How to manage export payment risk and get paid reliably

Payment risk in export is higher than in domestic trade because your legal recourse if a buyer defaults is complicated by jurisdiction, currency, and distance. Getting this right is not optional — a single large payment default can damage a small exporter's cash flow for a year.

Letters of Credit (LC) are the gold standard for payment security. An LC is a commitment from the buyer's bank to pay you, provided you present the correct shipping documents. The buyer's ability or willingness to pay is irrelevant — the bank pays. For new buyers, large orders, or buyers in high-risk markets, insist on an LC. The buyer may push back; the right response is to offer a small first order on advance payment to build trust, then LC for larger orders.

Advance payment (TT in advance) is the simplest and safest method. It's rarely accepted by established international buyers for first orders, but reasonable to request for very small orders or sample payments. Partial advance (30% TT advance, balance against documents) is a common middle ground.

Documents Against Payment (DP) and Documents Against Acceptance (DA) are less secure. In DP, you release shipping documents only when the buyer pays — reasonable risk. In DA, you release documents against the buyer's acceptance of a bill of exchange — you're extending credit with no bank guarantee. Avoid DA for new buyers and high-value orders.

Credit insurance is available and underused in India. ECGC (Export Credit Guarantee Corporation of India) provides insurance against buyer default and political risk in the buyer's country. For exporters building significant export volume, ECGC coverage converts export risk into a manageable cost. Premiums are typically 0.3–1% of covered invoice value.

Run a basic credit check before extending any credit terms. Your bank, your freight forwarder, and trade associations can help you verify a buyer's standing. Dun & Bradstreet reports are available for international buyers. A buyer who refuses any form of verification is a warning sign.