Payment terms are agreed conditions for the payment of goods or services provided between buyers (importers) and sellers (exporters) across different countries. They define the timing, method, and documentation required for payment. Good payment terms balance the exporter’s need for security with the importer’s desire for flexibility and trust.

In international trade, payment terms are even more crucial because:

• There may be no personal relationship or recourse if things go wrong;
• Laws, banks, and currencies differ in each country;
• Trusted middlemen (like banks, insurers, or customs) often play a key role.

In global trade, several standard methods have emerged. Each offers a different balance of risk and trust for buyer and seller:

1. Advance Payment (Prepayment)

How it works: The buyer pays the full amount (or a large deposit) before goods are shipped.

Risks & Best Use:

• Exporter: Safest - money is received before releasing goods.
• Importer: Riskiest - must trust seller to ship accurately and on time.
• Common for: First deals, high-risk countries, made-to-order products.

2. Open Account

How it works: Goods are shipped and delivered before payment is due, usually 30, 60, or 90 days after invoice (not shipment).

Risks & Best Use:

• Exporter: Riskiest - relies on buyer’s honesty and solvency.
• Importer: Best - still holds money after receipt for a period.
• Common for: Trusted, repeat buyers; intra-company transfers.

3. Documentary Collection (D/P or D/A)

How it works: The seller ships the goods and sends shipping and title documents to the buyer’s bank.

• D/P (Documents Against Payment): Buyer gets shipping documents after paying.
• D/A (Documents Against Acceptance): Buyer accepts a bill of exchange to pay later, then gets documents.

Risks & Best Use:

• Both: Safer than open account, riskier than a letter of credit.
• Good for: Medium-trust relationships, moderate transaction value.

4. Letter of Credit (L/C)

How it works: A bank guarantees payment to the exporter on behalf of the importer, provided all agreed documents (invoice, bill of lading, certificate of origin, etc.) are presented.

Risks & Best Use:

• Exporter: Secure if documents are correct.
• Importer: High costs, but ensures goods are shipped as contracted.
• Standard for: New relationships, large orders, countries with weaker legal systems.

5. Consignment

How it works: The supplier sends goods to the importer, but ownership remains with the exporter until the goods are sold. Payment is made as goods are sold to third parties.

Risks & Best Use:

• Exporter: Very risky - depends on importer’s sales and honesty.
• Importer: Least risk - cash outlay only after sales realized.
• Rarely used; mainly for perishable items, distribution arrangements.

Picking the right term isn’t just about what you prefer - it’s about finding common ground and protecting both businesses. Here’s what to consider:

1. Relationship & Trust
With repeat buyers, you may relax terms for ease. For first-timers or new countries, start with stricter methods (like L/C or prepayment).

2. Product Value & Customization
Custom, high-value, or perishable goods (e.g., green coffee beans) justify stricter terms to reduce the risk of loss.

3. Country & Currency Risks
Shipping to countries with unstable currency, political unrest, or weak legal systems? Use secure payment tools like a letter of credit.

4. Buyer’s Reputation
Run credit checks, ask for business references, and review their order/payment history.

5. Negotiation Leverage
If you’re a unique supplier, you can insist on safer terms. If you need to win the buyer, you might compromise for more trust-based options.

Global trade always presents risks: non-payment, fraud, delayed remittance, currency jumps, or compliance issues. Here are practical ways to avoid the most common pitfalls:

• Use bank intermediaries: Letters of credit, documentary collections, and escrow services add legal teeth to the payment process.
• Get export credit insurance: This covers non-payment risks due to default or political upheaval. Read more on cargo insurance for importers.
• Request deposits: Even a partial advance payment splits the risk.
• Specify Incoterms and payment terms clearly: Be explicit in contracts and invoices (e.g., “Net 30 days after B/L date, D/P through XYZ Bank”).
• Monitor currency exchange risks: Get quotes in your home currency or use hedging tools if you’re exposed to volatile currencies.
• Do your due diligence: Investigate new buyers and suppliers before big commitments.

Scenario 1:
A Brazilian coffee exporter is shipping to a new buyer in Germany. Since it’s a first order and the value is high, both parties agree to use a Letter of Credit. The seller only ships after the L/C is confirmed - reducing risk for both.

Scenario 2:
A Vietnamese snack producer regularly ships to a well-known Australian distributor. Years of smooth cooperation mean both sides trust each other, so they adopt Open Account terms with 60-day payment, keeping things efficient.

Scenario 3:
A US importer is ordering specialty spices from India for the first time. After negotiating, they both settle on a 30% deposit (advance), and the balance is due against documents (D/P), balancing risk while building trust.

Payment terms are the invisible muscle of any successful import-export business. They reflect the trust between buyer and seller, but they also act as your insurance policy against the risks of trading worldwide. Take your time to understand them - and don’t hesitate to get help if the forms or jargon seem daunting.

If you’re planning to import packaged foods like coffee, chocolate, or snacks, consider working with experienced suppliers who understand the best payment term options and export practices. MR.VIET offers export-ready Vietnamese goods and helps partners navigate payment terms, documentation, and logistics—making your next border crossing that much smoother.