Payment terms decide when and how a buyer pays a supplier, and they balance risk between the two sides. Getting terms right protects your cash flow and builds trust. This guide explains the common B2B payment terms used in India and when each one fits.
In B2B trade, the buyer and supplier rarely exchange goods and money at the same instant, so payment terms decide who carries the risk in between. A supplier who ships before payment risks not being paid, while a buyer who pays before delivery risks not receiving the goods. Terms are how the two sides share that risk based on trust, order size, and relationship history. Choosing the wrong terms can stall your cash flow or expose you to loss, so treat payment terms as a core part of every deal, not an afterthought agreed casually at the end.
Full advance means the buyer pays the entire amount before the supplier dispatches. It fully protects the supplier and is common for a first order with a new buyer, custom-made goods, or small transactions. The downside is that it puts all the risk on the buyer, so many buyers resist paying full advance to an unfamiliar supplier. As a supplier, asking for advance on early orders is reasonable, but insisting on it forever can cost you buyers who expect more balanced terms once a relationship is established and trust has been earned on both sides.
This is the most common arrangement in Indian B2B trade for new relationships. The buyer pays a portion upfront, often a share of the order value, and the balance when the goods are dispatched, usually against proof of shipment or documents. It splits the risk fairly: the supplier has some money committed before producing or shipping, and the buyer pays the rest only when the goods actually move. This middle path lets two businesses trade before they fully trust each other, which is why it is the default starting point for most first orders.
Credit terms let the buyer receive goods now and pay later, commonly within 15, 30, or 45 days of invoice or delivery. Established relationships and regular buyers usually expect some credit, and offering it can win larger, repeat orders. But credit ties up your working capital and carries the risk of delayed or unpaid dues, so set clear credit limits per buyer, track receivables closely, and follow up promptly on overdue amounts. Under MSME rules, registered small suppliers have protection on delayed payments, so know your rights while still managing credit carefully to protect your cash.
For large orders, especially with distant or new buyers, a letter of credit, or LC, adds a bank's assurance. The buyer's bank commits to pay the supplier once agreed documents proving shipment are presented, which protects both sides. LCs are common in export and high-value domestic deals but involve bank charges and paperwork, so they suit big orders rather than routine ones. A bank guarantee works similarly as a backup promise of payment. These instruments cost money and effort, so use them when the order size justifies the added security and process.
Match your terms to the risk. For a new buyer or a custom order, lean toward advance or part advance. As trust grows through delivered orders and clean payments, you can extend credit to keep good buyers loyal. Always put terms in writing in your quotation and invoice so there is no dispute later, and keep a party ledger per buyer to track dues. Reserve LCs for large deals where the security is worth the cost. Sensible, written payment terms protect your cash flow while still letting you build the relationships that bring repeat business.
Post your requirement free and get quotes from verified Indian suppliers. Run the whole deal, from enquiry to payment, with the free IndiaCRM app.
Post a requirement →