Payment Terms in International Trade: Complete Guide for Indian Exporters

Why Payment Terms Matter

Payment terms determine when and how you get paid for your exports. The wrong payment term can expose you to non-payment risk, tie up working capital, or make your prices uncompetitive. Understanding the full spectrum of payment options helps you negotiate better deals while managing risk.

1. Advance Payment (T/T — Telegraphic Transfer)

Risk to exporter: Lowest

• Buyer sends full or partial payment before shipment via bank wire transfer
• Common in first-time transactions or with unknown buyers
• Typical structure: 30-50% advance, balance before shipment or against copy of BL
• Buyer may resist as they bear all the risk

2. Letter of Credit (LC / Documentary Credit)

Risk to exporter: Low (bank guaranteed)

• Buyer's bank issues a guarantee to pay the exporter upon presentation of compliant documents
• Most secure for both parties — bank acts as intermediary
• Types: Irrevocable LC (standard), Confirmed LC (double bank guarantee), At Sight LC (immediate payment), Usance LC (deferred payment 30-180 days)
• Requires strict compliance with LC terms — any discrepancy can delay payment
• Bank charges: 0.5-2% of LC value on each side

3. Documents Against Payment (D/P)

Risk to exporter: Medium

• Exporter ships goods and sends documents through banking channels
• Buyer must pay the bill amount to their bank to receive documents and clear goods
• Risk: Buyer may refuse to pay, leaving goods stranded at destination port
• Lower bank charges than LC

4. Documents Against Acceptance (D/A)

Risk to exporter: High

• Similar to D/P but buyer gets documents by "accepting" a bill of exchange (promising to pay later)
• Buyer gets goods immediately but pays after 30, 60, or 90 days
• Risk: Buyer may default after receiving goods
• Only use with trusted, long-term buyers

5. Open Account

Risk to exporter: Highest

• Goods shipped and delivered before payment is due (typically 30-90 days)
• Most favorable for buyer, riskiest for exporter
• Common in competitive markets or with established relationships
• Consider ECGC insurance to mitigate risk

Risk Comparison Table

• Advance T/T — Exporter risk: Very Low | Buyer risk: Very High
• Confirmed LC — Exporter risk: Very Low | Buyer risk: Low
• Irrevocable LC — Exporter risk: Low | Buyer risk: Low
• D/P — Exporter risk: Medium | Buyer risk: Low
• D/A — Exporter risk: High | Buyer risk: Very Low
• Open Account — Exporter risk: Very High | Buyer risk: Very Low

Best Practices for Indian Exporters

1. New buyers — Always insist on advance payment or LC for first 2-3 orders
2. Large orders — Use LC for orders above $10,000
3. Get ECGC insurance — Covers non-payment risk for D/A and open account terms
4. Check buyer creditworthiness — Use Dun & Bradstreet or ECGC buyer reports
5. Screen buyers — Check OFAC/UN sanctions lists before any transaction

How Eximly Manages Payment Terms

Eximly's trade finance module tracks all your LCs (opening date, expiry, amendment status), manages D/P and D/A collection schedules, monitors payment due dates, and alerts you before LC expiry. Our sanctions screening tool checks every buyer against OFAC/UN lists. Start your free trial.