Payment Terms When Buying Handicrafts from an Indian Exporter

Oct 10

6 min read

Payment terms are often the last thing agreed and the first thing to cause friction. A buyer wants to pay once the goods are safe. An exporter wants to be paid before the goods leave their control. Most handicraft orders fall somewhere between those two positions.

This guide explains the main payment methods, the ICC rules behind them, and the Indian regulations that shape what your supplier can agree to.

The four main payment methods

1. Advance payment

You pay part or all of the order value before shipment. This is the lowest-risk option for the exporter, and the highest-risk for you. In practice, most handicraft orders combine a deposit at order confirmation with a balance paid before or at shipment.

Under India's foreign exchange rules, the exporter must route an export advance, and any later export receipts for that order, through the same Indian bank (Authorised Dealer). Advances are tracked in the Reserve Bank of India's Export Data Processing and Monitoring System (EDPMS) (FEMA Export and Import Regulations, 2026).

2. Documents against payment (D/P) and documents against acceptance (D/A)

These are documentary collections, and banks handle them under the ICC Uniform Rules for Collections, URC 522 (ICC: URC 522). The steps are:

The exporter ships the goods and hands the shipping documents to their bank.
The exporter's bank sends the documents to your bank with a collection instruction.
D/P: your bank releases the documents only when you pay.
D/A: your bank releases the documents when you accept a bill of exchange, which commits you to pay on a set future date.

The banks act as channels. ICC notes that under URC 522 banks will not examine the documents to look for instructions and have no duty to store or insure the goods. Collections are simpler than a letter of credit, but no bank guarantees payment.

3. Letters of credit (LC)

With a letter of credit, your bank (the issuing bank) opens a credit in the exporter's favour. The exporter is paid when they present documents that strictly match the credit's terms. Under UCP 600, "banks deal with documents, not goods or services" (ICC Academy). A second bank can add its own undertaking as a confirming bank (ICC Academy terminology). LCs are issued subject to the ICC Uniform Customs and Practice for Documentary Credits, UCP 600, which has applied since 1 July 2007 (ICC: UCP 600).

An LC gives the exporter strong security. It also protects you, because payment depends on the agreed documents, such as the bill of lading, invoice, packing list and inspection certificate. The trade-offs are bank fees, paperwork, and the risk that small discrepancies in the documents delay payment. Keep LC conditions realistic and in line with the agreed Incoterm. Our guide to Incoterms 2020 explains how delivery terms and documents fit together.

4. Open account

The exporter ships the goods and sends the documents straight to you, and you pay on an agreed date after shipment or invoice. This option is the best for your cash flow and the riskiest for the exporter. It is usually offered only after a trading history has been built up, and often only when the exporter has credit insurance on the buyer.

Comparison at a glance

Method	Rules	Risk for buyer	Risk for exporter	Typical use
Advance / deposit	Contract terms	Higher	Lowest	Samples, first orders
D/P	ICC URC 522	Moderate	Moderate	Repeat buyers
D/A	ICC URC 522	Lower	Higher	Trusted buyers
Letter of credit	ICC UCP 600	Lower	Low	Larger or first bulk orders
Open account	Contract terms	Lowest	Highest	Long-term partners

Indian rules that shape your supplier's terms

Export proceeds must come home on time

On 1 October 2026, a new framework took effect: the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 (RBI press release). Under Regulation 5, the full export value of goods must be realised and repatriated to India within nine months from the date of shipment. An amendment dated 22 September 2026 set this at nine months, replacing the fifteen months in the original text. The exporter's bank may extend the period if the exporter asks and gives reasons for the delay (FEMA 23(R)/2026-RB).

For you, this means any credit period you ask for has to fit comfortably inside that window.

Why exporters value clean payment records

The same regulations say that an exporter with proceeds unrealised for more than one year past the due date may export only against full advance payment or an irrevocable letter of credit (Regulation 13). This is one reason careful exporters keep their payment records clean, and why some insist on secure terms for new buyers.

EDPMS tracking

Every export is recorded in EDPMS, and the exporter's bank closes or updates the entry when the money arrives (FEMA 23(R)/2026-RB). If you pay late, short-pay or pay from an account in a different name from the buyer on the invoice, you create reconciliation work for your supplier. Pay the exact invoice amount, quote the invoice number and tell your supplier about any bank charges.

ECGC export credit insurance

ECGC Ltd, which is wholly owned by the Government of India, provides export credit insurance to Indian exporters (ECGC brochure). Its cover includes:

Commercial risks: buyer insolvency, and protracted default, meaning the buyer fails to pay within a set period after the due date.
Political risks: for example war, civil disturbance, or government restrictions that block or delay payment.

ECGC does not cover commercial disputes, including quality disputes, unless the exporter obtains a favourable court decree in the buyer's country. It also does not cover exchange rate losses. Under its Shipments Comprehensive Risks policy, cover is 90% of the loss (ECGC SCR policy).

How a typical handicraft order is paid

A common pattern for a first order looks like this:

Paid samples. You pay for samples (and usually courier) in advance. This confirms finish, colour and size before bulk production. See our guide from sample to bulk.
Deposit on order confirmation. A deposit funds raw materials and artisan work over the 30–45 day production period.
Pre-shipment check. You or your inspector approve the goods, often using photos or a third-party inspection.
Balance against documents. You pay the balance either before release of the bill of lading (by telegraphic transfer) or through D/P via the banks.

As trust builds, terms often move towards D/P, D/A or an LC on larger orders, and sometimes towards open account. Agree everything in writing, including the deposit percentage, the balance trigger, the currency, who pays bank charges, and the documents required. Our export documents guide lists what usually comes with a shipment.

This article is general information, not legal or financial advice. Please confirm the details with your bank, customs broker or regulator.

FAQ

Why do Indian exporters usually ask for a deposit?

Handicrafts are made to order, and materials and labour are paid for during production. A deposit covers that cost. Advance receipts are a recognised route under RBI rules, as long as they go through the exporter's bank.

Is D/P safer for me than paying by advance?

For the buyer, yes, in part. You pay only when the documents reach your bank. However, under URC 522 the banks do not check the goods, so pre-shipment inspection still matters.

How long can I take to pay an Indian exporter?

There is no single limit for the buyer. However, the exporter must realise the export value within nine months from shipment unless their bank grants an extension. Credit terms are usually agreed well inside that period.

Does an LC guarantee the goods are perfect?

No. Under UCP 600, banks deal with documents, not goods. Build quality checks into the required documents, for example an inspection certificate.

Working with Kraft Bharat

Kraft Bharat supplies Jaipur blue pottery, Saharanpur wood carving, Sanganeri block-print textiles, resin-and-wood homeware and handmade bags to global buyers. Our MOQs start at around 500 pieces, depending on the product. We work with paid samples, and production lead times are about 30–45 days. We provide full export documentation and can offer custom or private labels. We are happy to discuss payment terms that suit both sides, starting with your first sample order.