Payment Terms for First-Time Indian Buyers: LC, T/T, and Advance

Choosing the right payment terms with your Indian supplier balances risk, cost, and cash flow. Here's how the common options actually work in practice.

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Payment terms are one of the most negotiated parts of an export deal — and getting them wrong is expensive on both sides. Here's a working reference for buyers dealing with Indian exporters.

Advance / Wire Transfer (T/T)

→T/T = Telegraphic Transfer, the standard SWIFT bank-to-bank wire.
→Typical Indian-side ask: 30% advance on order confirmation, 70% against scanned shipping documents. First orders sometimes ask for 50% advance or full advance from unknown buyers.
→Buyer risk: The advance is exposed if the supplier fails to ship or ships incorrectly. Mitigate with third-party pre-shipment inspection.
→Cost: Minimal — SWIFT charges typically $25–$50 per wire.
→When to use it: Repeat orders, established supplier, small-to-mid order values.

Letter of Credit (LC)

→How it works: Your bank commits to pay the seller when the seller presents the exact documents specified in the LC (Bill of Lading, invoice, packing list, phytosanitary certificate, etc.). LCs are governed internationally by the ICC's UCP 600 rules.
→Types most used in India: Irrevocable LC at sight (payment on document presentation) and Usance LC (payment at 30/60/90 days from document date).
→Buyer risk: Very low — payment only releases against correct documents. However, discrepant document sets are common; expect 1–2 rounds of amendments per LC.
→Cost: Bank fees typically 0.15–0.5% of LC value per quarter, plus amendment fees. Advising bank in India charges the seller a similar range.
→When to use it: First-time high-value shipments, unfamiliar suppliers, high-value commodities.

Documents against Payment (D/P) and Documents against Acceptance (D/A)

→D/P: Bank releases shipping documents to buyer only against payment. Middle-ground between advance and LC.
→D/A: Documents released against buyer's signed acceptance of a time draft (usually 30–90 days). Buyer takes possession before paying.
→Cost: Lower than LC, higher risk for the seller.
→Practical use: Established buyer–seller relationships where LC overhead isn't justified.

Open Account

Buyer pays after receiving goods — most flexible for buyers, riskiest for sellers. Rare for first-time deals but common between multinational buyers and long-term Indian suppliers.

Escrow / Third-Party

Some marketplaces (Alibaba Trade Assurance, EximPay, etc.) offer escrow for smaller first-time orders. Fees typically 1–3% of transaction value. Useful for pilot orders below $10k.

What Indian exporters commonly accept

→≤ $10k order value: 100% T/T advance is common. Escrow if buyer is comfortable with the platform.
→$10k – $50k: 30% advance, 70% against B/L copy — the industry default.
→$50k+: LC at sight is standard. First-time large orders may be split into 2 LCs.
→Repeat business ≥ 6 months: T/T against documents (no advance) becomes possible.

Practical tips

→Get a Proforma Invoice with clear payment terms before wiring anything.
→Verify the bank account matches the exporter's IEC-registered bank. Wire to unrelated accounts is a common fraud vector — call the exporter's landline before releasing the first payment.
→On LC, ask for a draft and have your bank pre-check it before formally opening. Post-issuance amendments cost time and fees.
→Don't chase the last 5% of price by moving to a term that materially increases your risk. The cost of one delayed shipment often erases years of savings.

Payment terms should reflect the level of trust in the relationship. Start conservative, and let good performance earn better terms over time.