Payment terms in Export and Import


Different Methods of Payments in International Trade


International trade is an unavoidable part of each country’s economy. The development of Information and Communication Technologies (ICT) has resulted in converting the whole World into a Global Village, where the distance is not a barrier for trading.

Inorder to conquer global market and get sales against foreign competitors, the exporters are required to offer attractive and convenient sales terms supported by apt payment methods.

A suitable payment method should be selected circumspectly to reduce the payment risk while conforming the needs of the buyer since getting paid in full and puntually is the primary objective of each overseas sale.

Some of the widely recommended and accepted modes of payment for International trades are:


1.  Advance Payment

Advance Payment is a payment done by an importer to the exporter before shipment.

This method is most beneficial from exporter perspective as he receives funds in advance. The payment may be received either as soon as the order is confirmed or any time before shipment. The exporter may be willing to impose the term as a pre-condition only when he knows that the goods are in overwhelming demand and the goods are of rare-nature. Advance payments may be also used to negotiate a reduced price or to cover initial supply costs.

However with a buyer’s point of view, advance payment carries little risk, as he advances payment before dispatch of goods. Advance payment of term in exports and imports is picked by a purchaser only when he knows the seller in details on genuineness as a seller.

For international sales, wire transfers and credit cards are the most commonly used cash-in-advance options accessible to exporters. With the advancement of the Internet, escrow services turning into another cash-in-advance option for small export transactions.

 2.  Letter of credit

Letter of credit is a type of payment term opted by importers and exporters. Letters of credit (LCs) are one of the most secure instruments accessible to international traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated in the LC have been met, as confirmed through the presentation of all required documents.

In other words, we can explain that a Letter of Credit is an undertaking issued by a Bank, at the request of a importer, affirming the payment to the exporter on presentation of complying documents as stated in the LC.

It is an assurance from the bank that a buyer's payment to a seller will be received on time and for the correct amount and thus makes elimination of possible risks. If the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. Due to the nature of international dealings, including factors such as distance, contrasting laws in each country, and difficulty in knowing reliability of each party personally, the use of letters of credit has become a vital aspect of international trade. A letter of credit is typically a negotiable instrument, the issuing bank pays the beneficiary or any bank nominated by the beneficiary. If a letter of credit is transferrable, the beneficiary may assign another entity, such as a corporate parent or a third party, the right to draw. Banks typically require a pledge of securities or cash as collateral for issuing a letter of credit. Banks also collect a fee for service, typically a percentage of the size of the letter of credit.

An LC is useful when reliable credit information about a foreign buyer is hard to get, but the exporter is satisfied with the creditworthiness of the buyer’s foreign bank. An LC also secures the buyer because no payment obligation arises until the goods have been shipped or delivered as promised or guaranteed.


 3.  Documents against Payments - D.A.P or D/P basis

Documents against Payment – DP/DAP is a term of payment in international trade. It relies on an instrument generally used in international trade called a bill of exchange or draft.

In this term, the documents under consignment are delivered to buyer/importer only after collecting payment of goods by buyer’s bank. The exporter ships the goods and submits Shipping documents to importers Bank with their instructions to discharge documents to the importer against payment, where the importer needs to pay the exporter when the documents being released from the Bank. The collecting bank hands over the shipping documents including the document of title only when the importer has paid the bill.

Simply, D/P is an arrangement in which a seller directs the presenting bank to release shipping and title documents to the buyer only if the importer completely pays the accompanying bill of exchange or draft.

 4.  Documents against Acceptance (D/A)

Documents against Acceptance are another term of payment in international payment.

The Documents against Acceptance (D/A), depend on an instrument broadly used in international trade called a bill of exchange or draft. Under this, transaction utilizes a time draft or Usance (It is the allowable timeframe, allowed by custom, between the date of the bill and its payment) i.e, the Exporter allows credit to Importer. The importer is required to accept the bill to make a signed promise to pay the bill at a set date later on. When he has signed the bill in acceptance, he can take the documents and clear his goods.

Simply, D/A is an arrangement in which an exporter instructs a bank to discharge shipping and title documents to an importer only if the importer accepts the accompanying bill of exchange or draft by signing it. In this case, the documents required to take possession of the goods are released by the clearing bank only after the buyer accepts a time draft drawn upon him.




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kunal sonawane: Dear Sir will you please explain what documents need to submit in to the bank when terms is Payment through Bank . and also please explain what is Bill of Exchange.

Joy: I would like to know how much it will cost for me to apply an import license for cosmetic products.



Maitri: I am an exported.. My payment term is 100% payment against scanned copy of B/L. Is the transaction considered as advance or against bills? My bank is not giving me the remittance by saying I hve to lodge the documents 1st in order to get the encashment.

janesh: I am into snuff manufacturing and we have our own brand. I have snuff enquiry from Nigeria. I have sent sample via india post. I need complete guidance and support on how to export with all safety to my payment and following all government regulations and registrations

hemant: We read your blogs on import & export. They are very informative. We have a problem and need your advice. We have supplied machinery to a company in Abudhabi. Thay have paid us 90% of our payment. But the remaining 10% @ value of $ 9015.5 is unpaid since May 2019. We have done a lot of followup but there is no response from the company. Could you please advise us as to where we could launch a formal complaint. We look forward to your response.Please help us.

kanishk: We are in to export of agricultural products. We have sent one container of banana to saudi arabia value 7700 USD. We have sent the shipment through my friend relative who claimed to be a partner with the saudi company. Now saudi buyer says he has given payment to my friend relative, but my friend relative claims that the buyer had not yet given the payment. We have spoken many times with the buyer and there is no response. We have no idea what has to be done on this. Please advice. I have also messaged you in whatsapp regarding this. I am also attaching the document in this mail regarding our shipment

jignesh: I'm currently owner of a proprietorship firm. We exported rice to an importer in Lome, Togo (West Africa). we received full payment of Invoice 1 and part payment of Invoice 2. Our Terms and Conditions included Payment on Delivery. After receiving the part payment of Invoice 2 in November 2018, the Importer has been making promises and excuses. What is the procedure to recover my payment along with interest?

anand: I need your guidance for Export Onion from Chennai to viyatnam This my first Consinement buyer asking the payment terams. 30% Against DAP and 70% will be 7 days Arival. Kindly Advice me for my safer said

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