Choosing payment terms: advance, LC, DP, DA and open account

This guide is for exporters deciding how to get paid on a new order or by a new buyer. It compares advance payment, letters of credit, documentary collections and open account, and shows how to match the term to the buyer's country risk and your ECGC cover.

The main payment terms

Advance payment

The buyer pays all or part of the price before you ship. It is the safest term for you and the least attractive for the buyer. A common compromise is a part advance with the balance on another term. Under the FEMA export regulations that apply from 1 October 2026, the advance and the later export should go through the same authorised dealer (AD) bank, so tell it which order the money relates to.

Letter of credit (LC)

The buyer's bank (the issuing bank) undertakes to pay if you present documents that comply with the LC terms. Most LCs are subject to the ICC's UCP 600.

• Sight LC: you are paid once compliant documents are checked.
• Usance (deferred) LC: the bank pays on a future date, for example 90 days after the bill of lading date. You can usually get it discounted early.
• Confirmed LC: a second bank, ideally one in India, adds its own undertaking to pay. This protects you if the issuing bank or its country cannot or will not pay. Confirmation costs money and some banks will not confirm for weak banks or countries.

An LC protects you only if your documents comply. Discrepancies turn a bank promise back into a buyer decision. See the LC discrepancies checklist.

Documents against payment (DP)

You ship and send the documents through your bank to a bank in the buyer's country under the ICC's Uniform Rules for Collections (URC 522). The buyer gets the documents, and so the goods, only after paying. The risk is that the buyer refuses to pay and your goods sit at a foreign port running up charges.

Documents against acceptance (DA)

The buyer receives the documents by accepting a bill of exchange (a promise to pay on a fixed future date). The buyer has the goods before paying, so DA is really credit backed by a negotiable instrument. See how DP and DA really work.

Open account

You ship, send the documents directly to the buyer and wait for payment on the agreed date. It is the simplest term for the buyer and common in developed markets, but you have no document control. Use it only with buyers you know, ideally with ECGC cover behind it.

Risk against competitiveness

Term	When you are paid	Your risk	Appeal to the buyer	Typical use
Full advance	Before shipment	Lowest	Lowest	New or unverified buyers, high-risk countries, custom goods
Confirmed LC	On compliant documents	Very low if documents comply	Low: LC fees and credit lines	Large orders, weaker banks or countries
Unconfirmed LC	On compliant documents	Issuing bank and country risk	Low to moderate	Sound banks in stable countries
DP	When buyer pays the collecting bank	Buyer may refuse the goods	Moderate	Sea shipments to buyers with some history
DA	On the bill's maturity date	Buyer may not pay at maturity	High	Regular buyers who need credit
Open account	On the agreed due date	Highest	Highest	Long-standing buyers, low-risk markets, with insurance

Competitors' terms matter as much as your risk. If rivals offer open account, insisting on an LC may lose the order; the answer is often to accept the buyer's term and lay off the risk with ECGC cover or factoring.

Match the term to the buyer's country

Look up the buyer's country on the ECGC country rating tool. ECGC rates countries from A1 (insignificant risk) to D (very high risk), and for higher-risk countries it restricts cover, for example by approving business case by case. A sensible starting point, which you should adjust for the buyer's own record:

• A1 and A2: DA or open account can be reasonable for a verified buyer with an ECGC credit limit.
• B1 and B2: prefer DP, or DA with a credit limit and a shorter credit period.
• C1, C2 and D: ask for advance payment or an LC confirmed by a bank you trust, and check whether ECGC cover is available at all.

A country rating says nothing about whether this buyer pays. Verify the buyer separately.

Use ECGC cover with credit terms

ECGC's Shipments Comprehensive Risks (SCR) policy covers DP, DA and open account sales against commercial risks (buyer insolvency, failure to pay within four months of the due date, and refusal to accept the goods in certain conditions) and political risks, and can also cover the risk of an LC-issuing bank failing. ECGC usually pays 90 per cent of an admitted loss. Without a buyer credit limit, cover rests on the automatic limits in the policy, which are capped and depend on your payment terms and record, so apply for a limit on every regular buyer before you ship. Keep to the policy conditions: declare overdue invoices by the 15th of the month once they are 30 days past due (60 days under the Small Exporters Policy), and do not extend a due date without ECGC's approval.

Keep the credit period inside the FEMA deadline

From 1 October 2026, export proceeds must be realised within nine months of shipment, or twelve months if the export is invoiced or settled in Indian rupees, unless your AD bank grants an extension. Your credit period plus transit and collection time has to fit comfortably inside this. See export realisation deadlines.

Setting terms on a new order

1. Check the buyer's country rating and whether ECGC cover is open or restricted.
2. Verify the buyer and apply for an ECGC credit limit if you will offer DP, DA or open account.
3. Decide the least secure term and longest credit period you will accept.
4. Price the term into your quote: interest for the credit period, LC and bank charges, ECGC premium.
5. Write the term precisely in the proforma invoice and contract, for example "30 per cent advance by SWIFT transfer, balance DP at sight", with the currency, the date the credit period runs from (such as the bill of lading date) and who pays which bank charges.

Common mistakes

• Shipping by air on DP or DA with the buyer named as consignee on the air waybill. The buyer can take the goods without paying.
• Accepting an LC with conditions you cannot meet, such as a certificate only the buyer can sign.
• Giving a first-time buyer open account terms without a credit limit.
• Informally giving the buyer more time to pay, which can prejudice an ECGC claim.

Related on Exportsmitra

• ECGC country risk ratings and suggested payment terms
• ECGC premium calculator
• Export quote builder
• Documentary collections under URC 522
• ECGC credit insurance: which policy suits you

Sources

• ICC: Uniform Rules for Collections (URC 522)
• ICC Academy: International Standard Banking Practice and UCP 600
• ECGC: Shipments Comprehensive Risks (SCR) policy
• ECGC: Country risk classification list, short term (list effective 12 May 2025; check ECGC for the latest)
• RBI: Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026

Last checked 1 October 2026. Rules change: confirm with your AD bank and ECGC before you act.