When buyers in the GCC, Southeast Asia, or Europe import stainless steel and duplex products from India, the payment terms agreed with the exporter determine how money flows, what risks each party carries, and how quickly the transaction completes. First-time importers are frequently confused by the terminology. This guide explains the three most common payment methods — Letter of Credit (LC), Telegraphic Transfer (TT), and Documents against Acceptance (DA) — in plain language.
Why Payment Terms Matter in Steel Trade
Steel procurement is not like buying off a digital marketplace. Lead times are 4–16 weeks, order values often run from USD 50,000 to several million, and neither buyer nor seller can fully verify the other's reliability on a first transaction. The payment term is the mechanism that balances risk: the buyer wants to receive and verify the goods before paying; the seller wants to receive payment before releasing the goods. Different payment methods allocate this risk differently.
Option 1 — Letter of Credit (LC)
How It Works
The buyer's bank (issuing bank) issues a Letter of Credit on behalf of the buyer, promising to pay the exporter a specified amount once the exporter presents a defined set of documents (Commercial Invoice, Bill of Lading, Certificate of Origin, Packing List, MTC, etc.) that comply exactly with the LC terms. The exporter submits these documents to their bank (negotiating bank), which forwards them to the issuing bank for verification and payment. Payment is made to the exporter typically within 5–7 banking days of document acceptance.
| Risk to buyer | Low — payment only released when bank confirms compliant documents. Goods should match description. |
| Risk to seller | Low — bank guarantee of payment once compliant documents presented. |
| Cost | Bank charges for LC issuance (buyer's bank) and negotiation (seller's bank) — typically 0.25–0.75% of LC value. |
| Speed | Slower — LC issuance takes 2–5 days; document preparation and checking adds 1–2 weeks. |
| Best for | First-time transactions, large order values (>USD 100,000), long-term project purchases. |
Option 2 — Telegraphic Transfer (TT / Wire Transfer)
How It Works
TT (also called bank wire transfer) is a direct bank-to-bank payment with no bank guarantee mechanism. The most common structures are:
- 30% advance TT + 70% against scan of documents: Buyer pays 30% deposit to secure production; pays the balance when the exporter sends scanned copies of shipping documents before releasing originals. Common for established relationships.
- 100% advance TT: Full payment before production begins. Maximum risk to buyer. Rare except with suppliers with an exceptional track record.
- TT at sight of BL: Payment triggered on receipt of original Bill of Lading. More trust-based than LC but with no bank guarantee.
| Risk to buyer | Moderate to High — depends on structure. Advance TT without LC protection means buyer has paid before goods are produced. |
| Risk to seller | Low — if advance is paid; payment before shipment releases. |
| Cost | Low — only standard wire transfer fees (USD 15–50 per transfer). |
| Speed | Fast — funds transfer in 1–2 banking days; no document checking delay. |
| Best for | Repeat orders with known, trusted suppliers; smaller order values; urgent deliveries where LC lead time is unacceptable. |
Option 3 — Documents against Acceptance (DA)
How It Works
Under DA terms, the exporter ships the goods and submits the shipping documents to their bank with a time draft (bill of exchange) drawn on the buyer. The buyer's bank presents the draft to the buyer. The buyer accepts the draft — agreeing to pay on a future date (typically 30, 60, or 90 days after the Bill of Lading date) — and in exchange receives the shipping documents needed to take customs clearance of the goods. Payment is made on the acceptance date regardless of whether the buyer has sold the goods.
| Risk to buyer | Low — buyer receives and can inspect goods (at least upon arrival) before payment date. |
| Risk to seller | High — goods are shipped and documents released before payment is received. If buyer defaults on the draft, seller has limited recourse. |
| Cost | Low bank charges; but exporter typically prices the credit risk into the goods. |
| Speed | Fast for buyer — gets goods immediately; pays later. |
| Best for | Very established buyer-seller relationships only; buyers with strong credit ratings. Not standard for first-time or one-off transactions. |
Comparison Summary
| Feature | LC | TT (30/70) | DA |
|---|---|---|---|
| Bank guarantee? | Yes (issuing bank) | No | No |
| Buyer pays before shipment? | No (after docs) | Partial (30%) | No |
| Seller risk | Low | Low to Medium | High |
| Buyer risk | Low | Medium | Low |
| Transaction cost | 0.5–1.5% total | Very low | Very low |
| Speed | Slower | Fast | Fast (payment deferred) |
| Recommended for first order? | Yes | Acceptable (30/70) | No |
Incoterms and Their Relationship to Payment
Payment terms and Incoterms are separate but related. Incoterms (FOB, CIF, CFR, EXW, DAP) define who bears cost and risk for freight and insurance; payment terms define when and how money changes hands. The most common combinations for India-GCC steel trade:
- CIF + LC at sight: Most secure for buyer. Seller arranges freight and insurance; payment on presentation of compliant shipping documents.
- FOB + TT 30/70: Buyer arranges freight from Indian port; pays 30% advance and 70% on scan of BL.
- CFR + DA 60 days: Seller arranges freight; buyer accepts draft and pays 60 days after BL date.