International payment terms explained: advance, LC, collection and open account

Every international deal has to answer one question: who takes the risk that the other side does not perform? Payment terms are how buyers and sellers share that risk. There is no single best option — the right choice depends on trust, order size, the countries involved and each side's cash flow.

Cash in advance

The buyer pays before the goods are shipped, in full or as a deposit. This is the safest method for the seller and the riskiest for the buyer, who depends entirely on the seller shipping as agreed. It is common for small or first orders; many deals use a partial advance with the balance due against shipping documents.

Letter of credit (LC)

The buyer's bank undertakes to pay the seller when the seller presents documents that comply exactly with the credit's terms. It balances risk for both sides, but it has bank fees and demands precise paperwork — small discrepancies can delay payment. Most letters of credit are governed by the ICC rules known as UCP 600, and they are widely used for larger orders and new relationships.

Documentary collection (D/P and D/A)

The seller's bank sends the shipping documents to the buyer's bank, which releases them to the buyer against payment (documents against payment, D/P) or against acceptance of a bill of exchange to pay later (documents against acceptance, D/A). Banks handle the documents but do not guarantee payment, so it is cheaper than an LC but offers the seller less protection.

Open account

The seller ships the goods and documents first, and the buyer pays later — often 30, 60 or 90 days after invoice. This is the most attractive option for buyers and the riskiest for sellers, so it is usually reserved for established relationships, sometimes supported by trade credit insurance.

Choosing terms: practical points

• Start new relationships with lower-risk terms and relax them as trust grows.
• Match the method to the order value — bank fees matter more on small orders.
• Agree the terms in writing before production, together with the Incoterm.
• Always confirm bank details directly with a known contact before paying — changed bank details sent by email are a common fraud.
• Ask your bank about the options, costs and documents available in your market.

This article is general information, not financial or legal advice. For a specific transaction, speak to your bank or a trade-finance adviser. When you post a buy requirement or a sell offer on Go2World Business, stating your preferred payment terms saves time and attracts partners who can work with them.