International Payment Terms: LC, TT, DA, DP & More
TL;DR - Summary
- What are international payment terms? - International payment terms are the specific conditions governing when and how money moves between an exporter and an importer once a cross-border sale is agreed.
- What are the main types of international payment terms? - The main international payment terms are Cash in Advance, Letter of Credit, Documentary Collection (DP and DA), Open Account, and Consignment. Each term distributes payment risk differently between the exporter and importer.
- Which international payment term is best for a service exporter versus a goods exporter? - The best international payment term depends on the transaction. Goods exporters can use LC or DP terms supported by shipping documents, while service exporters can use advance payment or milestone-based terms because services do not involve physical shipping documents.
- How long does an Indian exporter have to realise export proceeds under RBI rules? - An Indian exporter generally has 9 months to realise and repatriate export proceeds under the current RBI framework. From 1 October 2026, the general period will increase to 15 months, with an 18-month period for INR-invoiced exports, subject to the applicable RBI rules and conditions.
What Are International Payment Terms?
International payment terms are agreed conditions between an exporter and importer that define how and when payment will be made for a cross-border transaction. They set expectations around when the buyer pays, how the payment is made, and which party carries more payment risk.
International payment terms are important because international trade involves physical distance between the parties, different legal systems across countries, and currency risk. These factors can make recovering payment more difficult than in a domestic sale.
The choice of international payment terms is not fixed. The exporter and importer negotiate the terms based on their relationship, bargaining position, and level of trust, so the final arrangement typically favours one side more than the other.
For an Indian exporter, the payment term chosen directly affects four key areas:
- Financial risk: Payment terms determine how much risk the exporter takes of not getting paid, particularly when payment is made after the goods or services have been delivered.
- Cash flow predictability: Payment terms determine when the exporter can expect to receive the money, which affects working capital and day-to-day cash flow.
- Competitiveness: Offering buyer-friendly payment terms can make an exporter more competitive, while stricter terms can protect the exporter but make the deal less attractive to the buyer.
- Compliance: The payment term affects when export proceeds are expected to be realised and therefore whether the transaction remains within applicable RBI foreign-exchange requirements.
The RBI plays an oversight role in international payments by setting foreign-exchange rules that affect export transactions, monitoring foreign-exchange inflows, and regulating aspects of export financing and repatriation.
For a broader explanation, see our guide to cross-border payments and how Skydo can help you receive them.
What Are the Types of International Payment Terms?
The main types of international payment terms are Cash in Advance, Letter of Credit (LC), Documentary Collection (DP and DA), Open Account, and Consignment. These terms determine when the exporter gets paid and how much payment risk each party takes. Generally, terms that give an exporter greater payment security require the buyer to take on more risk or commit funds earlier.
| Payment Term | Who Bears the Risk | Realistic Use Case | Settlement Speed |
|---|---|---|---|
| Cash in Advance | Importer | New buyers, higher-risk markets | Before shipment or delivery |
| Letter of Credit | Shared, subject to LC conditions | Medium-to-high-value goods trades | Days to weeks after compliant document presentation |
| Documents Against Payment (DP) | Shared, with greater protection for exporter | Physical goods, established relationships | When documents are released against payment |
| Documents Against Acceptance (DA) | Exporter | Trusted buyers receiving credit | On maturity of the accepted draft |
| Open Account | Exporter | Repeat buyers with a strong payment history | Typically 30/60/90 days after shipment |
| Consignment | Exporter | Market entry through overseas distributors | After the goods are sold |
Cash in Advance
With Cash in Advance, the buyer pays the exporter before the goods are shipped or services are delivered. This gives the exporter the strongest protection against non-payment because the payment is received before fulfilling the order.
Payment can be made through methods such as an international wire transfer (TT) or, where accepted, a card payment. The buyer may be reluctant to pay the full amount upfront, particularly when alternatives are available, so exporters may negotiate a partial advance instead.
Best suited for: New buyer relationships, smaller transactions, or buyers in higher-risk markets.
Letter of Credit (LC)
A Letter of Credit (LC) is a commitment from the importer's bank to pay the exporter when the exporter presents documents that comply with the LC's specified terms and conditions. For goods exports, these may include documents such as a Bill of Lading and commercial invoice.
The importer requests the LC through its bank and pays the applicable banking charges. The exporter gets greater payment protection because the bank's payment obligation is separate from the buyer's willingness to pay, provided the exporter meets the LC requirements. The buyer also receives protection because payment depends on the presentation of compliant documents.
Best suited for: Because LCs involve bank fees, document checks, and a more involved process, they are generally more suitable for medium-to-high-value physical goods transactions than routine, low-value service payments.
✅ PRO TIP
For Indian service exporters billing under $10,000, advance or milestone payments are often more practical than an LC. Service transactions typically do not have the shipping documents used in documentary LC processes, making an LC unnecessarily complex for many smaller invoices.
Documentary Collection: DP and DA
Documentary collection is a payment method in which banks facilitate the exchange of shipping and commercial documents between the exporter and importer. Unlike an LC, the banks do not provide a payment guarantee.
- Documents Against Payment (DP): The importer's bank releases the shipping documents only after the buyer makes the required payment. This gives the exporter greater control over the goods until payment is made.
- Documents Against Acceptance (DA): The buyer accepts a bill of exchange agreeing to pay on a specified future date. The documents are then released, so the exporter effectively extends credit and takes the risk that the buyer may not pay at maturity.
DP provides greater payment protection to the exporter, while DA is more favourable to the buyer and is generally used where the parties have an established relationship.
Open Account
Under Open Account terms, the exporter ships the goods before receiving payment. The buyer then pays according to the agreed credit period, commonly 30, 60, or 90 days after shipment.
This arrangement is convenient for the buyer but exposes the exporter to greater payment risk because the goods have already been dispatched. It is therefore generally used with repeat buyers whose payment history the exporter knows and trusts.
⚠️ WATCH OUT
Export proceeds must generally be realised and repatriated to India within 9 months from the date of export, subject to applicable exceptions or extensions. An exporter offering long credit periods therefore needs to ensure the agreed payment schedule remains within the applicable FEMA requirements.
Consignment
Under Consignment, the exporter sends goods to an overseas distributor while retaining ownership until the goods are sold to the distributor's customers. The exporter receives payment after those sales take place.
This gives the distributor an opportunity to sell without committing capital upfront, but it leaves the exporter exposed to slow sales, delayed payment, and unsold inventory. It is therefore one of the highest-risk payment arrangements for exporters.
Consignment is typically used when an exporter is trying to establish a presence in a new market through local distributors and is willing to take on greater commercial risk in exchange for easier market access.
For more details, see LC payment: meaning and process and payment terms in export.
Once you have agreed on the payment terms, you also need a reliable way to receive and settle the funds. Skydo lets Indian exporters receive payments through local virtual accounts in USD, GBP, EUR, SGD, AUD, and CAD, with transparent flat fees and automatic FIRA generation.
Which International Payment Terms Work Best for Service Exporters vs. Goods Exporters?
Service and goods exporters have different risk profiles when choosing international payment terms. A payment method that works for a garment manufacturer may not be suitable for a UX design agency because goods involve physical shipments, while services typically do not.
For goods exporters, Letters of Credit (LCs) and Documents against Payment (D/P) can be effective because physical shipments generate documents such as Bills of Lading. These documents support the documentary process and give banks a basis for checking whether the transaction meets the agreed payment conditions.
For service exporters, LCs are generally less practical because there are no shipping documents involved. The additional banking process may add cost and complexity without providing equivalent protection. Advance payment and milestone-based payments are more suitable alternatives.
Milestone-based payments divide the project fee into agreed instalments linked to specific deliverables. A common structure is 30% upfront and 70% on completion.
Practical Example: A Pune-based UX design agency invoices a UK client for £4,000. The parties agree to a 30% advance of £1,200 before the project begins and 70% of £2,800 after delivery and acceptance of the final files. The contract states: “30% of the total project fee is payable upon signing of this agreement. The remaining 70% is due within 7 business days of final deliverable acceptance.”
Both payments are made through international wire transfer. The agency can obtain the applicable inward-remittance documentation from its bank for export-realisation and compliance records.
Advance and milestone payments also support cash flow because service exporters do not have to wait 30 to 90 days after completing the work to receive payment, as may happen under open-account terms.
For new client relationships, 100% advance payment provides the strongest protection against non-payment. For established clients, a 30/70 or 50/50 structure can offer a reasonable balance between payment security and client flexibility.
The key distinction is that goods exporters can use banking and documentary mechanisms such as LCs and D/P because physical shipments generate supporting documents. Service exporters, in contrast, generally need to manage payment risk through contractual terms and pre-agreed payment schedules.
For more on structuring instalment-based payments, see milestone payment systems. You can also explore freelance payment methods in India.
What RBI Rules Apply to International Payment Terms for Indian Exporters?
The main RBI requirements for international payment terms are that export proceeds are realised within the prescribed 9-month period, inward remittances are reported under the correct RBI purpose code, and exporters maintain the required proof of export realisation. These requirements operate under the foreign-exchange framework established by the Foreign Exchange Management Act (FEMA).
1. Realise export proceeds within 9 months: Export proceeds must generally be realised and repatriated to India within 9 months from the date of export. So, if an exporter agrees to 90-day open-account terms, the buyer should pay within the agreed period and, in any case, within the applicable FEMA timeline unless an extension or exception applies.
2. Use the correct RBI purpose code: Every inward remittance must be classified using the appropriate RBI purpose code, which identifies the nature of the payment, such as merchandise exports or software services. Incorrect transaction details can delay processing while the bank verifies the payment.
3. Maintain proof of inward remittance: Exporters need appropriate documentation to establish receipt of export proceeds:
- FIRC/FIRA: A Foreign Inward Remittance Certificate/Advice can serve as evidence that foreign funds were received. However, it is not accurate to say that a FIRC/FIRA is mandatory for every export payment. The document issued depends on the bank and payment route.
- eBRC: The Electronic Bank Realisation Certificate records the realisation of export proceeds and can be used for export-related regulatory and benefit claims. Under the current system, banks transmit inward-remittance data to DGFT, which exporters can use to generate or self-certify eBRC where eligible.
4. Work through an Authorised Dealer (AD) bank: The exporter's AD bank handles inward remittances, monitors export transactions and carries out the applicable reporting to RBI through systems such as EDPMS.
The practical takeaway for exporters is to pick payment terms that give buyers enough time to pay, while making sure the agreed timeline does not push you into a FEMA compliance issue.
For more information, see how to receive international payments in India and https://www.skydo.com/blog/avoid-hidden international transaction charges
How Does Skydo Simplify Receiving International Payments Once Terms Are Set?
Skydo simplifies international payment collection for Indian exporters by providing local-currency virtual accounts, fast INR settlement, and automated export documentation. This means exporters can focus on the payment terms agreed with their buyer while Skydo handles the collection and documentation process.
- Accept payments in six currencies: Exporters can create virtual accounts for USD, EUR, GBP, SGD, AUD, and CAD. Overseas buyers can use these local account details to make payments without the complexity of sending funds through SWIFT. Accounts can be set up in around 10–15 minutes.
- Keep payment costs predictable: Skydo uses a transaction-based pricing model with no monthly fee. The charges are $19 for transactions below $2,000, $29 for $2,000–$10,000, and 0.3% for amounts above $10,000.
- Get INR settlement within 1 working day: Once the payment is received, Skydo settles the funds into the exporter's Indian bank account within one working day, helping exporters manage cash flow more reliably.
- Receive FIRA automatically: Skydo provides a FIRA (Foreign Inward Remittance Advice) for settled export payments. The document is available through the Skydo dashboard, reducing the need to repeatedly coordinate with the bank for remittance documentation.
- Manage eBRC reconciliation digitally: Exporters can connect their DGFT account, upload shipping bills in bulk, and map inward remittances to the relevant shipping bills to streamline eBRC generation.
- Maintain documentation for deferred payments: When an exporter sells on open-account terms, such as receiving payment 30–90 days after shipment, Skydo's payment tracking and documentation help maintain a record of the remittance once it is received.
Skydo can be used by goods and services exporters, eligible freelancers, and sellers receiving proceeds through platforms such as Amazon Global Selling.
For a broader overview, see cross-border payments. Amazon sellers can also read how to receive payments from Amazon Global Selling in India.
What are LC and TT payment terms?
An LC (Letter of Credit) is a bank-backed payment undertaking, while TT (Telegraphic Transfer) is a method of transferring money between bank accounts. Under an LC, the issuing bank agrees to pay the exporter when the documents presented comply with the LC's terms and conditions. A TT simply describes an electronic bank transfer and can be used to make advance payments, open-account payments, or other trade payments.
What are DA and DP payment terms?
What are the different types of international payments?
What are the types of payment terms in export?
Which payment term is safest for a first-time Indian exporter?
Can a service exporter use a Letter of Credit?
What happens if an Indian exporter does not receive payment within 9 months?
Is a Telegraphic Transfer (TT) the same as a wire transfer?
What documents does an Indian exporter need after receiving international payment?
