In export business, production and shipment are visible milestones — but real success begins only when payment is credited to the exporter’s bank account.
Many Indian exporters suffer not due to lack of orders, but due to payment risks in exports such as delayed remittances, bank controls, or buyer-side issues. Choosing the wrong export payment method can lock your cash flow for months.
This article explains export payment methods, their real risks, and especially the hidden realities of letter of credit payment risk, based on practical exporter and banker experience.
you may also like to read: MT103 Swift Message After ISO 20022: Is It Still Valid Payment Proof for Exporters?
Payment risks in exports arise because:
That’s why exporters must evaluate how LC payment works, not just whether an LC exists.
The three most common export payment methods are:
Each carries a different level of payment risk.
Advance payment means the importer pays before shipment.
| Factor | Risk Level |
|---|---|
| Exporter risk | Very Low |
| Buyer risk | High |
| Payment certainty | Very High |
While advance payment removes most payment risks in exports, buyers often resist it, making exporters less competitive.
A Letter of Credit is a bank’s conditional commitment to pay the exporter against compliant documents.
At first glance, LCs appear safe. However, letter of credit payment risk is often misunderstood.
A major myth is that once documents are compliant, LC payment is immediate.
In reality:
Even under a Sight LC, payment happens only after:
👉 This is why LC payment delay is common in practice.
Exporters face LC issuing bank payment delay due to:
In some cases, exporters have experienced sight LC payment time extending from days to several months, especially when LCs are issued by banks in tightly regulated or higher-risk jurisdictions.
Key takeaway:
LC reduces credit risk, but does not eliminate payment delay risk.
(Anonymized exporter experience)
An Indian MSME exporter shipped engineering goods under a Sight LC.
Yet:
Lesson:
Even a Sight LC does not guarantee quick cash inflow.
Goods are shipped first; payment is received later (30–180 days).
| Factor | Risk Level |
|---|---|
| Exporter risk | Very High |
| Buyer comfort | Very High |
| Recovery difficulty | High |
Globally, most export defaults occur under open account payment risk structures.
you may also like to read: Why a Letter of Credit (L/C) is the Backbone of Safe Export-Import Trade — And how I learned to reject bad letter of credit from a suspecious fraudster.
To manage export payment delay, banks offer LC negotiation and discounting.
Under LC negotiation:
However:
LC discounting applies mainly to usance LCs, where:
⚠️ Important clarification:
LC negotiation and discounting solve cash-flow problems, not issuing bank risk — unless the LC is confirmed.
When I was a new exporter, requesting LC negotiation was extremely difficult.
Despite having a valid LC:
Today, if:
banks are far more open to negotiating or discounting LCs.
One thing remains constant:
A good banker relationship still matters.
| Payment Method | Exporter Risk | Payment Speed Certainty | Best Use Case |
|---|---|---|---|
| Advance Payment | Lowest | Very High | New buyers |
| Letter of Credit | Medium | Medium | Moderate risk |
| Open Account | Highest | Low | Trusted buyers |
This table summarizes payment risks in exports clearly.
Indian exporters must comply with export realisation and reporting rules issued by the Reserve Bank of India.
Delayed export proceeds can attract compliance scrutiny and banking restrictions.
Is letter of credit safe for exporters?
LC reduces credit risk but does not guarantee fast payment.
Why does LC payment get delayed?
Due to issuing bank controls, FX rules, and compliance checks.
Who controls LC payment — advising or issuing bank?
The issuing bank controls payment timing.
Is LC negotiation without risk?
No, unless confirmed or without-recourse.
Experienced exporters don’t ask:
“Is LC safe?”
They ask:
“How quickly will this LC convert into cash?”
Advance payment minimizes risk but limits sales.
LC balances risk with timing uncertainty.
Open account increases sales but exposes exporters heavily.
In exports, profit is booked on invoices — survival depends on cash flow.
Tabrez is an Indian entrepreneur and exporter with hands-on experience in building businesses, navigating exports, and dealing with real-world banking and payment challenges. Through BusinessZindagi.com, he shares practical, experience-driven insights on entrepreneurship, MSMEs, exports, and finance to help business owners make smarter, safer decisions.
This article is published for educational and informational purposes only.
Some portions of this article may be AI-assisted and have been reviewed and refined to ensure clarity, accuracy, and relevance for Indian exporters.
BusinessZindagi.com shall not be responsible for any business loss arising from the use of this information.
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