Export payment terms: A complete guide for Indian exporters in 2025

Most SME exporters face payment delays or defaults simply because they picked the wrong payment terms. The difference between getting paid in 24 hours versus waiting 6 months often comes down to this single decision.

Payment terms are your primary tool for managing cash flow, reducing risk, and scaling internationally. This guide breaks down every payment method available to Indian exporters and reveals how modern fintech solutions are helping.

• Match payment terms to buyer risk – Use LCs for new/high-risk buyers, open account for trusted clients, and fintech VBANs for digital-first partners.
• Prioritize what matters most—speed, security, or cost – Align your terms based on business goals and cash flow needs.
• Fintech VBANs can offer the best of all worlds – They enable fast, cost-effective, and compliant cross-border payments without the LC complexity.
• Protect yourself with ECGC or advance payments – Especially when using open account or documentary collection methods.
• Don’t ignore compliance – Track EDF filings, IEC requirements, and RBI’s 9-month export realization rule to avoid penalties.
• Use automation wherever possible – Modern platforms can simplify FX conversion, documentation, and regulatory reporting so you can focus on growth.

Export payment terms are buyer-seller agreements defining how and when funds are exchanged. They answer three questions:

• How will payment happen? (bank transfer, letter of credit, digital platform)
• When will you get paid? (before shipping, after delivery, or between)
• Who takes the risk? (you, the buyer, or a bank)

This is a mix of banking, trade finance, and fintech methods. As an Indian exporter, you face unique risks: non-payment, delays, currency fluctuations, and  and strict RBI compliance requirements. 

Miss any of these elements, and you could face penalties, locked funds, or complete payment losses.

The stakes are particularly high because of India's regulatory environment. Export proceeds must reach your account within 9 months, and every transaction needs proper documentation. 

Choose the wrong payment terms, and you might find yourself explaining to RBI why your money is stuck in a foreign bank account.

But here's the good news: modern payment options now give you more control than ever before. Let's explore each one.

Cash in advance

Your buyer pays the full amount before you ship anything.

How it works: Priya, a jewelry designer from Jaipur, only accepts advance payments for custom pieces. Buyers wire money, she confirms receipt, then starts crafting. Result? Zero bad debts in three years.

Pros: Eliminates payment risk entirely, improves cash flow immediately, no complex documentation Cons: Most buyers refuse these terms, limits market access

Best for: Custom manufacturing, first-time buyers, high-demand products

Letter of credit (LC)

A bank's promise to pay once you prove you've shipped goods correctly.

How it works: Buyer's bank issues LC specifying required documents. You ship, present documents, get paid if everything matches perfectly.

Pros: Bank guarantee, virtually zero payment risk, enables trade financing Cons: Expensive (0.5-2% fees), document-intensive, delays possible

Ravi, a chemical exporter, had a $100,000 LC payment delayed three weeks because his invoice was dated one day after the bill of lading. In LC world, perfection is mandatory.

Best for: Large transactions over ₹35 lakhs, new relationships, high-risk countries

Documentary collection (D/P & D/A)

Your bank collects payment through the buyer's bank against shipping documents.

• D/P: Documents released only after payment
• D/A: Documents released after payment acceptance

Pros: Cheaper than LCs (0.1-0.3% fees), faster processing, maintains control Cons: No payment guarantee, limited recourse if buyer refuses

Best for: Established relationships, when LC costs are prohibitive

Open account

Ship goods, send invoice, hope buyer pays within 30-90 days.

Why buyers love it: Normal business credit terms, no advance payments or banking complexity.

Meera, a handicraft exporter, shipped ₹12 lakhs to a US retailer on 60-day terms. The buyer went bankrupt after 45 days. Recovery from India? Nearly impossible.

Best for: Blue-chip companies, low-risk countries, competitive situations Risk management: Always use ECGC insurance for coverage up to 90%

Telegraphic transfer (T/T)

Bank-to-bank wire transfers, either in advance or after document sight.

Reality check: Takes 2-3 days, costs ₹1,500-3,000 in bank charges plus conversion fees. Predictable but not cheap.

Best for: Small-medium transactions prioritizing speed over cost

Virtual bank account/fintech collection

Get local banking details in your buyer's country USD account in America, EUR in Europe linked to your Indian account.

How it works: Buyers pay to seemingly local accounts, money converts automatically and lands in your Indian account within 24 hours.

Ankur, a Bangalore software developer, switched from traditional banking to virtual accounts. His payment cycle dropped from 7 days to 1 day, bank charges fell 60%, and he eliminated currency conversion guesswork.

Best for: Digital exporters, freelancers, recurring payments

Here's what every exporter must know about staying compliant while getting paid efficiently.

The non-negotiables

Export Declaration Form (EDF): Every export transaction gets reported through this system. No exceptions.

9-month realization rule: Your export proceeds must hit your Indian bank account within 9 months of shipment. For goods in overseas warehouses, you get 15 months. Miss this deadline, and RBI penalties start flowing.

Import Export Code (IEC): Mandatory for any exporter receiving over $25,000 annually. Get this from DGFT before your first transaction.

Recent changes that matter

RBI released Draft Trade Regulations 2025 aimed at simplifying export-import processes and providing greater operational flexibility. Key proposed improvements include streamlined documentation requirements and enhanced digital processing capabilities.

What this means for you: Less paperwork, faster approvals, and more flexibility in choosing payment terms—but compliance remains critical.

Insurance as your safety net

ECGC coverage protects against buyer default, political risks, and currency inconvertibility. For open account terms or documentary collections, this insurance can cover up to 90% of your loss.

Cost vs benefit: ECGC premiums typically range from 0.2% to 2% of invoice value depending on country risk and coverage period. Compare this to losing an entire shipment value.

Your choice depends on three factors: transaction size, buyer relationship, and your risk tolerance.

For large B2B shipments (₹35 lakhs+)

• New buyers: Start with LCs despite the cost. The bank guarantee justifies the 1-2% fee when you're risking significant capital.
• Established buyers: Move to documentary collection after 3-4 successful LC transactions. You'll cut costs while maintaining reasonable security.
• Trusted partners: Graduate to open account terms but always with ECGC insurance and credit limits.

For medium transactions (₹3-35 lakhs)

• Risk-averse approach: T/T advance or documentary collection 
• Growth-focused approach: Open account with insurance for competitive advantage 
• Modern approach: Fintech virtual accounts for speed and cost efficiency

For small transactions (under ₹3 lakhs)

• Traditional banking becomes cost-prohibitive here. 
• Virtual accounts and fintech platforms offer the best combination of speed, cost, and user experience.

• Start with risk assessment: How well do you know this buyer? What's their country's political and economic stability? How much can you afford to lose?

• Factor in competition: If competitors offer attractive payment terms, you may need to match them. Use insurance or financing to manage the additional risk.

• Consider transaction frequency: One-off large orders might justify LC costs. Recurring smaller payments favor fintech solutions.

• Evaluate your cash flow needs: Startups and growing businesses typically can't afford long payment cycles. Prioritize speed even if it costs slightly more.

• Plan for scale: Choose payment methods that can grow with your business rather than creating bottlenecks later.

The exporters thriving in 2025 have moved beyond "how we've always done it" to "what serves my business best." Xflow combines fintech innovation with regulatory expertise offering the speed you need with compliance assurance your business requires.