Import and Export Payments: LC vs Open Account, India Rules 2026

A knitwear exporter in Tiruppur ships two containers of T-shirts to a buyer in Manchester on 90-day open account terms. The goods clear UK customs in a few weeks. The money is another story. If it arrives late, or short, or not at all, the shipping bill sits open in the Reserve Bank's export tracking system, and the exporter's bank starts asking questions. Choosing how you get paid is the most important commercial decision in a trade deal after price, and in India the rules for it changed on 1 October 2026.

This guide explains the four standard ways to settle an international sale, what each one really protects you against, and how India's new foreign exchange regulations affect timelines, small-value shipments and unpaid bills. It is written for exporters, importers and the finance people who have to close the paperwork afterwards.

The four ways to get paid, ranked by risk

Every trade payment method is a trade-off between the exporter's risk and the importer's. Whoever moves first carries the exposure.

• Cash in advance. The buyer pays before shipment. Safest for the exporter, riskiest for the importer, who has no goods and no leverage. Common for first orders, small buyers and custom manufacturing.
• Letter of credit (LC). The buyer's bank promises to pay the exporter if the exporter presents documents that exactly match the LC terms. Most LCs worldwide are issued under the ICC's UCP 600 rules. A confirmed LC adds a second bank, often in the exporter's country, which also guarantees payment.
• Documentary collection. The exporter's bank sends shipping documents to the buyer's bank, which releases them only against payment (documents against payment) or against the buyer's signed acceptance of a bill of exchange (documents against acceptance). Banks act as messengers, not guarantors. These are governed by the ICC's URC 522 rules.
• Open account. The exporter ships and invoices, and the buyer pays on agreed terms, often 30 to 90 days. Cheapest and simplest, with all the credit risk on the exporter. Most trade between established partners now runs this way, usually backed by credit insurance or receivables finance.

The bank cost column is deliberately qualitative. LC pricing depends on the issuing bank, the buyer's credit, the country, the tenor and whether you need confirmation, and banks quote it per transaction. The point is the order: LCs cost the most because a bank is taking risk; open account costs the least because nobody but you is.

Letters of credit: what actually goes wrong

LCs are often described as guaranteed payment. They are a guarantee of payment against compliant documents, which is a different thing. Banks examine paper, not goods. A misspelt port name, a late shipment date, an invoice amount that does not match, or a missing certificate can make the presentation discrepant, at which point the issuing bank can refuse to pay or ask the buyer whether to waive the discrepancy. A buyer whose market has moved against them has every incentive to refuse.

The practical protections are dull but effective:

1. Review the draft LC before the buyer's bank issues it. Ask for anything you cannot control, such as a third-party inspection certificate from a named agency, to be removed or loosened.
2. Check the expiry date and place, the latest shipment date and the presentation period against your real production schedule, not your hopeful one.
3. Prepare documents with a checklist built from the LC text, line by line.
4. For new markets or weaker issuing banks, price in confirmation. You are buying protection against the issuing bank and the country, not the buyer.

A letter of credit pays against paperwork. Treat the paperwork like the product.

Documentary collections: the middle path most SMEs overlook

Collections are cheaper than LCs and safer than open account. Under documents against payment, the buyer cannot take the bill of lading, and so cannot claim the goods, until they pay their bank. The weakness is that nobody promises the buyer will pay. If they walk away, you own goods sitting in a foreign port, accruing demurrage. Collections work best with buyers you have dealt with before, in markets where you could resell or re-ship the goods if needed.

Documents against acceptance is closer to open account: the buyer gets the documents by signing a time draft and pays at maturity. It is useful mainly because an accepted bill is easier to discount with a bank than a plain invoice.

Open account and the cost of the wire

Open account is where most cross-border trade has ended up, because it is fast and cheap to administer. The cost you do pay is the bank transfer itself. The G20's benchmark for business payments measures fees plus FX markup on a $20,000 transfer; the global average is about 1.6%, against a target of 1% by end-2027 set by the Financial Stability Board, according to FXC Intelligence's analysis of the latest data. On a $60,000 shipment, that average works out to about $960. Our deeper look at cross-border B2B payment costs explains where that money goes, and our guide to FX risk for small businesses covers the bigger exposure: currency movement during a 90-day credit period.

India's 2026 rules: what changed on 1 October

The RBI notified the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 on 13 January 2026, effective 1 October 2026. According to Lakshmikumaran and Sridharan, they replace the 2015 export regulations, the export and import Master Directions and 167 circulars. The headline changes:

• Realisation period: back to nine months. The period for bringing export proceeds home had been stretched from 9 to 15 months by a November 2025 notification, and the 2026 regulations initially kept 15. A further amendment notified on 22 September 2026 cut it back to nine months from shipment for goods and from the invoice date for services, and from 18 to 12 months for exports invoiced or settled in rupees, as SCC Online reported. Banks can grant extensions under their own policies.
• Import payments follow the contract. The old default of six months from shipment, extendable to three years, is gone. The timeline is now whatever the underlying contract says, with bank-approved extensions.
• Easier set-off. Banks can allow export receivables to be netted against import payables with the same overseas party or its group companies, within the realisation period, and goods can now be set off against services.
• Services need an export declaration. Service exporters must file an export declaration form within 30 days of the end of the invoice month, a new obligation; for software it replaces the SOFTEX form.
• Self write-off removed. The old 5% self write-off (10% for status holders) has gone. Reductions and non-realisation now go through the bank, with justification.
• No formal caution list. In its place, Mondaq's summary notes, an exporter with receivables outstanding more than one year past the due date may export only against full advance payment or a confirmed irrevocable LC.

That last rule links payment method choice directly to compliance. One bad debt left to drift can force every later shipment onto the most expensive terms. For more on the export side, see our companion piece on payment rules for Indian exporters.

EDPMS and IDPMS, explained without the acronyms

EDPMS (Export Data Processing and Monitoring System) and IDPMS (its import twin) are the RBI databases that match every shipping bill or bill of entry against the money that moves. Customs data flows in when goods move; your bank has to record the payment and close the entry. Open entries are the regulator's signal that something is unpaid, unreported or unexplained.

Small traders got real relief in October 2025. Under A.P. (DIR Series) Circular No. 12, entries worth ₹10 lakh or less can be closed on the trader's own declaration that the money was received or paid, including reduced values, and declarations can be filed quarterly in bulk. The circular also told banks to keep charges on these small transactions proportionate and not to levy penal charges for regulatory delays. The 2026 regulations carry the ₹10 lakh route forward. The same October 2025 package extended the window for merchanting trade outlays from four months to six.

Worked example: one exporter, two shipments

A Tiruppur exporter makes two shipments under the 2026 rules.

Shipment A: $60,000 of garments to a UK retailer, dollar-invoiced, shipped on 20 October 2026, on 90-day open account terms.

• Payment is due around 18 January 2027. The regulatory deadline for realisation is nine months from shipment: 20 July 2027.
• At the G20 average cost of 1.6%, the transfer costs roughly $960 in fees and FX markup.
• The buyer pays $55,000 and disputes $5,000 for late delivery. Because the shipping bill is well above ₹10 lakh, the exporter must ask its bank to approve the reduction, with documents showing the dispute and settlement. There is no self write-off any more.
• If the buyer never pays the remaining amount and it stays outstanding past 20 July 2028, a year past the deadline, the exporter could be limited to full-advance or confirmed-LC terms on future shipments.

Shipment B: an $8,000 sample consignment to a new buyer in Dubai, invoiced in rupees and paid in advance.

• Rupee invoicing gives a 12-month realisation window rather than nine.
• At today's exchange rates the bill is under ₹10 lakh, so the exporter can close the EDPMS entry on its own declaration, batched with other small bills in a quarterly filing.

The lesson: the payment method chosen at contract stage decides how much paperwork and risk land on the finance team eight months later.

This is a general explanation of the rules, not legal or tax advice. Authorised dealer banks now apply many provisions through their own published policies, so check with your bank and a qualified adviser for your specific transactions.

Choosing a method: a short decision guide

1. First order with a new buyer, or a buyer in a market with currency controls: advance payment or a confirmed LC.
2. Large ticket, established buyer, but a weak or unfamiliar issuing bank: LC with confirmation.
3. Repeat buyer, goods you could resell elsewhere: documents against payment.
4. Long relationship, strong buyer: open account, ideally with credit insurance or receivables finance, and a calendar alert well before the nine-month deadline.
5. You both buy and sell with the same group: ask your bank about set-off under the new rules before paying both legs through the banking system.

Some exporters are also asking whether stablecoin settlement could replace parts of this chain. For Indian businesses, any such flow still has to fit the FEMA framework and bank reporting, so it is not a way around EDPMS. Our explainer on stablecoin payments for business sets out where it is used today.

What to watch next

• Now through early 2027: bank SOPs. The 2026 regulations push much discretion to authorised dealer banks, which are expected to publish their internal policies on extensions, advances and reductions. Compare them; they will differ.
• December 2026: Swift's address update. Swift deferred its November 2026 structured-address cut-off and promised new timing by December 2026. Poor address data is a growing cause of delayed trade payments. Our ISO 20022 guide covers what to fix.
• 12 June 2027: Swift trade message changes. Swift's deferred SR 2026 release, now scheduled for that date, includes trade and other MT message changes that affect how banks exchange LC and collection messages.
• 20 July 2027: the first nine-month deadline for goods shipped on 20 October 2026, a useful date to check your open EDPMS entries.
• End-2027: the G20 deadline for a 1% average cost on business payments, which on current data will be missed.

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