How Payment Terms Work When Importing from India — TT, LC, and DP Explained

Payment terms when importing from India are one of the highest-risk elements of any sourcing transaction — and one of the least understood by first-time buyers. The three most common structures are TT (Telegraphic Transfer), LC (Letter of Credit), and DP (Documents against Payment). Each one distributes risk differently between buyer and seller, each one suits a different stage of a supply relationship, and each one has specific mechanics that determine whether the protection it appears to offer actually works in practice. Getting payment terms wrong on an early India order is expensive. This post explains how each structure works, who carries the risk under each, and how to choose the right structure for your specific situation.

Quick Answer

The three main payment structures for India imports are: TT (Telegraphic Transfer) — direct bank transfer, usually split as 30 percent advance and 70 percent on the bill of lading; LC (Letter of Credit) — bank-mediated payment conditional on compliant shipping documents; and DP (Documents against Payment) — documents released to the buyer only on payment at the collecting bank. Each offers different protection levels. TT is simplest; LC is most secure for large or first orders; DP sits between them in both complexity and protection.

TT — Telegraphic Transfer

Telegraphic Transfer is a direct bank-to-bank wire payment — the buyer instructs their bank to transfer funds to the exporter’s bank account. It is the most common payment method in India trade for established buyer-supplier relationships, and the most straightforward to arrange. It does not involve a third party holding or conditional documents. The funds move when the buyer initiates the transfer.

How TT Is Structured in Practice

For first and early orders, TT is almost always structured as a split payment rather than full advance. The most common structure is 30 percent advance against the accepted pro forma invoice, with 70 percent payable against the bill of lading — either the original BL or a copy, depending on what was agreed. Some exporters require the balance against a pre-shipment inspection report; others against the shipping notification. The trigger for the balance payment should be explicitly stated in the pro forma invoice and the purchase order — not left to verbal understanding.

The advance payment initiates production. Without it, most Indian exporters will not allocate factory capacity or begin sourcing raw materials for your order. The balance payment releases the original shipping documents — the bill of lading, the commercial invoice, the packing list, the certificate of origin — which the buyer needs to take delivery of the goods at the destination port.

The Risk Position Under TT

TT is the payment method that places the most risk on the buyer. Once the advance is transferred, the funds are with the exporter. If the exporter does not perform — does not produce the goods, does not ship on time, ships goods that do not match the specification — recovering the advance through legal or banking channels is time-consuming and uncertain. The buyer’s protection against this risk is not the payment structure. It is the quality of the due diligence done before the order was placed, the clarity of the specification lock, and the pre-shipment inspection conducted before the balance is released.

For buyers working with a verified exporter who has a documented order process — one where the approved sample is locked as the production reference and the pre-shipment inspection is a condition of balance payment release — TT with a 30/70 split is a workable structure even on early orders. The pre-shipment inspection report, issued before the balance is paid, is the buyer’s primary protection mechanism within a TT payment structure.

What to Confirm in Writing Before Using TT

Before agreeing to TT payment, confirm in writing: the exact split percentage, the specific trigger for the balance payment, the bank details for the transfer (and verify them independently — payment redirection fraud targeting international transfers is a real risk), and the timeline between advance receipt and expected shipment date. If the exporter’s bank details change at any point during the transaction, verify the change by phone before transferring any funds. Do not rely on an email instruction alone for a change of bank details.

LC — Letter of Credit

A Letter of Credit is a conditional payment undertaking issued by the buyer’s bank, guaranteeing payment to the exporter provided they present compliant shipping documents within the terms and timeframe specified in the LC. It is the most structured and, for large or first-order transactions, the most protective payment method available in international trade. The key word is conditional — the bank pays only when the documents presented match the LC conditions exactly.

How an LC Works in an India Import Transaction

The buyer applies to their bank for an LC, specifying the conditions that must be met for payment to be released: the goods description, quantity, value, currency, Incoterm, port of loading, port of discharge, shipment deadline, and the documents the exporter must present. The buyer’s bank issues the LC to the exporter’s bank in India. The exporter ships the goods and presents the required documents — commercial invoice, bill of lading, packing list, certificate of origin, inspection certificate if required — to their bank. The exporter’s bank checks the documents against the LC conditions and, if compliant, forwards them to the buyer’s bank. The buyer’s bank checks again, and if the documents are compliant, releases payment.

The ICC Uniform Customs and Practice for Documentary Credits (UCP 600) governs Letters of Credit internationally and is the authoritative reference for understanding LC mechanics, document compliance requirements, and dispute procedures.

Why Document Compliance Is the Critical Point

The protection an LC provides is only as strong as the precision with which it is drafted. An LC that specifies “clean on board bill of lading” but does not specify the shipping line, the port of loading in correct terms, or the exact description of the goods — matching the commercial invoice character for character — will generate discrepancies when the exporter presents documents. Banks operate on strict compliance: a one-character difference between the LC description and the commercial invoice description is a discrepancy. Discrepancies require the buyer’s authorisation to waive, which delays payment, or the exporter must correct and re-present the documents, which delays the release of shipping documents to the buyer.

Before an LC is issued, have it reviewed by your freight forwarder and, if possible, by the exporter — so both parties confirm the conditions are achievable with the actual shipping documents that will be generated. An LC drafted in isolation, without input from the parties who will execute against it, is likely to produce discrepancies.

When LC Is the Right Choice

An LC is appropriate for: first orders with an unverified exporter where TT advance risk is high; high-value orders where the financial exposure justifies the LC cost and complexity; orders where the buyer’s bank requires LC as a condition of financing; or any situation where both parties want a bank as the neutral document-verification intermediary. The cost — LC issuance fees, negotiation fees, discrepancy charges — is a real consideration. For orders under a certain value threshold, the cost of LC issuance may be disproportionate to the protection it provides. Discuss the cost with your bank before deciding.

DP — Documents against Payment

Documents against Payment (DP) is a collection method that sits between TT and LC in both complexity and protection. Under DP, the exporter ships the goods and hands the shipping documents to their bank in India with instructions to release them to the buyer’s bank only upon payment. The buyer must pay the collecting bank to receive the original shipping documents — and without the original bill of lading, they cannot take delivery of the goods at the destination port.

How DP Works in Practice

The exporter presents the shipping documents to their bank after loading. The Indian bank sends the documents to the buyer’s nominated bank in the destination country. The buyer’s bank notifies the buyer that documents have arrived and are available against payment. The buyer pays, the bank releases the documents, and the buyer uses them to clear customs and collect the goods. The exporter receives payment once the buyer’s bank confirms that payment has been made and remits funds to India.

Unlike an LC, there is no bank undertaking to pay. The bank is acting as a collection agent, not a payment guarantor. If the buyer refuses to pay — or is unable to pay — when the documents arrive, the goods are stranded at the destination port and the exporter must arrange for their return or disposal. This makes DP riskier for the exporter than LC, and many Indian exporters will only offer DP to buyers with whom they have an established relationship or who can demonstrate creditworthiness.

The Buyer’s Risk Position Under DP

From the buyer’s perspective, DP offers meaningful protection compared to TT full advance — the buyer does not pay until the shipping documents exist, confirming the goods have been loaded. However, DP does not protect against goods that do not match the specification. The buyer pays to receive the documents, not to confirm the goods are correct. If the goods inside the container do not match the approved sample, the buyer has already paid and the goods are already at the destination port.

Pre-shipment inspection is therefore as important under DP as under TT — arguably more so, because the payment trigger under DP is the existence of documents, not the confirmation of quality. Commission a third-party inspection before the goods are loaded, regardless of payment structure.

Choosing the Right Payment Structure

The right payment structure depends on three variables: the stage of the supply relationship, the order value, and the buyer’s assessment of the exporter’s reliability based on due diligence. These are not independent factors — they interact, and the weighting shifts as the relationship develops.

For a First Order with a New Exporter

For a first order at significant value with an unverified exporter, an LC offers the strongest protection. The bank’s document compliance check is an independent verification layer that TT does not provide. If the order value is too small to justify LC costs, a TT split structure with a pre-shipment inspection condition on the balance payment — from a reputable firm such as SGS, Bureau Veritas, or Intertek — is the practical alternative. Do not pay 100 percent advance on a first order with an exporter you have not independently verified.

For Established Supply Relationships

Once a supply relationship is established — you have completed two or three orders with consistent results, you know how the exporter communicates, and you have evidence that pre-shipment quality matches the approved specification — TT with a standard split becomes the most practical structure. The protection in an established relationship comes from track record and documented process, not from banking intermediaries. The cost and time savings of TT over LC are real and accumulate over multiple orders.

Exchange Rate Risk — the Factor Across All Structures

Regardless of which payment structure is used, exchange rate movement between the date the pro forma is accepted and the date payment is made is a cost risk that applies to any buyer paying in a currency different from their functional currency. For TT with a 30/70 split, the exchange rate may move between the advance and the balance payment. For LC, the rate is locked at the point of payment under the LC conditions. Consider whether a forward contract with your bank is appropriate for larger orders — your bank’s trade finance team can advise on current options. The UK government’s guidance on doing business with India covers financial risk considerations for UK importers sourcing from India.

Frequently Asked Questions

Can I negotiate payment terms with an Indian exporter?

Yes, and it is standard practice. Indian exporters expect payment term discussions as part of the order negotiation, particularly for first orders. The terms that are negotiable include the advance percentage, the trigger for the balance payment, and sometimes the payment method itself. What is less negotiable is the requirement for some form of advance — most Indian exporters will not begin production without a deposit, because the factory economics require it. If an exporter offers 100 percent payment on delivery with no advance required, that is unusual enough to investigate rather than accept without question. The terms that work are ones where both parties’ risk is managed — a reasonable advance for the exporter, a clear inspection and release condition for the buyer.

What happens if I cannot take delivery of the goods after paying under DP?

Under DP, once payment has been made to the collecting bank and the shipping documents have been released, the buyer has full title to the goods. If the buyer is then unable or unwilling to collect the goods at the destination port, storage charges begin accruing immediately. Port free time — the period after which storage charges start — is typically 3 to 5 working days at most major UK and European ports. After that, demurrage charges accumulate daily and can become substantial within a short period. If you anticipate a delay in collection, notify your freight forwarder immediately so they can monitor free time expiry and advise on options. Do not leave goods uncollected at port — the cost escalates quickly and the goods may eventually be auctioned.

Is a Letter of Credit always safer than TT for an India import?

An LC is more structured than TT and provides bank-level document verification — but it is not unconditionally safer. The protection an LC provides depends entirely on how precisely it is drafted. An LC with vague document requirements, an unrealistic shipment deadline, or conditions that the exporter’s documentation cannot satisfy precisely will generate discrepancies that delay payment and potentially delay delivery. TT with a pre-shipment inspection condition on the balance payment, applied to a verified exporter with a documented order process, can offer comparable practical protection at lower cost and complexity for mid-range order values. The right structure is the one that fits the transaction — not the most complex one available.

What is a SWIFT transfer and how does it relate to TT?

TT (Telegraphic Transfer) and SWIFT transfer refer to the same underlying mechanism. SWIFT is the messaging network that banks use to communicate international payment instructions — the Society for Worldwide Interbank Financial Telecommunication. When a buyer initiates a TT payment for an India import, their bank sends a SWIFT message to the exporter’s bank instructing the transfer. The terms are used interchangeably in practice. What matters operationally is the accuracy of the bank account details — account name, account number, SWIFT/BIC code, and bank branch details — on the pro forma invoice, and the independent verification of those details before any payment is initiated.

If you are in the early stages of planning your first or next import from India and want to understand how a structured order process — from specification lock through pre-shipment release to payment milestone alignment — is built into the way NexaCrest governs every order, the How We Work page at nexacrestinternational.com sets out the full NexaCrest Order Standard. And if you have a specific question about payment structure for your order, the contact page at nexacrestinternational.com is where that conversation starts — with a specific answer, not a form letter.