What payment terms should I use for a first order from India?

For first orders, use a 30/70 structure: 30% advance after sample approval to start production, and 70% against copy of Bill of Lading (after pre-shipment inspection). This protects both parties. Never pay 100% advance to a new supplier.

Is Letter of Credit (LC) common for India sourcing?

Yes, LCs are widely used for orders above $25,000-50,000. Indian banks are experienced with export LCs. An irrevocable LC at sight provides maximum security. For smaller orders, T/T (wire transfer) with milestone payments is more practical.

Can I use PayPal or Escrow for Indian supplier payments?

PayPal is used for small sample orders but charges 3-5% fees and has unfavourable exchange rates. Escrow services like Alibaba Trade Assurance don't cover Indian platforms. For orders above $5,000, bank wire transfer (T/T) remains the most cost-effective and widely accepted method.

What currency should I pay Indian suppliers in?

Most Indian exporters accept USD, EUR, or GBP. Paying in USD is most common and provides the best exchange rate transparency. Some suppliers offer INR pricing for better rates, but currency fluctuation risk shifts to the buyer. Always agree on the currency and exchange rate basis upfront.

How do payment terms change for repeat orders?

As trust builds, terms typically evolve: First order (30/70), second order (20/80 or net 30 from BL date), established relationship (net 45-60, open account, or consignment for large programmes). Some suppliers offer 2-3% early payment discounts.

Payment Terms Guide for India Sourcing [2026]

Why Payment Terms Matter in India Sourcing

Payment terms are one of the biggest risk factors in international sourcing. The right structure protects your capital while giving suppliers enough cash flow to produce quality goods. Get it wrong, and you risk losing money to fraudulent suppliers or damaging a genuine relationship by demanding unreasonable terms.

Payment Methods Compared

Method	Security	Cost	Best For
T/T (Wire Transfer)	Medium	$25-45/transfer	Orders $5K-$100K
Letter of Credit (LC)	High	1-3% of order value	Orders $25K+
PayPal	High	3-5% + FX spread	Samples, orders <$5K
Documentary Collection (D/P)	Medium-High	$100-300	Orders $10K-$50K

Recommended Payment Structures

Payment terms should evolve as the relationship matures:

Stage	Advance	Production	Shipment	Post-Ship
First Order	30%	—	70%	—
2nd-3rd Order	20%	—	80%	—
Established	—	—	—	Net 30-45
Large Programme	10%	40%	30%	20% (net 30)

The Golden Rule: 30/70 for First Orders

30% Advance / 70% Against BL Copy

30% advance after sample approval to begin production
Pre-shipment inspection before releasing the 70% balance
70% paid against scanned copy of Bill of Lading
Supplier ships only after full payment is confirmed

Red Flags in Payment Negotiations

Warning Signs

• Demanding 100% advance payment on first order
• Personal bank account instead of company account
• Requesting payment via Western Union or cryptocurrency
• Refusing to accept LC terms for large orders
• Bank account name doesn't match company registration

Tips to Protect Your Payments

Verify bank details independently: Cross-check the beneficiary name with company registration on the MCA portal.
Use milestone-based releases: Tie payments to verifiable events—sample approval, raw material purchase, pre-shipment inspection pass.
Conduct factory audits before committing financially.
Get a proforma invoice (PI): This is a legally binding document in India and protects both parties.
Engage a sourcing agent: They act as your financial safeguard by holding payments until quality checkpoints are met.

Payment Terms Guide for India Sourcing: T/T, LC & Milestones [2026]

Why Payment Terms Matter in India Sourcing

Payment Methods Compared

Recommended Payment Structures

The Golden Rule: 30/70 for First Orders

30% Advance / 70% Against BL Copy

Red Flags in Payment Negotiations

Warning Signs

Tips to Protect Your Payments

Frequently Asked Questions

Need Help Structuring Payment Terms?

Related Resources

MOQ Guide for Indian Suppliers

Reducing Sourcing Risks with New Suppliers

Vendor Identification Services

How Small World India Can Help

Product Development & Sourcing

Sourcing Agent India

Vendor Identification