Export Payment Terms: Which Ones a New Exporter Should Accept

The buyer likes the sample and the price. Then they ask for terms, and the deal stops.

The factory wants full payment before production. The buyer's company will not pay a new supplier in advance. Neither side is being unreasonable, and neither side moves.

This guide explains export payment terms from a factory's side, in the same order the US International Trade Administration ranks them. What each term means, how much risk it carries, what buyers in the United States and Europe expect, and how to move a buyer from full advance to something both sides can sign.

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The Terms, From Safest to Riskiest for the Factory

Advance Payment (T/T in Advance)

The buyer pays by bank transfer before production or before shipment. Zero risk to the factory, all the risk to the buyer.

Common for samples, small first orders and custom tooling. Rare for a full order from a buyer who has never met you, because from their side you are the unknown. Insisting on 100% advance for a container is the single most common reason a first export order does not happen.

Deposit Plus Balance Against Documents

A deposit on order, typically 30%, and the balance when you send a copy of the bill of lading proving the goods have shipped. The deposit covers your materials; the balance arrives before the buyer can collect the goods, because the original documents are released only after payment.

This is the working compromise for most first orders between a factory and a real importer. The factory's exposure is limited to the margin on goods already at sea; the buyer's exposure is limited to the deposit.

Letter of Credit (L/C)

The buyer's bank promises to pay you when you present documents that match the letter's conditions exactly. Your risk moves from the buyer to the bank, and with a confirmed L/C, to a bank in your own country.

Strong protection, at a cost. Bank fees on both sides, and every document must match the letter to the letter; a typo in a packing list can delay payment for weeks. Suits larger orders and new relationships in markets where you cannot check the buyer. Ask for an irrevocable L/C at sight, confirmed if the buyer's country carries risk, and quote the Incoterm exactly as the ICC rules spell it, because the bank will check.

Documents Against Payment (D/P, also called CAD)

You ship, send the shipping documents to your bank, which forwards them to the buyer's bank. The buyer gets the documents, and therefore the goods, only when they pay. No bank guarantee; if the buyer refuses, you have goods sitting in a foreign port.

Cheaper than an L/C and reasonably safe with an established buyer for goods you could resell. Risky for custom products nobody else wants.

Documents Against Acceptance (D/A)

Like D/P, except the buyer gets the documents by accepting a bill of exchange, promising to pay later, often 60 or 90 days. You have shipped, they have the goods, and you hold a promise. Only for buyers you trust with credit.

Open Account

You ship and invoice; the buyer pays in 30, 60 or 90 days. The buyer's ideal and the factory's maximum exposure. Standard between long-term partners in Europe and North America, and expected by large buyers there once you are an approved supplier. Never for a first order, and only ever with credit insurance or a known customer.

Escrow and Platform Payment

A third party holds the buyer's money and releases it when the goods are confirmed shipped or received. Marketplaces offer versions of this, and independent escrow services exist. Useful for smaller orders with unknown buyers; fees and delays make it clumsy for large ones.

What Buyers in the US and Europe Expect

A mid-size importer or distributor there will usually accept a deposit and balance against documents for a first order, and will expect to move to net 30 or 60 open account within a few orders. Many will accept an L/C for a large first order but dislike the paperwork.

Large corporate buyers have a purchasing policy that forbids advance payment entirely. For them the path is supplier approval, then open account with their standard terms. It takes longer and the orders are bigger.

What none of them expect is 100% before production from a supplier they have not verified. A factory that offers it as the only option signals that it has not exported before.

Moving a Buyer Off Full Advance Without Losing Them

Start by offering the middle ground yourself, in the quote, before the buyer has to ask. "30% deposit, 70% against copy of bill of lading" in the quotation reads as experience. The quotation format guide shows where it goes.

If the buyer pushes for less deposit, trade rather than concede. A lower deposit for a larger order, or for an L/C, or for a credit check you can run. Ask for a trade reference and the buyer's company registration; a real importer provides both without offence.

For an order too large to risk on a deposit alone, propose a confirmed L/C and offer to absorb your side's fees for the first order. The gesture costs little and removes the buyer's main objection.

Write the agreed terms into the proforma invoice exactly as negotiated. Payment disputes almost always begin with a document that says something different from the email.

Protecting Yourself on the Riskier Terms

Export credit insurance covers non-payment on D/A and open account terms, from national export credit agencies such as EXIM in the United States, and from private insurers. The premium is a small percentage of the invoice and it makes open account possible with buyers you could not otherwise extend credit to.

Credit checks on the buyer cost little and take days. Trade references, a company registry search and a look at the buyer's payment history with other suppliers tell you most of what an insurer would ask.

Keep documents perfect. Under every term from L/C to open account, a clean set of shipping documents is what gets you paid on time. The export documents checklist lists them.

A Simple Rule for a New Exporter

First order with an unverified buyer: deposit and balance against documents, or a confirmed L/C if the order is large. Second and third orders on time: reduce the deposit. After that, with insurance or a good history: open account with a credit limit.

Terms are a ladder both sides climb together. Trying to skip the first rung, in either direction, is how deals stall.

The factory that offers sensible terms first is the one that gets to negotiate at all. Put them in the quote, and the conversation starts on the right rung.