Terms ranked by your exposure
- Advance payment. Money before goods. No risk to you, maximum risk to the buyer — which is why few established buyers accept it.
- Letter of credit. A bank undertakes to pay against documents that comply exactly with the LC terms. Strong protection, but the protection lives in the documents: a discrepancy can cost you the guarantee.
- Documents against payment (DP). The buyer gets the documents — and therefore the goods — only on paying. Reasonable protection, since without the Bill of Lading they cannot collect the cargo.
- Documents against acceptance (DA). The buyer gets the documents on accepting a bill of exchange, and pays later. You have given up the goods before being paid.
- Open account. Goods and documents go, payment follows in 30, 60, 90 or 120 days. Maximum risk to you, and increasingly what buyers expect.
What each means for chasing
The terms should decide your follow-up schedule, not habit:
- Advance: nothing ships until the money is in. The chase happens before departure.
- LC: the pressure is on document accuracy and presentation deadlines, not on the buyer.
- DP: the buyer is motivated by their own cargo sitting at the port. A reminder before arrival is usually enough.
- DA and open account: this is where systematic chasing earns its keep. Start before the due date, not after.
Whatever the terms, the realisation clock under FEMA keeps running from the date of export. Generous credit to a buyer does not extend your obligation to bring the money home.
Matching terms to the buyer
A buyer who has paid on time for three years is a different risk from a new contact in an unfamiliar market. Keep a record of how long each buyer actually takes to pay — not how long they promise — and let that history inform the terms you offer next time.