Import & Export
How Indian Importers Pay Overseas Suppliers: TT, LC, DA/DP and Open Account
Advance TT, LC, documentary collections or open account? How Indian importers actually pay overseas suppliers — and how to choose by cost, speed and risk.
The short answer
Indian importers pay overseas suppliers in five main ways: advance bank transfer (TT), letter of credit (LC), documentary collections (DA/DP), and open account. Advance TT is cheapest and fastest but offers no protection. An LC costs more and takes longer to set up, but a bank guarantees payment against shipping documents. The right choice depends on three things: how much you trust the supplier, how large the order is, and how time-sensitive the shipment is.
The five ways to pay, explained
- Advance TT (telegraphic transfer): you transfer the full amount before shipment. One bank instruction, no LC machinery, money moves in days. Best for trusted suppliers and small orders.
- Letter of credit (LC): your bank issues a written promise to pay the supplier against compliant documents — invoice, bill of lading, packing list and whatever else the LC specifies. Safest for new suppliers and large orders.
- Documents against payment (DP): the supplier ships, then your bank hands you the shipping documents only after you pay. You cannot take delivery without paying, and the supplier cannot get paid without shipping.
- Documents against acceptance (DA): like DP, but you receive documents by accepting a time draft — a promise to pay, typically 60 to 120 days later. This is supplier credit: you get the goods now, the supplier waits.
- Open account: the supplier ships and you pay later on agreed terms, with no bank intermediation at all. Cheapest to operate, riskiest for the supplier — offered only to proven repeat buyers.
Most importer-supplier relationships travel a ladder over time: advance TT for the first trial order, LC as volumes grow, then DA or open account once both sides have a track record. Knowing where you are on that ladder tells you which instrument to ask for.
Which method fits your situation
| Method | Best for | Relative cost | Relative speed | Who bears the risk |
|---|---|---|---|---|
| Advance TT | Trusted suppliers, small or urgent orders | Lowest — one transfer, no LC charges | Fastest — single bank instruction | You — no protection if goods never ship |
| Letter of credit | New suppliers, large orders | Highest — issuance, advising and negotiation charges | Slowest to set up — LC issue plus document checking | Shared — bank guarantees compliant payment |
| Documents against payment (DP) | Suppliers you know moderately well | Low — collection charges only | Medium — documents move through banks | Supplier ships first, but you cannot take goods without paying |
| Documents against acceptance (DA) | Repeat suppliers extending you credit | Low — collection charges only | Medium, plus your 60–120 day credit period | Supplier waits for payment after you take goods |
| Open account | Long-standing suppliers | Lowest ongoing cost | Fastest repeat flow — no bank steps per shipment | Supplier — paid entirely on your promise |
Two rules of thumb cover most decisions. If losing the advance would hurt your business, do not pay it in advance — use an LC. If the LC charges would eat the margin on a small repeat order with a supplier who has never failed you, pay by TT.
What it actually costs
Three cost layers sit on every supplier payment, whichever method you choose. First, the FX conversion spread — the gap between the mid-market rate and the rate your bank gives you. On large orders this single layer usually exceeds all other charges combined, so comparing quotes across banks matters more than haggling over flat fees.
Second, bank charges: transfer fees on TT payments, and issuance, advising, confirmation and negotiation charges on LCs. LCs are structurally the most expensive instrument because up to four banks can take a fee. Third, the time cost of money — DA and open-account credit look free until you price the working capital your supplier builds into the next quotation.
Ask your bank for an all-in landed cost per method before committing: FX rate applied, every flat fee named, and who pays each correspondent charge. Suppliers quoting in different currencies or on different terms cannot be compared without it.
How long each route takes
Speed has two parts: setup time and transit time. Advance TT has almost no setup — one instruction to your bank — and the fastest transit. Open account is equally fast once the relationship exists, because no bank steps stand between shipment and payment.
LCs are the slowest to start: the application, issuance, advising to the supplier's bank and any amendments each take bank working days, and document checking after shipment adds another round. But LC transit itself is reliable — compliant documents get paid on the LC's terms with no follow-up negotiation. DA/DP sit in the middle: documents physically or electronically move through two banks, which adds days each way versus a pure TT.
For time-critical shipments, start LC paperwork the day you finalise the order, not the day goods are ready. Most first-time LC delays come from sequencing — importers who treat the LC as a shipping-day task instead of an order-day task.
Compliance basics for Indian importers
Every cross-border import payment from India flows through an authorised dealer (AD) bank under FEMA. Before your first payment, make sure your IEC is active and your AD bank relationship is in place — first-time LCs additionally need credit limits and document formats agreed with the bank, which cannot be arranged overnight.
- IEC: your Importer Exporter Code must be active for any import payment or clearance.
- AD bank: all foreign exchange for imports is routed through authorised dealers — your bank files the regulatory entries for each payment.
- Bill of entry: the customs document that evidences goods actually arrived; banks reconcile payments against it, so keep imports and payments in the same entity and paperwork chain.
- LC documentation: LCs live or die on document compliance — invoice, bill of lading, packing list and certificates must match the LC word for word, or payment stalls on discrepancies.
Regulatory details change — for instance around realisation periods, EDPMS/IDPMS monitoring and document matching — so confirm current requirements with your AD bank close to the transaction date rather than relying on general guides alone.
Pay your next supplier in five steps
- Grade the relationship: first order, growing volume, or proven supplier — and pick advance, LC, or credit terms accordingly.
- Get all-in quotes: ask your bank for the FX rate plus every fee for your chosen method before you agree terms with the supplier.
- Set up the instrument: single TT instruction, or LC application with limits, documents and timelines agreed upfront.
- Pay and track: execute the transfer or present compliant documents, and keep the payment trail matched to the shipment paperwork.
- Reconcile and graduate: close the bill of entry loop with your bank, then use a clean track record to negotiate DA or open-account terms next time.
Paying overseas suppliers?
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Frequently asked questions
Should I pay my supplier in advance or open an LC?
Pay in advance when the supplier is trusted and the order is small — it is the cheapest and fastest route. Open an LC when the supplier is new, the order is large, or either side needs a bank's payment promise before goods move.
What is the cheapest way to pay an overseas supplier?
Usually an advance bank transfer (TT), because it carries no LC issuance or negotiation charges. The biggest variable cost is the FX conversion spread, so compare your bank's rate against the mid-market rate before you conclude it is cheap.
What is the safest way to pay a new supplier?
A letter of credit. Your bank promises to pay only against compliant shipping documents, so you do not pay for goods that were never shipped, and the supplier ships knowing payment is secured.
What documents does my bank need for an import payment?
At minimum your IEC, the supplier's invoice and transport documents, plus your import documentation such as the bill of entry when goods arrive. LC payments additionally need the LC and fully compliant document sets presented under it.
Can I buy from my supplier on credit instead of paying upfront?
Yes, on DA (documents against acceptance) or open-account terms — but the supplier takes the waiting risk. Suppliers offer credit to repeat buyers with a track record. New relationships almost always start on advance or LC terms.
How do I reduce the FX cost on supplier payments?
Compare quotes across banks instead of accepting the first rate, consolidate small payments into fewer transfers where cash flow allows, and time non-urgent payments rather than converting at peak volatility.
Who handles the payment — me or my bank?
You, through your authorised dealer bank. All cross-border import payments from India go through AD banks under FEMA, so start the conversation with your bank early — especially for first-time LCs, which need limits and documentation set up in advance.