Payment Terms — Advance vs LC vs Net-30/60/90 Credit

Last reviewed: 2026-05-06

Steel pipe payment terms fall into three tiers: advance payment (100% before dispatch, lowest risk to seller), Letter of Credit (bank-guaranteed, used for large/export orders), and open account credit (Net-30/60/90, extended to approved B2B buyers). First-time buyers default to advance; repeat buyers with three successful orders qualify for 30-45 day credit. LC adds ₹15,000-50,000 in bank charges and 7-14 days to the cycle.

When should I pay advance vs request credit terms?

Advance payment (100% before dispatch) is the default for first-time buyers, small orders (<₹50,000), and mill-direct custom orders. It offers the fastest processing — dispatch within 24 hours of payment confirmation — and lowest supplier risk, which often translates to a 2-3% price discount.

Open account credit (Net-30/45/60/90) is extended after three successful advance orders with reference checks. The supplier verifies your GST registration, trade references, and payment history. Credit terms carry a 1-2% price premium to cover working capital cost and default risk.

What is a Letter of Credit and when is it required?

A Letter of Credit (LC) is a bank guarantee that the supplier will be paid once shipping documents (BL, MTC, invoice) are presented in compliance with LC terms. The buyer's bank issues the LC; the supplier's bank confirms it.

LC is standard for export orders, large public-sector contracts (>₹25 lakhs), and first-time transactions with unknown buyers. It eliminates credit risk for the supplier but adds cost: LC opening charges (0.25-0.5% of value), confirmation charges (0.1-0.3%), and amendment fees.

LC processing adds 7-14 days to order cycle: 3-5 days for buyer bank approval, 2-3 days for supplier bank confirmation, and document review time. Plan accordingly for urgent orders.

How does RP Sales structure credit qualification?

First order: 100% advance. This establishes the business relationship and verifies delivery/logistics compatibility.

Second and third orders: 50% advance, 50% against delivery (CAD — cash against documents). This tests payment reliability.

Fourth order onwards: Net-30/45 credit on approved accounts, subject to annual credit review. Credit limit scales with order history, typically starting at ₹2 lakhs and increasing 50% annually with clean payment record.

Public-sector buyers (PSUs, railways, defence) are eligible for extended Net-60/90 terms with proper purchase orders and departmental guarantees.

Payment terms comparison — risk, cost, and speed

Payment terms comparison — risk, cost, and speed
Term	Typical use	Buyer risk	Supplier risk	Cost impact	Lead time add
100% Advance	First order, <₹50k, custom mill order	High	None	-2% (discount)	None
50/50 Advance + CAD	Second-third order, testing	Medium	Low	Standard	+1-2 days
Net-30/45	Approved B2B accounts	Low	Medium	+1-2%	None
Net-60/90	PSU/public sector only	Lowest	Higher	+2-3%	None
LC at sight	Export, large orders, unknown parties	Low	None	+0.5-1% bank fees	+7-14 days
LC 30/60 days	Import, high-value contracts	Medium	None	+1-1.5% bank fees	+7-14 days

Specifications at a glance

Specifications
Credit qualification orders	3 successful advance/CAD orders
Initial credit limit	₹2 lakhs (scales 50%/year)
LC opening charges	0.25-0.5% of LC value
LC confirmation charges	0.1-0.3% of LC value
GST on steel pipes	18% (HSN 7306) — claimable as ITC
Price premium — Net-30	+1-2% vs advance
Price discount — 100% advance	-2% vs standard

Frequently asked questions

Can I get credit on my first order?

Generally no — first orders require 100% advance or an LC. Credit is extended after three successful transactions demonstrate payment reliability and delivery compatibility.

How much do LC charges cost?

LC opening: 0.25-0.5% of value. Confirmation: 0.1-0.3%. Plus ₹2,000-5,000 in documentation/courier fees. On a ₹10 lakh order, expect ₹4,000-8,000 in total bank charges.

What happens if I delay payment on credit terms?

Grace period of 7 days. Beyond that, 1.5% monthly interest on outstanding, and credit limit suspension until account is current. Repeated delays result in permanent return to advance terms.

Is GST included in the quoted price?

Steel pipe quotations separate GST @ 18% (HSN 7306). This is standard practice in Indian B2B — the buyer claims it as input tax credit. Always confirm "price ex-works" vs "price inclusive of GST".

Can I pay via UPI or NEFT?

NEFT/RTGS is preferred for amounts >₹50,000 (no transaction limits, clean accounting). UPI accepted up to ₹1 lakh/day. Cash not accepted above ₹10,000 per day per GST regulations.