Payment Term

💳 Understanding Payment Terms in Agro Trading

This guide explains the key payment terms used in both domestic and international agro trade. Whether you're a BGP (Business Growth Partner), sales team member, supplier, or buyer, knowing the right payment method for each situation is essential for safe, professional, and scalable transactions.

🇮🇳 Domestic Payment Terms (Within India)

Domestic trade payment terms vary depending on the commodity type, buyer reputation, urgency, and trust level.

Here are the most commonly used domestic methods:

1. Advance Payment

  • The buyer pays a portion (30–100%) of the total value before dispatch.
  • The advance percentage depends on:
    • Risk level
    • Commodity nature
    • Supply urgency

✅ Best for sellers — secures initial commitment and reduces default risk.

2. LR-Based Payment (Lorry Receipt)

  • Goods are dispatched, and the transport document (LR) is submitted to the buyer.
  • Upon LR submission, the buyer releases the payment.

✅ OBAOL Recommended
✅ Balanced and trusted for both parties
✅ Ensures the seller has shipped and the buyer is ready to pay

3. Cash on Delivery (COD)

  • Buyer pays only after receiving the goods.
  • Payment is made post-inspection, typically in trusted relationships.

⚠️ Risk for sellers — if the buyer rejects the goods, it can lead to losses.

4. Credit-Based Payment

  • Buyer receives the goods and pays later (7–60 days).
  • Used in high-trust or long-term partnerships.

⚠️ High risk if no formal agreement is in place.

5. Letter of Credit (LC – Domestic Use)

  • Buyer issues an LC via their bank.
  • Seller receives payment upon fulfilling all LC terms.

✅ Ideal for high-value or first-time transactions
✅ Legal and secure method even in domestic trades

🌍 International Payment Terms

International trades involve bank-backed, legally structured payments. Most are processed through formal banking channels like SWIFT or LC, not wallets or informal methods.

1. Advance Payment (International)

  • Foreign buyer pays full or partial amount before dispatch.
  • Sent via SWIFT, RTGS, IMPS, or other international transfer methods.

✅ Low risk for sellers, especially with small quantities or new buyers

2. Letter of Credit (LC)

  • A legal bank guarantee from the buyer’s bank.
  • Ensures payment is made only when specific trade terms are met.

Typically required:

  • Shipment confirmation
  • Documents: Bill of Lading, Invoice, Packing List, etc.

✅ Highest level of security for large-scale exports

3. Cash Against Documents (CAD)

  • Seller submits shipment documents to buyer’s bank.
  • Buyer pays before accessing documents and clearing the shipment.

Includes:

  • Invoice
  • LR or Bill of Lading
  • Certificate of Origin
  • Packing List

✅ Offers better control for sellers and ensures buyer’s commitment

4. Cash on Delivery (COD – International)

  • Used rarely and only for small parcels via courier/export logistics.
  • Not recommended for bulk or high-value trades.

⚠️ High risk — minimal protection for seller

💡 Why Payment Terms Matter

Selecting the right payment method is not optional — it directly affects trade success.

Benefits of Proper Payment Terms:

✅ Reduces risk of non-payment
✅ Confirms buyer’s seriousness
✅ Maintains trust and clarity
✅ Prevents disputes
✅ Ensures professional trade flow

🛠️ OBAOL Supreme Recommendations

For smooth and secure transactions:

Domestic:

LR-Based Payment

  • Verifies goods are dispatched
  • Involves both parties with clear proof
  • Ideal for repeatable, scalable trade

International:

  • Letter of Credit (LC) – for large deals
  • Advance or CAD – for smaller or mid-size trades

📘 Summary

Knowing and applying the right payment term gives you confidence and credibility in agro trade. It also protects both parties and builds the foundation for long-term business growth.

Learn the terms. Use them wisely. Trade with confidence.

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