Export Payment Terms: Advance, Letter of Credit, Collection, Open Account

The buyer pays all or part of the value before you ship, for example a 30–50% deposit with the order and the balance before loading or against copy documents.

• For you: the lowest risk.
• For the buyer: the highest risk, so many buyers accept it only for small or first orders, or ask for a lower price.

A common approach is a deposit on the first order, then better terms as trust grows.

The buyer's bank promises to pay you when you present the documents listed in the credit, exactly as required. Most letters of credit follow the ICC rules known as UCP 600.

• A confirmed L/C adds a second bank's promise, often in your own country, which reduces bank and country risk.
• Banks pay against documents, not goods, so every detail must match the credit — a discrepancy can delay payment.
• Read the draft L/C before the buyer issues it, and ask for changes to anything you cannot meet, such as dates or documents.

Your bank sends the shipping documents to the buyer's bank, which releases them only when the buyer pays (documents against payment, D/P) or accepts a bill of exchange to pay later (documents against acceptance, D/A). Collections usually follow the ICC rules URC 522.

• Cheaper and simpler than a letter of credit.
• But no bank promises payment: if the buyer does not pay, you still control the goods through the documents, yet they may be sitting at a foreign port.

You ship and send the documents directly to the buyer, who pays later, for example 30, 60 or 90 days after shipment or invoice.

• The most attractive term for buyers, and common with large retailers and long-term partners.
• The highest risk for you, so use it only with buyers you know well, and consider export credit insurance or trade-finance tools to protect yourself.

• Export credit insurance covers part of the loss if a buyer does not pay for commercial or political reasons; many countries have an export credit agency or private insurers that offer it.
• Check new buyers: company registration, trade references, how long they have been in business, and how they behave in the first small orders.
• Put the payment term, currency, due date and any penalties clearly in the pro forma invoice and the contract.

• New buyer, unknown market: advance payment or a confirmed letter of credit.
• Known buyer, some history: letter of credit or documentary collection (D/P).
• Trusted long-term buyer: D/A or open account, ideally insured.

Review the term with each buyer as the relationship grows — offering better terms can win orders from competitors, as long as you have the risk under control.