International Payment Terms for Indian Manufacturing Exports: D/A, D/P, LC, and What Actually Protects the Exporter

Most Indian manufacturing exporters understand payment terms in principle. Many discover their practical consequences only when a buyer delays payment, disputes an invoice, or defaults entirely.

The payment term determines who finances the transaction, who carries the credit risk, and how much working capital remains available for future orders. Although it is often negotiated in a single line of the contract, the payment term can have a larger impact on exporter cash flow than almost any other commercial clause.

This guide covers the most common payment structures used in international manufacturing trade, how they work, what risks they create, and what actually protects exporters in practice.

Documents Against Acceptance (D/A)

D/A is one of the highest-risk documentary payment terms available to an exporter.

Under D/A terms, the exporter ships the goods and presents the shipping documents to their bank. The buyer’s bank releases those documents against the buyer’s written acceptance of a term bill of exchange. The buyer then receives control of the goods and commits to pay at a future date, typically 30, 60, or 90 days after acceptance.

The buyer has the goods. The exporter has a promise.

If the buyer defaults, delays payment, raises a dispute, or becomes insolvent, the exporter’s practical recourse is usually international legal recovery. For many MSME export transactions, the cost of recovery can exceed the value of the invoice itself.

D/A remains common because many buyers request it, exporters often feel unable to negotiate alternatives, and successful transactions create the impression that the arrangement is safe. It is safe when the buyer pays. The risk becomes visible only when they do not.

Exporters who cannot avoid D/A terms should evaluate ECGC export credit insurance. Under ECGC’s standard shipment policies, eligible losses arising from commercial or political risks are typically covered up to 90%, with exporters bearing the balance. Premiums generally range from approximately 0.3% to 0.9% of insured export turnover depending on destination risk and claims history.

Documents Against Payment (D/P)

Under D/P terms, the exporter ships the goods and presents the shipping documents through the banking channel. The buyer’s bank presents those documents to the buyer and releases them only after payment is received.

The buyer cannot obtain the shipping documents without paying. The exporter retains documentary control until funds are received.

D/P significantly reduces the credit risk associated with D/A because payment is required before document release. If the buyer refuses to pay, the exporter retains leverage over the shipment.

D/P does not eliminate risk entirely. If the buyer refuses payment, the goods may need to be warehoused, redirected, returned, or resold. Freight and handling costs have already been incurred, and recovering those costs can be difficult.

D/P protection is generally stronger in sea freight transactions than in air freight shipments. In some jurisdictions, airlines may release cargo through local procedures that reduce the practical protection provided by documentary control alone.

For first-time buyer relationships, D/P is often one of the most practical risk-management tools available to exporters.

Letter of Credit (LC)

A Letter of Credit introduces a bank into the transaction as a payment intermediary.

Under an LC arrangement, the buyer’s bank commits to pay the exporter provided the exporter submits documents that fully comply with the terms of the LC. The bank’s payment obligation is separate from the buyer’s willingness to pay.

The exporter ships the goods, prepares the required documentation, and submits those documents through the banking system. If the documents comply with the LC requirements, payment is released according to the agreed structure.

The primary risk in LC transactions is documentary compliance. Even small discrepancies between submitted documents and LC requirements can delay payment or require buyer approval before funds are released.

Common discrepancies include:

• Incorrect product descriptions
• Date mismatches
• Port name inconsistencies
• Missing supporting documents
• Invoice details that do not exactly match LC requirements

LC-related banking costs vary by transaction. Issuance fees alone typically range from approximately 0.1% to 1% of the LC value. Confirmation fees, advising charges, document handling fees, and negotiation costs can increase the total.

For many standard transactions, total fees fall within a 0.5% to 2% range, although higher-risk countries and confirmed LC structures can push costs beyond that level.

For large first orders with new buyers, many exporters view LC costs as the premium paid to reduce default risk.

A confirmed LC provides an additional payment commitment from a second bank and is commonly used where country risk or issuing-bank risk is a concern.

Open Account (OA)

Open Account terms are common in mature international supply chains.

Under an Open Account arrangement, the exporter ships the goods and invoices the buyer directly. Payment is made later according to agreed terms, often 30, 60, or 90 days after shipment.

Unlike D/A, there is no documentary control mechanism. The buyer receives the goods and the exporter waits for payment according to contract terms.

From the exporter’s perspective, Open Account creates greater exposure than D/A because there is no banking structure controlling document release. The arrangement works best when there is a long-standing relationship, strong payment history, and high trust between both parties.

For new buyer relationships, Open Account is generally one of the highest-risk options available.

Advance Payment

Advance Payment is the lowest-risk option for the exporter.

The buyer pays partially or fully before production begins or before shipment occurs. The exporter receives funds before committing working capital to raw materials, tooling, production, and freight.

Advance Payment is particularly common for:

• Samples and prototypes
• Custom-engineered components
• Small first orders
• New buyer relationships
• High-value tooling projects

Many exporters use Advance Payment for initial transactions before gradually moving toward D/P, LC, or other structures as trust develops.

Risk Comparison

Practical Negotiation Notes

New Buyer Relationships

For first orders, D/P, Advance Payment, or LC generally provides a more balanced risk structure than D/A. If a buyer immediately insists on D/A terms, that request itself provides useful information about the relationship.

Large Orders With New Buyers

LC structures are often appropriate for large first transactions. The cost of the LC is usually easier to absorb than the potential consequences of a significant unpaid invoice.

Precision Engineering Exports

Precision manufacturing suppliers often face a double exposure.

By the time a shipment leaves the factory, the exporter has already funded raw material procurement, tooling, machine time, inspection, packaging, and freight. When a 60- or 90-day D/A payment cycle is added, total capital exposure can extend to five months or more.

The payment term determines who finances that period.

Established Relationships

D/A and Open Account arrangements may become appropriate after several years of consistent payment history and demonstrated commercial reliability.

Quality Disputes

Under D/A and Open Account arrangements, buyers may attempt to use quality disputes as leverage for payment delays after goods have already been received.

Exporters should ensure inspection acceptance procedures, rejection criteria, and dispute timelines are clearly defined in the contract.

What Actually Protects the Exporter?

No payment term eliminates risk completely.

In practice, exporter protection comes from combining multiple layers:

1. Appropriate payment terms
2. Buyer qualification and due diligence
3. ECGC insurance where appropriate
4. Clear contractual acceptance criteria
5. Strong documentation and shipping controls

Payment terms are only one part of the protection structure.

A weak buyer under an LC can still create administrative problems. A strong buyer under D/A may present less practical risk than an unknown buyer operating under supposedly safer terms.

The objective is not to eliminate risk entirely. It is to ensure the risk being accepted is proportional to the relationship.

Why Payment Terms Matter More Than Most Exporters Realise

Most export failures are not caused by poor manufacturing capability or poor products. They occur because exporters accept a financial structure whose risk profile they do not fully understand.

This is particularly relevant in precision engineering exports. By the time a shipment leaves the factory, the exporter has often funded raw material procurement, tooling, production, inspection, packaging, freight, and export documentation.

A 90-day D/A arrangement can extend total capital exposure to five months or more.

Many exporters evaluate profitability invoice by invoice. The more important calculation is how much working capital remains available after financing multiple export orders simultaneously.

The payment term determines who carries that burden.

See Also

• Material Traceability Verification Guide
• Supplier Qualification for Supply Chain Entry
• How to Write RFQ