Payment terms and escrow when working with Indian suppliers
Kavita Tewari
Payment terms with Indian suppliers: advance, LC and escrow
Published guidance says Indian exporters typically ask 30 percent advance and 70 percent against the bill of lading. Every manufacturer we have interviewed quoted 50 percent advance or more. Both are true, for different buyers. What you are offered depends on order size, your trading history, and a regulatory clock most buyers have never heard of.
Payment terms are where a sourcing relationship either gets sensible or gets expensive. They are also where the published advice and the actual quotes diverge most.
What the guides say, and what we were actually quoted
The standard structure described almost everywhere is 30 percent advance against an accepted pro forma invoice, 70 percent against the bill of lading.
That is not what we have been quoted.
Source | Terms | Category |
|---|---|---|
Published guidance, general | 30 percent advance, 70 on BOL | Established trade |
Apparel manufacturer, interviewed | 50 percent advance, 50 before shipping | Custom apparel |
Food and wellness manufacturer, interviewed | 50 percent advance, 50 before shipping | Dry blends |
Design and development studio, interviewed | 50 percent advance, 40 at sampling, 10 on QC and asset handover | Product development |
Three independent conversations, all landing at 50 percent or more upfront.
Why the gap. The 30/70 figure describes established trade between parties with history, often at volume. The manufacturers we interview take small custom orders from first-time overseas buyers, which is a different risk profile entirely. They are financing materials for a bespoke run for someone with no track record, and if the buyer disappears the goods are unsellable.
What this means for you. If you are quoted 50 percent as a new buyer on a custom product, you are not being singled out and it is not a warning sign. Expect the number to improve on your second and third orders, and treat that improvement as something to earn rather than to demand upfront.
Note the third row. That studio splits payment across delivery milestones rather than shipping events, because they are selling development work rather than goods. If you are buying design and development, expect a milestone structure and not a shipping one.
The four structures, and when each fits
TT, telegraphic transfer
A direct bank transfer, split into instalments. The default for most first orders.
Fits: small to mid-size orders, and any first order where the amount does not justify bank fees. Risk: your advance is unsecured. This is the whole reason the rest of this page exists. Typical: 30 to 50 percent advance, balance against the bill of lading or before shipping.
Letter of credit
Your bank guarantees payment to the exporter, conditional on them presenting exactly the documents specified. If the documents are compliant, the bank pays. If they are not, it does not.
Fits: larger orders. Published guidance puts the threshold at roughly ₹35 lakh, around 40,000 dollars, where the fee stops mattering against the exposure. Cost: bank fees on both sides, and real administrative work. The catch worth knowing: an LC protects against non-payment and non-shipment. It does not protect against bad quality. If the documents are compliant, the bank pays, even if what arrives is unusable. Quality protection comes from your sample approval and pre-shipment inspection, not from the payment instrument.
DP, documents against payment
Shipping documents are released to you by the collecting bank only when you pay. Without the documents you cannot clear the goods.
Fits: the middle ground. More protection than a bare TT, less cost and complexity than an LC. Risk to the supplier: if you refuse to pay, their goods are sitting in a foreign port. Which is why suppliers usually want an advance alongside it.
DA, documents against acceptance
Documents released against your acceptance of a time draft, paying later. Genuine credit.
Fits: established relationships only. A new overseas buyer will not be offered this, and asking early signals inexperience.
What about escrow
Straight answer: escrow is uncommon in Indian goods export, and most buyers asking for it actually want DP or an LC.
Escrow is normal in services, freelance work and marketplace transactions. In physical goods trade from India, the established instruments are LC and DP, and they exist precisely because they solve the same problem through the banking system.
If you propose escrow to a manufacturer, expect one of three responses: they have not used it, their bank treats the inward remittance awkwardly, or they will agree but price the friction in.
What to ask for instead:
Small order: a split TT with a smaller advance, and a physical sample approved before the balance moves.
Mid-size: DP, so documents release on payment.
Large: an LC.
If you genuinely want escrow, third-party trade escrow services do exist. Check with your supplier's bank before assuming it will work smoothly for an Indian inward remittance, because the receiving side has compliance requirements the escrow provider may not handle.
The clock behind your supplier's terms
This is the part nobody explains, and it changes how the negotiation feels.
Indian exporters cannot simply agree to any payment timeline you like. Under RBI rules, export proceeds must be received and repatriated within a defined window from shipment. If they miss it, the exporter has a compliance problem with their bank and the regulator, not merely a cash flow problem.
Two consequences:
A supplier resisting long credit terms may not be distrusting you. They may be declining to breach a rule. Asking why, rather than pushing, gets a much better conversation.
They also need proof the money arrived. Indian exporters obtain a Foreign Inward Remittance Certificate or Advice from their bank for each payment, which is how they evidence receipt for regulatory and tax purposes. Paying through unusual channels can make this harder for them and is a genuine reason a supplier may refuse a payment method that seems fine to you.
What changes on 1 October 2026
New RBI regulations take effect. FEMA 23(R)/2026-RB, notified 13 January 2026, comes into force on 1 October 2026 and supersedes the 2015 export regulations.
What it changes:
Export and import are governed under a single unified framework for the first time
The realisation window for export proceeds is 15 months from shipment, and 18 months where settled in Indian rupees
A single online Export Declaration Form replaces the previous set of forms
Why a buyer should care: a longer realisation window gives your supplier more room on payment timing than the previous rules allowed. If you have been told a term is impossible, it may be worth revisiting after October.
Verified [DATE]. This is the Indian side of the transaction and your supplier's obligation, not yours, but it shapes what they can agree to.
Choosing terms by order size
Order value | Sensible structure |
|---|---|
Under about ₹5 lakh, roughly $6,000 | Split TT. Advance plus balance before shipping |
₹5 lakh to ₹35 lakh | Split TT, or DP if you want documents held against payment |
Above about ₹35 lakh, roughly $40,000 | Letter of credit. The fee stops mattering at this exposure |
These are orientation, not rules. A supplier's own risk appetite matters as much as the number.
Before the advance moves
The advance is not the problem. What the advance buys you is the problem.
Get all of this agreed in writing first:
The specification, in the detail you would want if it went to arbitration
The approved sample, physically checked, not photographed
The defect policy. Who pays for workmanship defects, and where the line sits at sample approval
The timeline, sample and production separately
What happens if they miss it. A remedy, not a sentiment
The Incoterm, and who is the importer of record
The reject rate and inspection standard
Six of those seven cost nothing to agree before money moves and are nearly impossible to agree after.
Terms worth refusing
Full payment before a production run. Reasonable for a prototype. On production, it removes your only leverage, and it is the one term worth walking away over.
Payment to a personal account, or to an account in a different name to the company. No legitimate reason exists for this. It also breaks the supplier's own remittance paperwork.
A supplier offering to undervalue the invoice to reduce your duty. Customs fraud, and the importer of record carries it.
Terms with no written specification behind them. You are funding an interpretation.
Or let us do it
We know which builders quote 50 percent and which flex, which have handled letters of credit before, and which have never taken an overseas payment.
Tell us what you are making and what volume, and we will point you at ones who have done it. If we do not have the right one, we will say so.
FAQ
How much advance payment do Indian suppliers ask for?
Published guidance describes 30 percent advance and 70 percent against the bill of lading. Every manufacturer we have interviewed quoted 50 percent advance or more. The difference reflects order size and trading history: 30/70 describes established relationships at volume, while a first-time overseas buyer ordering a small custom run should expect 50 percent. It usually improves on later orders.
Is 50 percent advance normal when importing from India?
Yes, for a new buyer on a custom product. The supplier is financing materials for a bespoke run for someone with no track record, and the goods are unsellable if you disappear. It is not a warning sign. Full payment before a production run is a different matter and is worth refusing.
Should I use a letter of credit or a TT?
TT for smaller orders where bank fees would outweigh the exposure. A letter of credit becomes worthwhile at roughly ₹35 lakh, around 40,000 dollars, and above. Note that an LC protects against non-payment and non-shipment but not against poor quality, because the bank pays on compliant documents regardless of what is in the box.
Can I use escrow with an Indian supplier?
Rarely, and it is usually not what you actually want. Escrow is standard in services and marketplaces but uncommon in Indian goods export, where letters of credit and documents against payment are the established instruments. Most buyers asking for escrow are better served by DP for mid-size orders or an LC for large ones.
What is documents against payment?
The collecting bank releases the shipping documents to you only when you pay. Without the documents, you cannot clear the goods. It sits between a bare TT and a full letter of credit in both cost and protection.
Why won't my supplier agree to longer payment terms?
Often regulation rather than distrust. Indian exporters must receive and repatriate export proceeds within a window set by the RBI, and missing it creates a compliance problem with their bank. New regulations effective 1 October 2026 extend that window to 15 months from shipment, so terms previously refused may become possible.
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