Choosing payment terms with a new buyer is a balance. Too strict, and you lose the order to a competitor. Too relaxed, and one bad buyer can wipe out a year's profit. A simple framework helps you decide consistently rather than case by case under pressure.
Four Factors to Consider
1. Order Size Relative to Your Business
How much could you afford to lose? A small trial order worth a fraction of your monthly turnover is a different risk from an order worth three months of sales.
2. Buyer Verification
How much do you know about the buyer? Have you verified their registration, trade history, and references? See how to qualify a buyer.
3. Country Risk
Are there currency controls, political instability, or banking problems in the buyer's country? Higher country risk calls for stronger protection — such as a confirmed LC.
4. Product Customisation
If the order is customised — the buyer's branding, custom materials, special sizes — you cannot easily resell it if the buyer fails to pay. Higher customisation justifies stronger terms.
A Practical Framework
| Situation | Suggested terms |
|---|---|
| New buyer, small trial order, standard product | Full advance, or deposit plus balance before shipment |
| New buyer, significant order | Deposit plus LC, or irrevocable LC (confirmed if country risk is high) |
| New buyer, highly customised order | Substantial deposit plus balance before shipment or by LC |
| Verified buyer, second or third order | Deposit plus balance against documents, or D/P |
| Established buyer with good payment record | D/P, D/A, or open account — ideally with credit insurance |
These are starting points, not rules. Adjust for your industry, market norms, and the buyer's reputation.
💡 Write your policy down
A written payment terms policy — what terms apply at which stage — makes it easier to say no to risky requests. "Our policy for first orders is 30% deposit and 70% before shipment" is harder to argue with than a personal judgement.
What Competitors Offer
In some markets, buyers are used to open account from established suppliers. As a new supplier, you may need to offer something competitive — but you can do so safely using credit insurance or LCs rather than simply shipping on credit. See export credit insurance.
Relaxing Terms Over Time
Move buyers to better terms step by step, based on evidence:
- Start secure — advance, deposit, or LC.
- After two or three orders paid on time, reduce the deposit or move to documents-based terms.
- After a consistent track record, consider open account for established buyers, ideally insured.
Review terms if payment behaviour changes — late payments are an early warning sign.
Put Terms in Writing
Payment terms must appear clearly in the quotation, proforma invoice, and contract — including amounts, due dates, method, and who pays bank charges. Vague terms like "payment after delivery" lead to disputes. See writing a winning export quotation.
When to Walk Away
If a new buyer insists on open account for a large, customised first order, refuses verification, and will not consider LCs or insurance, the risk is probably not worth it. Politely decline, and offer to work on secure terms if they change their mind.
Frequently Asked Questions
What payment terms should I offer a new buyer?
For new buyers, advance payment, a deposit with balance before shipment, or a letter of credit are common. The right choice depends on order size, buyer verification, country risk, and customisation.
When can I offer open account to a buyer?
Usually after a consistent track record of on-time payments, and ideally with export credit insurance to protect against non-payment.
Is 30% advance and 70% against bill of lading safe?
It is common but carries some risk: after shipment, you rely on the buyer paying the balance to receive the original documents. It is safest with a negotiable bill of lading that you control until payment.
Want Safer Terms on Your Next Deal?
Hexaco Global helps exporters structure quotations, payment terms, and documentation so deals close without putting your cash at risk. Tell us about your buyer — we reply within 24 hours.
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