Worldwide Exporter Original Guide
Last updated: 2 November 2026 · Editorial Team
Export Payment Terms: Advance, Letter of Credit, Collections and Open Account
Payment terms decide who carries cash-flow and default risk in an international sale. Choosing the wrong structure can erase the margin on an otherwise good order. This guide compares common export payment methods so buyers and exporters can negotiate with clearer expectations.
1. Advance payment (TT / wire)
The buyer pays part or all of the value before shipment. Sellers like the cash security; buyers carry performance risk until goods are received and inspected. First orders often use a deposit plus balance against documents or after inspection.
- Verify the beneficiary name matches the legal company on the contract.
- Avoid paying to personal accounts or sudden “new bank detail” emails without callback verification.
- Tie deposits to milestones: sample approval, production start, pre-shipment inspection.
2. Letter of Credit (LC)
An LC is a bank undertaking to pay against compliant documents. It can balance risk when parties do not yet trust each other, but it is not a quality guarantee. Banks examine documents, not the physical cargo, unless separate inspection clauses are agreed.
- Agree Incoterm, latest shipment date, document list and tolerance before the LC is issued.
- Discrepant documents are a common cause of delayed or refused payment.
- LC fees, amendments and confirmation costs should be allocated in the contract.
3. Documentary collections (D/P, D/A)
Banks handle documents against payment (D/P) or acceptance (D/A). Collections are usually cheaper than LCs but give the seller less protection than a confirmed LC, especially on D/A terms.
4. Open account
Goods ship and the buyer pays later by agreed invoice terms. This favors buyers with strong credit standing and long relationships. Exporters should limit exposure, use credit insurance where appropriate, and keep clear overdue procedures.
How to choose a structure
| Situation | Often considered |
|---|---|
| First order, new counterparties | Deposit + balance, or LC |
| High-value customized goods | Staged payments + inspection gates |
| Repeat orders, proven relationship | Open account or lighter deposit |
| Buyer wants bank protection | Import LC with clear document list |
Fraud and bank-detail red flags
- Last-minute email changing only the bank account number
- Pressure to pay “clearance”, “GST” or “registration” fees to individuals
- Mismatch between invoice company name and beneficiary name
Report suspicious activity on the official complaint page.
Frequently asked questions
What is the safest export payment method?
Safety depends on which party’s risk is measured. Advance favors the seller; open account favors the buyer; bank instruments can balance risk but add cost and conditions.
Does a letter of credit guarantee product quality?
No. Banks generally examine documents, not physical goods. Quality controls must be arranged separately.
Should bank-detail changes be accepted by email only?
Treat them as high risk and verify through an independently trusted channel before paying.
Related guides
Proforma vs commercial invoice · Incoterms guide · Due diligence checklist