Payment Terms for Export Orders: LC, TT, and Advance Payment Explained

The buyer pays some or all of the order value before production or shipment begins — commonly structured as a percentage upfront (for example, 30–50%) with the balance due before or against shipping documents. This is common for first orders and smaller shipments, since it gives the supplier confidence to commit resources without an established payment history with the buyer.

From a buyer's side, full advance payment on an unproven supplier relationship carries real risk — it's worth balancing against order size and how much history you have with that specific supplier.

A direct bank-to-bank transfer, and the most commonly used payment method for India export trade generally. TT itself isn't a payment term so much as the mechanism — what matters is when the transfer happens relative to production and shipment. Common structures include an advance TT before production, a balance TT before shipment, or a split arrangement (e.g., 30% advance, 70% against shipping document copies).

TT is fast and low-cost compared to a letter of credit, but it carries less built-in structural protection for either party — the safeguard is really the trust and track record between buyer and supplier, not the mechanism itself.

An LC is a bank-issued guarantee: the buyer's bank commits to pay the supplier once the supplier presents documents proving the shipment was made according to agreed terms (bill of lading, invoice, packing list, and others as specified in the LC). This shifts payment risk from a direct buyer-supplier trust relationship onto the banks involved on both sides.

LCs are more commonly used for larger orders, new or higher-value supplier relationships, or when a buyer's own procurement policy requires bank-mediated payment security. They come with real overhead: bank fees on both sides, more paperwork precision required (documents must match the LC terms exactly, or payment can be delayed or refused on a technicality), and longer lead time to set up compared to a straightforward TT.

An irrevocable LC cannot be amended or cancelled by the issuing bank or the buyer without the consent of every party, including the supplier. That protects the supplier from the buyer withdrawing or changing terms after issue, but it does not make payment automatic: the bank's undertaking still depends on the supplier presenting documents that comply exactly with the LC's terms.

An irrevocable LC rests on the standing of the issuing bank. A confirmed LC adds a second bank, often in the supplier's own country, that independently undertakes to pay. Confirmation costs extra and is mainly relevant when the issuing bank's country or standing raises real payment-risk concerns. Whichever type is used, check the LC's shipment and presentation deadlines, company and product wording, and required documents against the sales contract before production begins, not at presentation.

None of this is fixed — it's a starting expectation, and the actual terms on any order are agreed between buyer and supplier directly.

• What exactly triggers each payment milestone — order confirmation, production completion, or shipment?
• If paying in advance, what happens if the order is delayed or the specification doesn't match on inspection?
• If using an LC, has your bank confirmed it can issue on the terms the supplier is requesting, and what are the associated fees?
• Is the payment currency and receiving bank detail confirmed in writing, separate from the commercial invoice, to reduce the risk of a fraudulent last-minute bank-detail change?