How Indian Importers Pay Overseas Suppliers: TT, LC, Open Account, Supplier’s Credit & More
Learn TT, LC, DP/DA, open account, and supplier’s credit for import payments in India, plus FEMA, IDPMS, and compliance basics.
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Let's start with an example, Imagine this - An Indian importer in Delhi finalises a USD 80,000 deal for machine parts.The supplier insists on full advance TT, the importer’s bank suggests a Letter of Credit (LC).
If he pays 100% in advance via TT and the shipment gets delayed or never leaves the port, his working capital is stuck and legal recovery becomes a nightmare.
If he uses an LC without understanding documentation, a single discrepancy in the Bill of Lading or invoice can delay payment and attract heavy bank charges.
Choosing the wrong import payment terms can:
- Block your cash for months.
- Increase bank and FX costs.
- Expose you to fraud and shipment risk.
This guide breaks down how Indian importers actually pay overseas suppliers - from TT payments and LCs to open account and supplier’s credit, with a clear India-specific view of FEMA, IDPMS and RBI guidelines.
Basics of Remittance & FEMA Rules for Import Payments
In simple terms, remittance is money you send from India to an overseas party.
For importers, "remittance" or "foreign remittance" means paying an overseas supplier for goods or services, not sending money to family abroad.
If you are new to import compliance, start with the basics of IEC and AD Code before you send any overseas payment.
Liberalised Remittance Scheme vs business payments
The Liberalised Remittance Scheme (LRS) is mainly for individuals - residents can remit up to a prescribed annual limit for purposes like travel, education or overseas investments.
For proper business import payments, your transactions fall under:
- Current account transactions regulated by FEMA and RBI.
- Import of goods and services covered by the Master Direction - Import of Goods and Services.
Here, the focus is on:
- Correct purpose code selection.
- Routing through an Authorised Dealer (AD) Category-I bank.
- Providing evidence of import (Bill of Entry, invoices, etc.).
High-level FEMA rules for import payments
Under the Master Direction, RBI allows imports subject to conditions laid down under FEMA and the Foreign Trade Policy.
Key points include:
- Imports must be routed through AD Category-I banks, who check the transaction and documents.
- Banks follow normal banking procedures, UCPDC, KYC and AML checks while opening LCs or sending TT.
- Earlier, import payments generally had to be settled within 6 months, under the new EXIM framework, timelines are linked more closely to contractual terms and sector-specific rules (your bank will still monitor overdue bills).
IDPMS, Bill of Entry and "evidence of import"
The Import Data Processing and Monitoring System (IDPMS) is RBI’s system to track all import payments from India.
- Customs sends Bill of Entry (BoE) data to IDPMS.
- Your AD bank uploads or fetches BoE details and matches them with the Outward Remittance Message (ORM) for each import payment.
- Once matched, the BoE gets "knocked off" - this is your evidence of import.
Hard copies of BoE are no longer required for EDI ports, since BoE data is available in IDPMS and can be matched electronically with your remittance.
Failing to close entries in IDPMS can result in:
- Queries from your bank.
- Difficulty in future remittances.
- Potential FEMA non-compliance.
If you want to understand how import payment records get matched with customs data, read our guide on "EDPMS & IDPMS: Complete Guide".
Overview of Import Payment Methods: From Advance to Open Account
Indian importers typically use a spectrum of methods, from safest for the exporter (advance) to safest for the importer (open account):
- Advance payment / cash in advance
- TT / bank wire transfer (before or after shipment)
- Letter of Credit (LC)
- Documentary collection:
- DP / CAD – Documents Against Payment
- DA – Documents Against Acceptance
- Open account payment terms (30/60/90 days)
- Supplier’s credit and buyer’s credit (trade credit)
Who bears the risk?
TT / Wire Transfer for Import Payments
TT payment full form & meaning
TT stands for Telegraphic Transfer - historically a telex-based instruction, now essentially a SWIFT-based international wire transfer.
When Indian importers use TT payments
Indian importers typically use TT payments when:
- Order value is small to mid-sized.
- Supplier is on a marketplace or has some track record.
- Shipment is urgent and an LC would cause delays.
TT payment terms may look like:
- 30% advance TT + 70% against documents.
- 100% TT after shipment and receipt of scanned documents.
TT before shipment vs after shipment
- TT before shipment (advance):
- Pros: Supplier ships faster, may give better price.
- Cons: High risk for importer - if goods are delayed or not shipped, recovery is difficult.
- TT after shipment:
- Pros: Importer sees at least shipment evidence (BL, AWB, tracking) before paying.
- Cons: Exporter carries more risk and may charge higher prices or shorten credit.
Step-by-step TT process from India
- Get supplier’s bank details:
- Beneficiary name, address.
- Bank name, branch, account number.
- SWIFT/BIC and intermediary bank details, if any.
- Approach your AD bank:
- Fill out remittance application and FEMA declaration.
- Select correct purpose code for imports (e.g., import of goods, services, software).
- Bank checks & FX conversion:
- Bank verifies KYC, sanctions list and documents.
- Converts INR to foreign currency at its card rate (often above mid-market rate).
- SWIFT / international wire transfer:
- Bank sends TT via SWIFT, funds pass through correspondent banks.
- Supplier receives credit in 1-3 working days, depending on corridor.
- IDPMS & evidence of import:
- Later, BoE details are matched with the Outward Remittance Message in IDPMS to close the entry.
Pros and cons of TT payments
Pros:
- Fast and simple to execute.
- Lower documentation burden compared to LC.
- Flexible for part payments and smaller orders.
Cons:
- Advance TT exposes importer to shipment and quality risk.
- FX margin and correspondent bank "lifting fees" can be high.
- No built-in bank guarantee for either side.
TT sits in the middle of the spectrum - safer than open account for the exporter, but less structured than LC or DP/DA.
Letter of Credit (LC) for Imports
What is letter of credit?
A Letter of Credit is a bank’s conditional payment guarantee to the exporter.
"If the exporter presents the exact documents mentioned in the LC, the bank will pay - even if the buyer later defaults."
Key parties:
- Importer (applicant).
- Exporter (beneficiary).
- Issuing bank (importer’s bank).
- Advising / confirming bank (exporter-side bank).
Letter of credit process - step by step
- Sales contract
- Buyer and seller agree to use LC, define terms (Incoterms, documents, shipment dates).
- LC application
- Importer applies to their AD bank - bank checks credit limit and may block margin.
- LC issuance and advising
- Issuing bank issues LC via SWIFT, advising bank notifies exporter.
- Shipment and document presentation
- Exporter ships goods and presents documents (invoice, BL/AWB, packing list, insurance, etc.).
- Document checking
- Banks verify compliance with LC terms under UCPDC.
- Any discrepancy can lead to delays, extra charges or refusal.
- Payment and document release
- If compliant, bank pays exporter (sight LC) or accepts and pays on due date (usance LC).
- Importer gets documents to clear goods and BoE gets filed and later linked in IDPMS.
Types of letter of credit relevant for Indian importers
The main practical ones are:
- Sight LC - payment immediately on document acceptance.
- Usance (deferred) LC - payment after a credit period (30/60/90 days).
- Confirmed LC - another bank adds its guarantee, used for high-risk countries.
- Unconfirmed LC - only issuing bank’s commitment.
- Transferable / revolving LC - for repeat or back-to-back trade structures.
Risks and costs in LCs
- Bank charges: LC opening, amendment, negotiation, confirmation and discrepancy fees can be significant.
- Documentation risk: Even minor errors (wrong BL date, inconsistent description) can create discrepancies and delay payment.
- Complexity: Requires close coordination between buyer, seller, bank and freight forwarder.
Documentary Collection: DP and DA
What is documentary collection?
In documentary collection, the exporter ships goods and instructs their bank to release documents to the importer’s bank against a specific condition.
Two main types:
- DP / CAD - Documents Against Payment:
- Importer gets documents only after paying the bill.
- DA - Documents Against Acceptance:
- Importer accepts a time draft (promise to pay later) and receives documents immediately, payment happens on due date.
Where Indian importers use DP/DA
DP/DA is common when:
- Buyer and seller have medium-level trust.
- LC is too costly or complex.
- Both parties want some structure, but without full bank guarantee.
Pros and cons vs LC and TT
Pros:
- Lower bank charges than LC.
- Less documentation complexity.
Cons:
- Bank doesn’t guarantee payment like an LC, it only handles documents.
- Under DA, exporter carries significant credit risk until due date.
Open Account Terms & Consignment for Imports
Open account payment terms & credit periods
Under open account payment terms, the exporter ships goods and then raises an invoice payable after 30/60/90 days or more. This is the most comfortable arrangement for importers but riskiest for exporters.
Consignment is similar, except the exporter retains ownership until goods are sold, importer pays later based on sales.
When open account and consignment are used
They’re typically used when:
- There’s a long-term trusted relationship.
- Importer has strong bargaining power or is a large buyer.
- Group companies trade with each other.
Risks for exporter and importer
- Exporter: Non-payment risk after shipment.
- Importer: Less immediate payment risk, but:
- Over-stocking risk.
- Margin pressure if demand is lower than expected.
Tools like credit insurance, bank guarantees or LC-backed open account can help balance risk without going deep into complex products.
Supplier’s Credit, Buyer’s Credit and Trade Credit for Imports
Trade credit in RBI’s sense
RBI’s trade credit framework covers short-term credits extended for imports of capital and non-capital goods."Trade credits (TC)" include suppliers’ credit and buyers’ credit from recognised overseas lenders.
- Supplier’s credit: Overseas supplier itself offers credit beyond shipment date.
- Buyer’s credit: Importer arranges a loan from an overseas bank/financial institution to pay the supplier at sight, importer repays the lender later.
Trade credit is more useful when the importer already understands sourcing, customs duties and landed cost structure.
Why Indian importers use trade credit
- To get short-term working capital for high-value imports.
- To enjoy longer usance periods than regular usance LC.
- To match payments with their own sales cycle.
High-level regulatory angles
RBI allows trade credit under an automatic route up to specified per-transaction limits and maturities, subject to:
- Eligible goods under the Foreign Trade Policy.
- Max maturity (e.g., up to one year for most non-capital goods, longer for capital goods).
- All-in-cost ceilings - interest plus fees must be within RBI-prescribed limits.
Often, trade credits are backed by:
- Standby LC (SBLC).
- Regular LC issued by the importer’s bank.
How to Choose the Right Import Payment Method
Use this simple 5-question framework before you sign any contract:
- Is this a first-time or repeat supplier?
- What is the order value and margin?
- How critical is on-time delivery (spares vs novelty items)?
- How strong is my cash-flow position?
- What are the country and counterparty risk levels?
Typical scenarios
- First order, high value, new supplier = LC or DP with partial advance.
- Small test order, known marketplace supplier = TT after shipment.
- Long-term, trusted supplier = Open account or supplier’s credit via trade credit framework.
FAQs
Frequently Asked Questions
For a first-time, high-value transaction, an LC (sight or usance) is usually safest because the bank guarantees payment based on compliant documents. You can combine LC with a small advance if needed but avoid 100% advance TT for unknown counterparties.
LRS is designed for individual remittances, not structured business imports. If you are importing as a company or registered business, you should use a current account and follow FEMA current account transaction rules via an AD bank, not route trade payments through your personal LRS quota.
If documents don’t match LC terms exactly, banks may:
- Charge discrepancy fees.
- Ask the importer to accept or reject discrepant documents.
- Delay or, in extreme cases, refuse payment.
Good coordination between exporter, freight forwarder and bank is critical to minimise discrepancies.
Earlier, the standard period was around 6 months from shipment, but under the new EXIM guidelines, timelines are aligned with contractual terms and sector-specific rules, still subject to RBI directions and bank monitoring. If payments are delayed, you may need bank approval or regularisation to stay compliant.
IDPMS (Import Data Processing and Monitoring System) links your BoE with your outward remittances to ensure every foreign payment is backed by a genuine import. You close open entries by ensuring your AD bank has the correct BoE number, date and port code and by matching each BoE with its corresponding ORM in the system.
Consider supplier’s credit or buyer’s credit when:
- Order values are high and you need longer usance periods.
- You want to match repayments with your sales cycle.
- You are comfortable with extra documentation and interest cost under RBI’s trade credit framework.
For small or medium orders, a simple LC or TT may be more cost-effective and easier to manage.