India Payment Terms Explained — TT, LC, DP for US Buyers (2026)

Payment terms are the second-highest-friction commercial variable on any first India programme (after price). US buyers new to India sourcing default to 100% pre-payment because that is what US supplier relationships often look like — Indian factories, on the other hand, are internationally-experienced and expect a structured payment against documents. Understanding TT vs LC vs DP, and the risk allocation each represents, is what lets a US buyer negotiate the right terms for the specific programme.

The three payment instruments

Telegraphic Transfer (TT)

TT is a bank-to-bank wire (SWIFT MT103). Simplest, cheapest, fastest. Standard for first-order engagement with an unknown factory. Structure: 30% advance TT at PO confirmation + 70% balance TT against shipping-document copies (buyer receives copies via email, wires balance, factory hands originals to buyer's freight forwarder, container releases at destination). US bank fee: $30-$50 outbound. Indian bank inward: no fee to receiver. Total transaction cost: ~$100 for a 40-ft container programme. Risk allocation: 30% advance is the buyer's downside. If the factory disappears mid-production, 30% is at risk.

Letter of Credit (LC)

LC is an irrevocable bank guarantee. Structure: buyer's US bank issues an LC in favour of the factory, guaranteeing payment against presentation of specified shipping documents (bill of lading, invoice, packing list, certificate of origin, inspection certificate). Factory presents documents to their Indian bank; documents are couriered to buyer's US bank; if documents match the LC's conditions exactly, buyer's US bank pays. Buyer only pays if documents comply.

LC pros: near-zero buyer risk (documents must match; discrepancies cause non-payment which the factory then has to fix). LC cons: expensive and slow. US bank LC-issuance fees: $250-$800 per LC depending on bank and amount. Advising bank fees in India: ₹3,000-₹8,000. Amendment fees (if any LC term changes): $150-$300 per amendment. Total transaction cost: $500-$1,200 per LC — worth it on shipments above approximately $50,000 where the risk exposure justifies the cost.

LC turnaround: 5-10 working days to issue; 15-25 working days for a full shipment cycle from LC-issuance to funds-transfer. Chase, BofA, HSBC, Wells Fargo, Citi all handle India LCs; regional banks may not.

Documents Against Payment (DP / D/P)

DP is a middle-ground instrument. Structure: factory ships and gives shipping documents to their Indian bank; documents are couriered to buyer's US bank; buyer's US bank calls buyer for payment; buyer pays and receives documents; documents to freight forwarder; container releases. Faster than LC (no LC-issuance step) and cheaper (no LC-issuance fee); riskier than LC for the factory (buyer might refuse to pay when documents arrive) but easier than TT on the buyer (no advance).

DP fees: US bank collection fee $75-$200 per DP. Faster than LC (10-15 working days total). Used often on second and third orders with the same factory once trust is established but before open-account terms.

The negotiation path — first order to open account

Standard trajectory for a US-buyer / India-factory relationship: (a) First order: 30% advance TT + 70% balance TT against shipping-document copies. This is the industry default and every serious export factory will accept it. Buyers who try to force 100% payment-against-documents on a first order get either factory refusal or a 5-10% price surcharge to cover the factory's cash-flow cost.

(b) Second/third orders (once first order shipped and paid): 20% advance TT + 80% balance TT. Small reduction in advance signalling growing trust.

(c) Fourth/fifth orders: 10% advance TT + 90% balance TT, or full DP against shipping documents. This is the transition point where the factory has quantified the buyer's payment reliability and is willing to ship on documents.

(d) Sixth-plus orders on a stable programme: open account 30-60-90 days from shipment date. This is earned, not negotiated at first-order stage. Open account terms save the factory 3-5% financing cost which typically gets returned to the buyer as a 2-3% price reduction — a real material improvement in landed cost once earned.

(e) Programme-level relationships ($1M+ annual): LC structures for peak-season inventory builds; open-account for steady-state reorders; hybrid TT + open-account for mixed cycles.

US bank considerations

Chase (JPMorgan): standard TT $30-$50 outbound; LC issuance $500-$800; DP collection $150-$200. Strong India-lane coverage. Preferred for most US import-scale operations.

Bank of America: TT $30-$45; LC $450-$700; DP $125-$175. Good India-lane coverage. Slightly cheaper than Chase; slightly slower on LC turnaround.

HSBC (US business account): TT $25-$40; LC $250-$600 (HSBC has correspondent-bank relationships that reduce LC cost); DP $100-$150. Best-in-class for India-lane specifically because HSBC operates in India and can act as advising bank in-house.

Wells Fargo: TT $30-$50; LC $400-$700; DP $150-$200. Good coverage. Slightly slower LC issuance than Chase or HSBC.

Citi: TT $30-$50; LC $500-$800; DP $150-$200. Good coverage.

Regional and community banks: typically outsource international trade finance to a correspondent bank — TT works fine but LC and DP typically add 2-3 days for the correspondent-bank routing and add $100-$250 per transaction. For US buyers running material India-lane volume, moving the import account to Chase / BofA / HSBC / Wells is often the right move on cost and speed grounds.

Currency — USD vs INR

Factory quotes are almost always USD-denominated on export invoices. USD invoicing removes the factory's currency exposure to INR volatility and simplifies buyer's ledger. Buyers occasionally ask for INR-denominated pricing on the theory that INR depreciation will benefit them — this is a losing strategy in practice because Indian factories build a currency-cushion into INR quotes that costs more than the benefit.

For buyers running material volume ($500K+ annually) currency hedging via forward contracts through the buyer's US bank is worth exploring. Forward-contract fees are typically 0.15-0.35% of the hedged amount; the operational benefit is predictable landed cost over the hedge period regardless of USD/INR movement. On $1M annual volume the cost is $1,500-$3,500 and the smoothing benefit on margin is materially larger.

The three payment-term failure modes we see

First: US buyers wiring 100% payment in advance on a first order because the factory offered a 5% discount. The discount does not compensate for the risk; if the factory disappears, the entire 100% is exposed. Never wire above 40% on a first order regardless of discount offered.

Second: US buyers wiring to personal accounts of factory directors rather than corporate accounts. The name mismatch between GST-registered factory and personal account is a red flag; wire only to corporate accounts matching the GST-registered legal name.

Third: US buyers accepting LC terms without engaging trade-finance counsel. LC documents are technical (INCOTERMS references, shipment dates, presentation windows); a small drafting error in the LC can produce a technical non-compliance that lets the factory hold shipment. LC engagements above $50,000 should have a paralegal or trade-finance officer draft the specific LC terms — most banks provide this as part of the LC-issuance fee.

How Asia Sourcing structures payment on your programme

First-order default: 30% advance TT + 70% balance TT against shipping-document copies. Advance is invoiced immediately on PO signature; balance is invoiced with the pre-shipment inspection sign-off. Documents are couriered by DHL or air-freight direct to the buyer's freight forwarder (not the buyer directly, unless requested).

Second-order and beyond: negotiated per programme against the buyer's cash flow and the factory's willingness to move to DP or open account. Every payment structure is documented in the master supply agreement and repeated on each PO.

Related reads: /trends/verify-indian-supplier-due-diligence for supplier verification before wiring. /trends/complete-guide-sourcing-products-india for the full sourcing playbook. /india-buying-agent-for-usa for the buying-agent service. /ask for FAQ on payment terms.

Programme scenarios — payment structures across scale

Scenario A — small first-order, TT-only structure

US specialty retailer, first India programme, single container, $28,000 FOB. Standard structure: 30% advance TT ($8,400) + 70% balance TT against shipping-document copies ($19,600). Chase TT fees $30 × 2 = $60 total. Simple, cheap, appropriate for first-order engagement. Risk-side: $8,400 exposure if factory disappears — mitigated by 5-layer verification protocol (see /trends/verify-indian-supplier-due-diligence).

Scenario B — mid-scale programme, LC structure

US retailer OEM programme, container-cycle $85,000 FOB per container, quarterly. Payment structure: LC issued at Chase for 100% of PO value, released against shipping-document presentation. LC issuance fee $650 + advising bank fee $85. Total transaction cost $735 or 0.9% of PO. Buyer risk near-zero (LC discrepancies fixable by factory); factory financing cost embedded in FOB price (LC-financed factory receives payment guaranteed but slightly delayed — typically 5-7 day discount vs open account).

Scenario C — long-term programme, open-account structure

US established brand, 4th year of India programme with same 3 factories, $1.2M annual across the three. Payment structure earned: open-account 45 days from BL date. Working-capital tie-up compared to 30/70 TT structure: approximately $200K freed (2-3 months of PO value moved off buyer's balance sheet). Implicit price reduction of 2-3% factored into pricing = $24K-$36K annual saving. Total programme-level benefit of open-account terms: $250K-$300K worth over the programme lifecycle.

Cost & timeline breakdown

Payment-instrument cost-comparison on a $50,000 shipment: TT (30/70 structure) $60 outbound + $0 inbound + $0 documentary = $60 total, plus 30% cash outlay for 60-90 days pre-shipment (financing cost at buyer's cost-of-capital, typically 5-10% annualised = $250-$500). LC $500-$800 issuance + $85-$150 advising bank + potential amendments = $600-$1,000 total, but zero cash outlay pre-shipment (LC guarantees payment on document compliance) so financing cost is $0. DP $75-$200 collection fee, zero pre-shipment cash outlay, same financing profile as LC. On mid-scale programmes DP wins the total-cost comparison; on high-risk first-orders LC wins the risk-adjusted comparison; on repeat-programme trust relationships TT with earned open-account wins on speed.

Worked example — 2-year payment-term negotiation path

A US specialty retailer signs up an India furniture programme in Q1. First PO $65,000: 30% advance TT ($19,500) + 70% balance TT against shipping-document copies ($45,500). Chase outbound TT fee $30 each × 2 = $60. Programme ships week 14. Factory delivers on-time and on-spec. Second PO Q3 $85,000: negotiated to 20/80 TT. Third PO Q1 next year $110,000: negotiated to DP against shipping documents (no advance). Chase DP collection fee $175. Fourth PO Q3 next year $140,000: same DP structure. Fifth PO Q1 year 3: retailer proposes open-account 30 days from BL date. Factory agrees on the strength of two-year on-time payment record and an implicit price rebate of ~2.5% factored into pricing. Programme now runs open-account. Retailer's working capital freed: ~2 months of PO value = ~$45,000 in float.

Frequently asked — India payment terms

Can I pay by credit card?

Not at commercial-volume scale. A few Indian factories accept Stripe / PayPal / Payoneer on sample payments and small orders, but on container-scale programmes bank wires (TT / DP / LC) are universal. Credit-card processing fees at 2.5-3.5% + FX spread are also uneconomical at scale.

Is Payoneer or Wise / TransferWise viable?

For samples and small orders (<$5,000) yes — they're 30-50% cheaper than bank TT. For container-scale POs they're typically not available for the Indian factory's receiving side, which usually accepts standard SWIFT-only.

How does GST refund on export affect the price the factory quotes?

Indian factories are zero-rated on export shipments (IGST 0%). GST input credits on raw materials are refunded to the factory by the Indian tax authorities within 60-90 days. Well-run factories build this refund into their working-capital model; poorly-run factories occasionally quote higher prices because they don't manage the refund cycle efficiently.

What INCOTERMS are compatible with each payment structure?

FOB / FCA work with all three payment structures. CIF works cleanly with TT and LC; DP under CIF is possible but more complex because the CIF-included freight is paid by the seller. DDP (Delivered Duty Paid) typically runs on TT or LC — DP is rare on DDP because customs-clearance timing creates document-timing ambiguity.

What's the impact of USD/INR movement on payment timing?

Small. Factory USD invoices are fixed in USD; INR movements affect the factory's INR-denominated income but not the buyer's USD-denominated obligation. Currency risk sits with the factory in USD invoicing structures.

Send a written brief with your category, target retail price, MOQ and required certifications to hello@asiasourcing.co.in. See /usa for the full US-buyer operational overview, /ask for the AI-search FAQ knowledge base, and /start-a-project to attach CAD or reference images directly.