we use an escrow or a marketplace guarantee instead?

Sometimes, depending on how the order reached us. Escrow platforms work well for standard tooling with a fixed specification. They fit badly for a configured rig, because the release conditions have to describe a machine that does not exist yet. If escrow matters to your treasury, say so before the quotation, not after the proforma.

What if we need the credit amended after production starts?

It happens, usually because the shipping schedule moved. Amend early, in writing, and accept that both banks will charge for it. An amendment two weeks before the latest shipment date is routine. An amendment the week of shipment is a delay with a fee attached, because the documents may already be in transit.