When should an Indian exporter choose LC over TT payment from a foreign buyer?

Indian exporters should prefer LC when dealing with new buyers, high-value shipments, or buyers in markets with commercial or political risk, since the issuing bank guarantees payment on document compliance. For established, repeat buyers with a good track record, advance or open-account TT is faster, cheaper, and involves much simpler documentation. The trade-off is between the higher bank cost and longer settlement cycle of LC versus the reduced payment security of TT.

What FEMA/RBI rules apply when an Indian importer remits advance payment by TT to a foreign supplier?

Advance remittances for imports must be routed through an Authorized Dealer bank and, beyond thresholds prescribed by RBI (currently 200,000 USD or equivalent for goods imports), generally require an unconditional, irrevocable bank guarantee or standby LC from the overseas supplier's bank. Importers must also ensure the remittance is backed by genuine trade and that goods are received within the period stipulated under the RBI Master Direction on Import of Goods; non-compliance is treated as a FEMA, 1999 violation.

How do bank charges and documentation compare between LC and TT for Indian traders?

LC involves multiple charges—advising/issuance commission, document handling, negotiation, and possible discrepancy fees—typically making it noticeably more expensive than TT, which usually carries only a SWIFT and remittance fee. Documentation is also heavier under LC, since shipment documents must precisely match the UCP 600 terms, whereas TT requires only the remittance application with basic trade documents. The extra cost and paperwork of LC are generally justified only when bank-backed payment security outweighs the simplicity of TT.

LC vs TT: Payment Methods for Indian Importers & Exporters

Both methods move the same money — only the risk, paperwork, and timing differ. A Letter of Credit (LC) shifts payment risk to a bank, which costs more and adds days of documentation; a Telegraphic Transfer (TT, i.e. a SWIFT wire) is faster, cheaper, and simpler, but the exporter carries the buyer’s credit risk until funds land. For Indian handicraft trades, the choice usually comes down to trust, order size, and how comfortable the seller’s bank in India is with the buyer’s bank abroad.

What a Letter of Credit actually is

An LC is a conditional bank promise. The buyer’s bank (the issuing bank) tells the seller’s bank (the advising or confirming bank in India) that it will pay — only if the seller presents documents that strictly match the LC’s terms. Typical documents are the invoice, packing list, transport document (B/L or AWB), and a certificate of origin from a body such as EPCH (Export Promotion Council for Handicrafts).

Three variants matter for handicraft trade:

Sight LC — bank pays the day documents are found compliant.
Usance LC — payment postponed (e.g. 30/60/90 days from B/L). Buyer gets credit; seller takes time-risk.
Confirmed LC — the seller’s Indian bank adds its own guarantee on top of the foreign bank. Insist on this if the buyer’s bank is weak or unfamiliar.

What a Telegraphic Transfer actually is

A TT is a direct bank-to-bank wire via SWIFT. The buyer’s bank debits the buyer and credits the Indian seller’s account the same value date. There is no documentary chain — once the buyer’s bank releases funds, the seller’s Authorised Dealer (AD) bank in India credits the rupee account.

TT usually shows up three ways:

Advance TT — buyer pays before shipment. Maximum security for the exporter, maximum risk for the buyer.
TT on shipment (open invoice) — buyer pays against a copy of the B/L or AWB. Common with repeat buyers in handicraft trade.
TT after delivery — buyer pays 30–60 days after shipment or receipt. The exporter is extending credit.

Risk profile, side by side

Dimension	Letter of Credit	Telegraphic Transfer
Risk to Indian exporter	Low if confirmed and documents are clean	High unless paid in advance
Risk to overseas buyer	Higher (irrevocable, confirmed)	Low for advance; higher for deferred
Document discipline	Strict — every comma matters	Loose — nothing to negotiate
Speed after shipment	3–7 days for scrutiny + payment	Same day once buyer instructs
Bank fees	Multiple — issuance, advising, confirmation, amendments, discrepancies	Single SWIFT/cable charge

Cost and bank charges

LCs are expensive. The buyer’s bank charges an issuance commission (often a % per quarter on LC value), plus advising, plus confirmation commission if the Indian exporter requires it, plus amendment fees when something changes, plus a flat discrepancy fee whenever documents don’t match.

TT is cheap. The buyer’s bank charges a wire fee; the Indian bank takes a small handling charge. No document-checking fee because there are no documents to check.

For a small handicraft shipment — say, a $5,000 sample order of brass lamps — LC minimums and paperwork can easily eat 2–4% of invoice value. The same $5,000 as a TT costs a fraction of that.

FEMA and RBI considerations

FEMA, administered by the Reserve Bank of India, sets two ground rules for cross-border goods trade:

Export proceeds must be received through an AD bank in India in freely convertible foreign currency, within the time window RBI prescribes (commonly nine months — confirm the current deadline with your bank or the RBI’s Master Direction on Export of Goods and Services).
Import payments must also be routed through banking channels. For a TT, the importer uses the relevant RBI purpose code; for an LC, the LC sits in the bank’s trade finance system and feeds into the Import Data Processing and Monitoring System (IDPMS) on the ICEGATE/CBIC platform.

Practical points for handicraft traders:

LC margin. The importer’s Indian bank may ask for a cash margin (10–100% of value, depending on track record and product). That is working capital locked up.
FIRC / FIRA. Once the TT lands, the exporter’s AD bank issues a Foreign Inward Remittance Certificate (FIRC) or, increasingly, a Foreign Inward Remittance Advice (FIRA) — proof of receipt that EPCH, customs, and your auditor will want.
Hedging. Larger or deferred LCs in non-INR currency often need a forward booking to fix the rupee value. Your bank’s treasury desk handles this.

When to use which — a handicraft trader’s rule of thumb

First-time buyer, large order: irrevocable, confirmed LC at sight. Pay the cost, sleep well.
Repeat buyer, small-to-medium order, established relationship: open-invoice TT on shipment is the norm.
Customised or made-to-order goods (e.g. a bespoke wooden mandir): insist on TT advance (30–50%) with the balance on shipment.
Sample order to a small EU/US boutique: TT advance is simplest.
Weak or unfamiliar issuing bank: add confirmation from your own Indian bank, or shift to TT advance.
Cash-flow-constrained Indian importer: TT, because LC margin locks up working capital.

Worked example

An Agra-based brass exporter, Sona Handicrafts, ships a $40,000 order of hand-etched lamps to a German importer.

Option A — Confirmed LC at sight. Sona’s bank confirms the LC issued by the German buyer’s Sparkasse. Margin: 0% (good track record). Sona presents invoice, packing list, B/L, an EPCH-issued certificate of origin, and an inspection certificate. Documents are clean, payment lands in 5 working days. Total bank fees: about ₹35,000 across advising, confirmation, and handling. Sona also books a forward contract to fix the rupee value. Risk: very low.

Option B — 30% advance TT + 70% on shipment. Buyer wires $12,000 upfront; Sona’s bank issues an FIRC. Sona produces and ships. On B/L date, buyer wires the remaining $28,000; Sona’s bank credits within 2 working days. Total bank fees: under ₹10,000. Risk on the second leg: Sona carries it for 2–3 days — acceptable.

The relationship is two years old and the German buyer pays on time, so Sona picks Option B. The fee savings and the absence of an LC margin make Option A unjustified for a repeat customer.

Documentation checklist before you open an LC or accept a TT

Confirm your Importer Exporter Code (IEC) is active on the DGFT portal and matches the entity.
Finalise LC terms in writing: expiry date, latest shipment date, place of presentation, Incoterms® 2022, document list.
For TT, lock the purpose code, value date, and split (advance / balance) on the proforma invoice.
Check BIS requirements for the specific handicraft category (e.g. certain metalware, toys, or food-contact crafts) on the BIS portal.
Keep the EPCH RCMC (Registration-Cum-Membership Certificate) current for easier certificate-of-origin and buyer intros.
After remittance, obtain the FIRC/FIRA from your AD bank and reconcile it against the shipping bill on ICEGATE.
If claiming GST refund (LUT bond or IGST refund), reconcile FIRC/FIRA and shipping bill in the GST portal within the timeline prescribed by CBIC.

For Indian handicraft businesses, GreenFlip India plugs into the wider GreenFlip network (greenflip.org) — verified buyer trust and seller compliance on both sides often make TT the practical default once a relationship exists.

Verify current FEMA realisation timelines, LC margin norms, BIS requirements, and GST/CBIC documentation rules with the RBI, DGFT, BIS, and the relevant issuing authority before transacting.

Bottom line

Use an LC when the order is large, the buyer is new, or the issuing bank is weak — pay the cost and let a bank carry the risk. Use TT for repeat buyers, smaller orders, and made-to-order work where an advance plus balance on shipment mirrors the real production cash flow. In Indian handicraft trade, most long-term relationships settle into TT; the LC is the tool you keep in the box for deals that genuinely need it.