Winning an order is only half the job. The payment terms decide whether you are paid on time, late, or not at all. Each method moves risk between you and the buyer, so the right choice depends on how well you know the buyer and how strong your own cash flow is.
Exporters usually choose from five payment methods. In order from safest to riskiest for the seller they are: advance payment, letter of credit (LC), documents against payment (DP, also called cash against documents), documents against acceptance (DA) and open account. For new buyers, ask for an advance or a confirmed LC. Move to DP, DA or open account only once you trust the buyer, and consider export credit insurance for those terms.
1. Advance payment
The buyer pays all or part of the value before you ship. A common pattern is 30% advance with the order and 70% before dispatch or against a copy of the bill of lading. Advance payment protects you completely, but many buyers resist it for large orders because they carry all the risk.
2. Letter of credit (LC)
The buyer's bank promises to pay you once you present documents that match the LC terms exactly. A confirmed LC adds a second bank's promise, usually a bank in India, which protects you if the issuing bank or its country runs into trouble. An LC is only as safe as your documents: small mismatches in spelling, dates or quantities are the most common reason payments are delayed. Our letter of credit guide explains how to avoid discrepancies.
3. Documents against payment (DP)
You ship the goods and send the documents through your bank to the buyer's bank. The buyer's bank releases the documents, including the bill of lading needed to claim the goods, only when the buyer pays. DP is also called cash against documents (CAD). The risk is that the buyer may refuse to collect the documents, leaving your goods at a foreign port with storage charges building up.
4. Documents against acceptance (DA)
The buyer receives the documents by accepting a bill of exchange that promises to pay on a later date, for example 60 or 90 days after sight. The buyer gets the goods before paying, so you are relying on the buyer's promise. Use DA only for buyers with a solid payment record, and consider insurance cover.
5. Open account
You ship and send documents directly to the buyer, who pays later on agreed credit terms. This is common between long-standing partners and in markets such as Europe and North America. It is the most competitive offer you can make and also the riskiest. Export credit insurance from ECGC or a private insurer can cover much of that risk. See our ECGC guide.
Comparing the options
| Method | Risk to exporter | Best used when |
|---|---|---|
| Advance | Very low | New buyers, custom products, small orders |
| Confirmed LC | Low | Large orders, new buyers, higher-risk countries |
| DP / CAD | Medium | Buyers you have checked, stable markets |
| DA | Medium to high | Trusted buyers who need credit time |
| Open account | High | Long-term partners, ideally with insurance |
Rules on receiving export payments
Export proceeds must come into India through your authorised dealer (AD) bank within the time allowed by the Reserve Bank of India, and your bank links each payment to its shipping bill. Register your AD code with customs before you ship. See our AD code guide. If a payment will be late, tell your bank early, because delays may need its approval.
Frequently asked questions
Which payment term is safest for exporters?
Advance payment is the safest, followed by a confirmed letter of credit. Both protect you before the buyer takes control of the goods.
What is the difference between DP and DA?
Under DP the buyer must pay before the bank releases the documents. Under DA the buyer only has to accept a bill of exchange, promising to pay on a later date, so they receive the goods before paying.
Is a letter of credit risk-free?
No. You are only paid if your documents match the LC terms exactly. An unconfirmed LC also depends on the issuing bank and its country.
How can I offer credit terms safely?
Check the buyer carefully, start with small orders, and use export credit insurance, such as an ECGC policy, to cover the risk of non-payment.
Not sure which terms to offer?
Talk to BuyGenix about AD code registration, export documentation and setting up safe payment terms for your first orders.
Talk to our team →Looking for buyers for your products?
See live requirements from importers and bulk buyers in India and abroad: what they want, how much, and where. Contact them directly with a BuyGenix membership.
