Winning an export order means nothing if you do not get paid. For steel and metal exporters, where a single container can be worth tens of thousands of dollars, choosing the right export payment terms is as important as the price itself. This guide explains each common option, its risk for you and the buyer, and how to negotiate terms that protect your business.
The risk ladder
Payment terms sit on a scale from safest for the exporter to safest for the buyer:
- Advance payment — safest for exporter
- Letter of credit (LC)
- Documents against payment (DP / CAD)
- Documents against acceptance (DA)
- Open account — safest for buyer
1. Advance payment (TT in advance)
The buyer pays by bank transfer before production or shipment.
- For you: no payment risk.
- For the buyer: full risk that goods are not shipped or are wrong.
- In practice: common for small orders and first orders, but many buyers resist 100% advance.
A popular middle path is partial advance: 20–30% advance with the order and the balance against a copy of the bill of lading (BL) before releasing original documents. This protects you because the buyer cannot take delivery without the original BL — as long as you control the documents.
2. Letter of credit (LC)
The buyer's bank promises to pay you if you present documents that strictly comply with the LC terms. LCs are governed by UCP 600.
- Sight LC: payment on presentation of compliant documents.
- Usance LC: payment after a set period, such as 60 or 90 days.
- Confirmed LC: a second bank, often in India, adds its guarantee — important when the issuing bank or country is risky.
LCs are secure but documentation must be perfect. Small discrepancies can delay or reduce payment. Read our full letter of credit guide for steel exporters.
3. Documents against payment (DP) / Cash against documents (CAD)
You ship the goods and send the documents through your bank to the buyer's bank. The buyer receives the documents — and the right to take delivery — only after paying. Collections are governed by URC 522.
- For you: moderate risk. If the buyer refuses to pay, the goods sit at the destination port, incurring demurrage, and you must find another buyer or ship them back.
- For the buyer: pays only when goods have been shipped.
- Best used: with known buyers in stable markets.
4. Documents against acceptance (DA)
The buyer receives documents by accepting a bill of exchange promising to pay at a later date, such as 60 days after BL date.
- For you: higher risk — the buyer has the goods before paying.
- Best used: with long-standing, creditworthy buyers, ideally with credit insurance.
5. Open account
You ship and send documents directly; the buyer pays later as agreed.
- For you: highest risk.
- Best used: only with very trusted buyers and with export credit insurance cover.
Protecting yourself with insurance
ECGC (Export Credit Guarantee Corporation of India) offers policies that cover the risk of non-payment due to buyer insolvency, default or political events. Many banks also finance exports more easily when receivables are insured. For DA and open-account terms, credit insurance is strongly recommended.
How to choose terms for each buyer
| Situation | Suggested terms |
|---|---|
| New buyer, unknown history | Advance, or advance + balance against BL copy, or confirmed LC |
| Large project order | LC (confirmed if needed) |
| Repeat buyer with good record | DP / CAD, or part advance + DP |
| Long-term trusted buyer | DA or open account with credit insurance |
Before offering softer terms, verify the buyer carefully.
Negotiation tips
- Offer a price difference: for example, a small discount for advance payment versus LC.
- Use milestones: advance on order, balance before dispatch or against BL copy.
- Control the original BL until you are paid — never release it early on promises.
- State terms clearly in your quotation and proforma invoice. See how to write an export quotation.
- Include bank charges — specify who pays charges outside your country.
QuoteMitra lets you save standard payment terms and add them to every quotation, so nothing important is left out.
Realising export proceeds
Under Indian foreign exchange rules, exporters must realise and repatriate export proceeds within the period allowed by RBI. Delays can affect incentives such as drawback and RoDTEP, and may require extensions through your bank. Keep your bank updated and track every shipment until the e-BRC is generated.
Frequently asked questions
What is the safest export payment term?
Advance payment is the safest for the exporter, followed by a confirmed letter of credit from a reliable bank.
What is the difference between DP and DA?
Under DP, the buyer pays before receiving documents. Under DA, the buyer only accepts a bill of exchange to pay later and receives documents immediately.
Is CAD the same as DP?
In practice, yes. Both mean the buyer pays against the shipping documents.
Should I accept 30% advance and 70% against BL copy?
It is a common and reasonable structure, provided you keep control of the original BL until the balance is received.
Key takeaways
- Payment terms range from advance (safest for you) to open account (riskiest).
- Use advance, part advance or confirmed LC for new buyers.
- Move to DP, DA or open account only with proven buyers and credit insurance.
- Always control original documents until paid.
Strong payment terms keep your cash flow healthy — and healthy cash flow lets you say yes to the next big order.
