The rate is agreed. The grade is confirmed. The vessel is booked. And then the Indian buyer proposes payment on DA 60 days.
That’s the moment most first-time exporters to India make their biggest mistake – accepting a payment term they don’t fully understand because the deal looks good and they don’t want to lose it.
India is a growing, legitimate, long-term market for scrap. India’s steel sector is expected to need 20 – 30 million tonnes of imported scrap annually by 2030 as domestic scrap generation falls short of what the industry needs. Getting the payment structure right is what separates exporters who build profitable India relationships from those who spend months chasing money they may never recover.
The Five Payment Methods Used in India Scrap Trade
| Payment Method | Risk to Exporter | Risk to Buyer | Used in Scrap Trade? |
|---|---|---|---|
| Advance Payment (TT before shipment) | None | High – goods may not ship | Rare – buyers resist |
| Irrevocable LC at Sight | Very Low | Low – bank manages documents | Standard for first deals |
| Documents against Payment (DP/CAD) | Moderate | Low – pays to get documents | Common in established relationships |
| Documents against Acceptance (DA) | High – buyer gets goods on credit | None | Risky – avoid for new buyers |
| Open Account (OA) | Very High – pure trust | None | Only for long-standing relationships |
The scrap trade runs primarily on LC and DP terms for new relationships. DA and open account terms appear only after a track record of clean transactions has been established – and even then, experienced exporters keep credit limits tight.
The Gold Standard – Irrevocable LC at Sight from a Prime Bank
An Irrevocable Letter of Credit at Sight is the safest payment structure for any new India relationship. The buyer’s bank issues a formal commitment to pay you – the exporter – once you present a compliant set of documents. “At sight” means payment is released immediately upon document verification, not after a 30, 60, or 90-day waiting period.
Three things make an LC genuinely safe:
Irrevocable – the LC cannot be amended or cancelled without your consent. An Indian buyer who gets cold feet after the vessel sails cannot walk away from a properly structured irrevocable LC.
Confirmed – for maximum protection, ask your own bank to add its confirmation to the LC. A confirmed LC means even if the Indian issuing bank defaults or faces problems, your bank is independently committed to pay. This matters when dealing with smaller private banks in India you’ve never heard of.
Prime bank issuer – not every Indian bank offers the same risk profile. Stick to LC issuances from State Bank of India, HDFC Bank, ICICI Bank, Axis Bank, or Kotak Mahindra Bank as a minimum. These institutions have established correspondent banking relationships with banks in the USA, UK, EU, and Australia, which means your bank can verify and process the LC without complications.
What TT Actually Means – And When It’s Safe
TT – Telegraphic Transfer – is a direct bank wire from the buyer to your account. It’s fast, cheap, and simple. It’s also entirely dependent on the buyer’s good faith.
TT before shipment – full payment before the vessel sails – is the safest position for you as an exporter. Some Indian buyers agree to this for small first consignments to establish trust. Most resist it because they’re extending full payment before they’ve received or verified the goods.
TT after shipment is a different calculation. Once your container is on the water, your material has left your control. If the buyer delays, disputes the documents, or simply stops responding – you have a serious problem. Recovering money from a non-paying Indian buyer through legal action from overseas is slow, expensive, and uncertain.
The compromise that many established traders use: 30% TT advance before shipment, 70% TT against copy Bill of Lading. The buyer gets assurance you’ve shipped. You get meaningful upfront payment reducing exposure. Neither party is fully exposed.
DA Terms – What You’re Actually Agreeing To
Documents Against Acceptance is how many Indian buyers prefer to buy, because it gives them essentially a credit line on your goods.
Under DA terms, your documents – including the Bill of Lading that gives physical control of the cargo – are released to the buyer in exchange for their “acceptance” of a bill of exchange committing to pay you in 30, 60, or 90 days. The buyer takes delivery of the goods immediately. You wait.
The risk is obvious. Once documents are released, you have no control over the cargo. If the buyer defaults after 60 days, you’re an unsecured creditor to a company in a foreign jurisdiction. Getting paid requires legal action in India, which takes months or years.
DA 90 days from an Indian buyer you’ve never dealt with before is not a payment term. It’s an unsecured loan of your entire consignment value with a 90-day repayment promise and no collateral.
Don’t do it on first deals. Don’t do it on second deals with buyers who haven’t proven clean payment on LC or DP terms first.
Documents Against Payment – The Middle Ground
DP – Documents Against Payment – is often called Cash Against Documents or CAD. It works like this: your shipping documents are held by the Indian buyer’s bank. The buyer must pay in full to the bank before the documents are released. Without documents, the buyer can’t take customs delivery of the cargo.
It sounds like solid protection. And mostly it is – with one significant exception.
If the buyer refuses to pay and your container sits at an Indian port, demurrage charges start running immediately at ₹3,000 – ₹8,000 per container per day depending on the port. After 21 free days at most ports, the costs mount fast. You can’t clear the cargo yourself from overseas. You need either a local agent with power of attorney to manage it, or you accept a distressed sale to a local buyer at a significant discount.
DP is a solid structure for established relationships where both sides have a track record. For first shipments, LC is still cleaner.
The LC Discrepancy Trap
LC sounds safe. And it is – when documents are clean. The problem is that Indian banks, particularly smaller private banks, are known to find discrepancies in LC documentation as a way of delaying payment.
Common discrepancy claims:
- Description of goods on the invoice doesn’t match exactly word-for-word with the LC
- Vessel name or voyage number differs between documents
- Weight on packing list differs from weight on Bill of Lading by even a few kg
- Date of shipment slightly outside the LC validity window
- Certificate of Origin format not exactly as specified in the LC conditions
Every discrepancy gives the issuing bank grounds to delay payment while “seeking buyer waiver.” In practice, this means the buyer can create a soft hold on your payment indefinitely by refusing to waive discrepancies – while your money sits in limbo and demurrage accrues.
The fix: before you pack a single container, read the LC terms line by line against your standard documentation. Flag every condition that depends on a third party – inspection agencies, shipping lines, port authorities – and confirm you can meet it. If an LC condition is outside your control, ask for an amendment before you ship, not after.
Trusted Indian Banks for LC Issuance
| Bank | Type | LC Reliability | Notes |
|---|---|---|---|
| State Bank of India | Public sector | Very High | Largest Indian bank, global correspondent network |
| HDFC Bank | Private | High | Widely accepted internationally |
| ICICI Bank | Private | High | Strong trade finance division |
| Axis Bank | Private | High | Active in trade finance |
| Kotak Mahindra Bank | Private | Good | Growing trade banking operations |
| Bank of Baroda | Public sector | Good | Large PSU bank, international presence |
Be cautious with LC issuances from small cooperative banks, small urban private banks, or banks you cannot independently verify through your own correspondent banking network. An LC is only as good as the institution behind it.
Verifying the Buyer Before Agreeing Payment Terms
Payment terms and buyer verification go together. Agreeing an LC protects you on the financial side. It doesn’t tell you whether the buyer’s IEC code is valid, whether their import history is clean, or whether their facility is authorised to receive your material under current Indian import regulations.
Run both checks simultaneously – payment structure and buyer legitimacy – before committing to any shipment. The due diligence checklist for verifying Indian scrap buyers covers exactly what to check on the buyer side, including IEC code verification, GSTIN status, and how to read their past import records.
What the Contract Should Specify
An LC protects the financial transaction. The contract protects everything the LC doesn’t cover – grade, weight, rejection policy, dispute resolution, and what happens if material arrives with a contamination issue.
Every scrap export contract to India should specify:
- Grade description matching the LC terms exactly – using Indian grade definitions, not just ISRI codes
- Allowable weight tolerance between Bill of Lading weight and discharge weight
- What happens in case of grade rejection at the mill gate – who bears the cost
- Which weighbridge is the reference for final settlement
- Governing law and dispute resolution jurisdiction
The last point matters more than most exporters realise. Agreeing Indian jurisdiction for disputes means any disagreement gets resolved in Indian courts under Indian law – slow and expensive for a foreign exporter. Try to negotiate for Singapore International Arbitration Centre (SIAC) or London Court of International Arbitration (LCIA) as the dispute resolution forum.
The First Deal Framework
For any new Indian buyer, regardless of how convincing they sound, use this structure on the first deal:
- Irrevocable confirmed LC at sight from a prime Indian bank
- LC confirmed by your own bank for maximum protection
- No DA terms until at least three clean LC transactions are complete
- Contract in English specifying grade, weight tolerance, rejection policy, and SIAC/LCIA arbitration
- PSIC or radiation-free self-declaration sorted before vessel booking – not as an afterthought
From the second deal onwards, you can assess whether DP terms make sense based on the buyer’s payment behaviour. DA terms – if ever – come only after a minimum of five clean transactions and only with buyers whose financial standing you’ve independently verified.
Understanding what the Indian scrap market actually pays for your grade right now – and whether the buyer’s offered price reflects genuine market conditions – starts with checking the live iron scrap rates in India before you enter any price negotiation.
If you’re working through payment structure for a specific first India deal and want a market read before committing, the team at Steel Baba can help you understand current buyer practices in the Indian market without any obligation.
One Number That Puts Everything in Perspective
India’s scrap import market is growing faster than any other in the world right now. The opportunity is real. Getting paid on time is what turns that opportunity into a profitable business rather than an expensive lesson.
An irrevocable confirmed LC at sight costs the buyer roughly 0.5 – 1% of the transaction value in bank charges. On a USD 200,000 consignment that’s USD 1,000 – 2,000. That’s not a deal-breaker for a serious buyer. A buyer who refuses LC terms on a first shipment and insists on DA 60 days is telling you something important about either their creditworthiness or their intentions. Listen to that signal.
Payment terms and banking practices referenced reflect standard international trade frameworks as of February 2026. RBI regulations govern foreign exchange transactions in India – always verify current RBI guidelines with your banking partner before structuring payment terms for Indian export transactions.
