5 min read · Sourcing guide · Updated this quarter
Every first-time buyer sourcing from India hits the same question before the first container ships: how do you pay, and how much do you pay upfront? The answer usually comes down to two instruments — the Letter of Credit and the Telegraphic Transfer — and increasingly, a blend of both.
Letter of Credit (LC)
- Payment released only on presentation of correct shipping documents
- Issuing and advising banks both stand behind the transaction
- Slower to set up and carries bank fees on both sides
- Reduces risk for buyers with no prior history with the exporter
Telegraphic Transfer (TT)
- Direct bank-to-bank payment, no document checking by banks
- Fast to execute and far cheaper than an LC
- No bank guarantee — relies entirely on buyer-exporter trust
- Works well once a track record exists between both parties
Partial Advance TT + Balance on Documents
- Buyer pays a partial advance by TT to confirm the order
- Balance is paid against shipping documents, before or at arrival
- Splits risk between buyer and exporter rather than loading it onto one side
- Common structure exporters accept for a first trial shipment
| Factor | LC | TT | Partial Advance + Balance on Documents |
|---|---|---|---|
| Security for buyer | Highest — bank-guaranteed | Lowest — trust-based | Moderate — balance tied to documents |
| Speed to set up | Slower | Fast | Fast |
| Cost | Bank fees on both ends | Low | Low to moderate |
| Best used when | Large order, no history with exporter | Established, repeat relationship | First trial order with a new exporter |
For a genuine first order, an LC is the safest instrument but the slowest and most expensive to arrange. Pure TT is efficient but asks the buyer to trust an exporter they've never worked with. The middle path — a partial advance TT to confirm the order, with the balance due against shipping documents — is the structure most first-time buyers and Indian exporters land on, because it shares the risk instead of placing it all on one party.
Whichever structure you choose, agree on it in writing before production starts, not after. Payment terms, document sets, and timelines belong in the sourcing brief from day one — it's the detail that determines how smoothly the rest of the order runs.
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