Payment terms in the chemical trade are not arbitrary. They reflect the risk each party is taking, the level of trust built up over time, and the practicalities of international banking. We deal with buyers in a dozen countries and see every combination of terms in play. This post explains the main options honestly, from the seller's and buyer's perspectives, so that buyers coming to us for the first time understand why we propose what we propose, and what they can reasonably expect as the relationship develops.
The risk ladder: a starting point
Every international payment method sits somewhere on a risk continuum. At one end, the seller carries all the risk; at the other, the buyer does. In practice, both parties want to end up somewhere in the middle, and what is "fair" for a first order differs from what is fair after two years of clean trading.
| Payment term | Seller risk | Buyer risk | Typical use |
|---|---|---|---|
| 100% advance TT | Very low | High | Small first orders, new buyers |
| Partial advance TT + balance on BL | Low | Moderate | First/second order with new buyer |
| Irrevocable LC at sight | Low (bank-guaranteed) | Moderate | Large first orders, unfamiliar markets |
| DP (Documents against Payment) | Moderate | Low-moderate | Established relationships, stable markets |
| DA (Documents against Acceptance) | High | Low | Trusted buyers with verified credit |
| Open account (net 30/60/90) | Very high | Very low | Long-term, creditworthy buyers only |
100% advance TT: the seller's comfort, the buyer's risk
A telegraphic transfer paid in full before we ship anything means we have no collection risk. The buyer, however, has paid for goods they have not yet received, relying entirely on our integrity and capacity to deliver. For first orders, especially smaller ones (say, five to ten drums of terpineol or a sample-scale order), 100% advance is what most Indian suppliers ask for, and in our experience most genuine buyers accept it when they have done basic due diligence on the supplier.
If a buyer is uncomfortable with 100% advance on a first order, the reasonable response from our side is to offer a split: 30 to 50% advance to confirm the order and start production, with the balance by TT before the documents are released. This protects both parties partially. It is not a standard bank instrument, so it relies on mutual trust, but it is a common commercial arrangement in the pine chemical trade for quantities up to one 20-foot container.
Letter of Credit at sight: the banker in the middle
A letter of credit (LC) issued by the buyer's bank, irrevocable and payable at sight, means the bank commits to paying us provided we present a compliant set of documents within the LC's validity and terms. It protects the buyer because the bank will not pay against documents that do not match the LC terms (wrong quantity, wrong product description, wrong port, missing documents). It protects us because, if our documents are compliant, the bank pays regardless of whether the buyer has liquidity problems at that moment.
LCs are the standard instrument for larger first orders, particularly where the buyer and seller are in different jurisdictions with limited prior relationship. They cost money on both sides (LC issuance fee, negotiation charges, discrepancy fees if documents have errors) and require careful document preparation. We have extensive experience with LCs for exports of gum rosin and turpentine to buyers in China, Thailand and the US. The key discipline is ensuring that the commercial invoice, packing list, bill of lading, and COA match the LC terms exactly, to the letter. Discrepancies, even trivial ones, generate rejection notices from banks and delay payment.
DP: Documents against Payment
Under DP (also called D/P or cash against documents), we ship the goods and hand the original shipping documents to our bank, which forwards them to the buyer's bank. The buyer's bank releases the documents to the buyer only against payment. The buyer cannot take delivery of the goods without the original bill of lading, so they must pay before they can access the cargo.
DP is cheaper and simpler than an LC. The bank acts as an intermediary but does not guarantee payment; if the buyer refuses to take up the documents, the goods sit at the destination port and we have a problem. For DP to work well, the buyer should be in a country where the legal system respects document-of-title conventions, and the product should be liquid enough to be sold to another buyer at the destination if the original buyer defaults. Pine chemicals often meet that test; rosin, turpentine and pine oil have an active spot market in most major chemical trading centres.
DA and open account: for established relationships
Documents against Acceptance (DA) and open account terms mean we release documents (and therefore the goods) before receiving payment, relying on the buyer's promise to pay at a future date. DA typically involves the buyer "accepting" a bill of exchange (a formal written payment promise) that matures at a fixed date, say 30 or 60 days from shipment. Open account is simply an invoice with payment terms, like any domestic trade.
We offer DA to buyers we have traded with cleanly for at least several shipments, where we know their business and their bank. Open account is reserved for buyers with whom we have a well-established relationship and for whom the transaction size does not create unacceptable exposure. Any buyer asking for DA or open account on a first inquiry should expect us to decline politely and suggest we start with advance payment or an LC.
What is realistic to expect?
First order: 100% advance TT or a partial advance plus LC. Second and third orders: if everything went smoothly, we will discuss a split-advance arrangement or move to DP. After six to twelve months of clean trade: we can talk about more flexible terms. This is not unusual. It is how chemical trading relationships have worked for decades, and it reflects genuine commercial logic from both sides.
If you are ready to start a conversation about payment terms on a specific enquiry, write to us at info@shadeshinepine.com or contact Yash Agarwal on +91 96965 09933. We are straightforward about what we need and equally straightforward about what we can offer as trust develops.
