Export Payment Methods Explained: LC, TT, Advance, DP, DA, Escrow

Choosing the right payment method is one of the most important decisions in an export transaction. The "right" choice balances the exporter's need for security with the buyer's need for cash-flow flexibility — and varies by buyer credibility, order size, destination risk and category. This guide compares every common payment method.

The risk spectrum

Payment methods sit on a spectrum from "exporter-protected" to "buyer-protected":

• **100% advance** — exporter fully protected; buyer fully exposed.
• **Advance + balance before BL release** — exporter protected; buyer partially protected.
• **Letter of Credit at sight** — balanced; bank undertakes payment against documents.
• **DP (Documents against Payment)** — buyer pays before documents; some exporter risk.
• **DA (Documents against Acceptance)** — buyer accepts documents and pays later; exporter risk.
• **Open account** — buyer pays after delivery; exporter fully exposed.

1. Advance payment (TT)

• **What it is**: Buyer pays the full invoice value upfront, before production or shipment.
• **Risk to exporter**: None (money received before shipment).
• **Risk to buyer**: Maximum (no recourse if supplier defaults).
• **Cost**: Low — just bank TT charges.
• **Use case**: Small first orders, samples, low-trust relationships, low-value orders.
• **Common variant**: 100% advance, or 30% advance + 70% before BL release.

2. Telegraphic Transfer (TT) — partial advance + balance

• **What it is**: Buyer pays a percentage (typically 30–50%) as advance to start production, and the balance before BL release or against scan copy of shipping documents.
• **Risk to exporter**: Low — advance covers material cost; balance secured before BL release.
• **Risk to buyer**: Moderate — advance is at risk if supplier defaults; balance is protected by withholding BL.
• **Cost**: Low — bank TT charges.
• **Use case**: Most common arrangement for new and established buyer-supplier relationships.
• **Recommended structure**: 50% advance + 50% before BL release (or against fax/email copy of BL).

> The "advance + balance before BL" structure is the workhorse of Indian merchant export. It balances risk without LC overhead.

3. Letter of Credit (LC) at sight

• **What it is**: Buyer's bank issues an LC undertaking to pay against compliant documents.
• **Risk to exporter**: Low — bank undertaking, conditional on compliant documents.
• **Risk to buyer**: Low — buyer pays only against compliant documents.
• **Cost**: Moderate — issuance, advising, confirmation (where used), negotiation fees.
• **Use case**: New buyers, mid-size orders, higher-risk destinations, buyers without established trust.
• **Recommended variant**: Irrevocable LC at sight, optionally confirmed for higher-risk destinations.

4. Letter of Credit (LC) usance

• **What it is**: LC payable at a fixed period after document presentation (e.g., 60 days from B/L date).
• **Risk to exporter**: Moderate — bank undertakes, but payment is delayed.
• **Risk to buyer**: Low — gets credit period from the bank.
• **Cost**: Moderate — issuance, acceptance, discounting (if exporter wants immediate payment).
• **Use case**: Established buyers needing credit; the exporter can discount the usance LC for immediate payment (at a cost).

5. Documents against Payment (D/P)

• **What it is**: Exporter ships, sends documents through the bank, buyer pays the bank to release the documents. Without documents, buyer cannot clear the consignment.
• **Risk to exporter**: Moderate — buyer may refuse to pay and the goods are already shipped. Exporter may need to find an alternate buyer at destination or ship back.
• **Risk to buyer**: Low — pays only if he wants the goods.
• **Cost**: Low — collection charges only.
• **Use case**: Established buyers; not recommended for new relationships.

6. Documents against Acceptance (D/A)

• **What it is**: Like D/P, but the buyer accepts a time draft (e.g., 60 days) to release documents, and pays later.
• **Risk to exporter**: High — buyer takes documents and goods, payment is due later. Exporter has no bank undertaking.
• **Risk to buyer**: Low — gets the goods on credit.
• **Cost**: Low — collection and acceptance charges.
• **Use case**: Established buyers with strong payment history. Not recommended for new relationships.

7. Open account

• **What it is**: Exporter ships, sends documents directly to the buyer, buyer pays after agreed period (e.g., 30/60/90 days from delivery).
• **Risk to exporter**: Maximum — no bank undertaking, no document control.
• **Risk to buyer**: None — pays after delivery.
• **Cost**: Lowest — just bank transfer.
• **Use case**: Long-standing, high-trust relationships. Not for new buyers.

8. Escrow (bank-backed or third-party)

• **What it is**: Buyer deposits funds in an escrow account with a bank or third party. Funds are released to the exporter on fulfilment of agreed conditions (e.g., shipment proof, inspection pass).
• **Risk to exporter**: Low — funds are committed in advance.
• **Risk to buyer**: Moderate — funds committed but released only on conditions.
• **Cost**: Moderate — escrow fees.
• **Use case**: New relationships where neither party trusts the other; large project shipments; cross-border B2B platforms.

Comparing methods at a glance

| Method | Exporter risk | Buyer risk | Cost | Best for | |---|---|---|---|---| | 100% advance | None | Maximum | Low | Small first orders | | Advance + balance | Low | Moderate | Low | Most common | | LC sight | Low | Low | Moderate | New buyers, mid-size orders | | LC usance | Moderate | Low | Moderate | Buyers needing credit | | D/P | Moderate | Low | Low | Established buyers | | D/A | High | Low | Low | Established, trusted buyers | | Open account | Maximum | None | Lowest | Long-standing relationships | | Escrow | Low | Moderate | Moderate | New, large shipments |

How to choose

• **New buyer, small order**: 100% advance or 50% advance + 50% before BL.
• **New buyer, medium order**: LC at sight.
• **New buyer, high-risk destination**: Confirmed LC at sight.
• **Established buyer, regular orders**: 30% advance + 70% before BL, or open account with credit insurance.
• **Buyer needs credit**: LC usance (exporter can discount).
• **Very large, complex shipment**: Escrow or LC at sight with milestone structure.

What Blueroute Exim accepts

• Default: 50% advance + 50% before BL release (most common, lowest overhead).
• For new buyers with larger orders: LC at sight.
• For established buyers: milestone-based advance structure.
• We do NOT accept crypto, hawala or third-party non-bank payment.

Common mistakes

• Accepting open account from a new buyer.
• Releasing the original BL before balance payment.
• Not confirming LCs from higher-risk destinations.
• Paying 100% advance to a new, unverified supplier.
• Using D/A for first-time relationships.
• Not specifying the payment method and timing in the Proforma Invoice.

FAQ

**Q: What is the safest payment method for exporters?** A: 100% advance is safest for the exporter. For balanced protection, advance + balance before BL release, or LC at sight, are both practical.

**Q: What is the difference between D/P and D/A?** A: Under D/P, the buyer pays to release documents. Under D/A, the buyer accepts a time draft — gets documents now, pays later. D/A is riskier for the exporter.

**Q: Is escrow common in India exports?** A: Not as common as advance + balance or LC, but it is used for large project shipments and new-relationship transactions.

**Q: How do I pay a new Indian supplier safely?** A: Pay a small advance (10–30%) only after IEC/GST verification and counter-sample approval. Balance against fax/email copy of BL, or use an LC at sight for larger orders.

Key Takeaways

• The payment spectrum runs from 100% advance (exporter-protected) to open account (buyer-protected).
• Advance + balance before BL is the workhorse for most Indian merchant export.
• LC at sight is the preferred balanced method for new buyers / larger orders.
• Use D/P only for established buyers; avoid D/A and open account for new relationships.
• Never use crypto or hawala — they are illegal for trade settlement in India.

Blueroute Exim (Surat, Gujarat) accepts bank TT and LC at sight. Send your requirement and preferred terms through the Request-a-Quote page.