Export Payment Terms for Thai Exporters: Advance, Open Account, Collection, L/C and Consignment

Every export sale contains the same awkward gap. The seller wants to be paid before letting go of the goods; the buyer wants to hold the goods before letting go of the money. Neither can simultaneously be satisfied from thousands of kilometres apart, so the payment term is how the two agree on who trusts whom, for how long, and with what backup.

This guide walks through the main export payment terms in order of how much risk each puts on the seller: advance payment, letter of credit, documentary collection, open account and consignment. It explains what each one is structurally, what the seller and buyer are each exposed to, what documents and banks are involved, and how the trade term, the Incoterm, interacts with the choice. It deliberately contains no fee schedules, no statistics about how widely each term is used and no promise about what is typical for any country or industry, because those vary by bank, by buyer and over time. Treat the structure as the stable part and verify every specific with your bank and forwarder.

Two companion articles go deeper on parts of this topic. Our article on letter of credit versus telegraphic transfer compares the two terms head to head, and our seller's guide to letters of credit covers the mechanics of drawing on one. This article is the map that shows where each term sits.

Payment terms are a risk-allocation decision, not an administrative one

It is tempting to treat the payment term as something the finance team fills in after sales has closed the deal. In practice it is part of the price. A buyer offered a more generous term values that term, and a seller who grants it is quietly lending money for as long as the term runs and taking on the risk that the borrower will not repay.

Two kinds of risk run through every term. The first is non-payment risk: the buyer, or the buyer's bank or country, does not pay what is owed, whether from insolvency, dispute, currency restrictions or simple unwillingness. The second is non-performance risk: the seller does not ship, ships the wrong goods or ships late, having already been paid. Terms that favour the seller, such as advance payment, load the second risk onto the buyer. Terms that favour the buyer, such as open account and consignment, load the first onto the seller.

Three questions help locate the right term in any deal. How well do you know this buyer, and what have you actually verified rather than assumed? How much of the order's value could you lose without damage to the business, given your cash position and any financing you depend on? And how reliable is the buyer's country and banking system for moving money out when it is due? A fourth question, which is often forgotten, is what the buyer needs: a buyer that must resell before it can pay will resist advance payment, and insisting on it may lose the sale.

The ladder that follows runs from the seller's safest position to the seller's most exposed. It is a simplification, because real deals mix terms, for instance a deposit in advance and the balance by L/C, but the ladder makes the logic visible.

Advance payment: the seller's safest position

Under advance payment, the buyer pays all or part of the price before the goods ship, usually by bank transfer. When the full price is paid before production or shipment, the seller carries almost no non-payment risk, because the money is already in hand. The risk sits entirely with the buyer, who must trust that the seller will ship the right goods, in the right condition, on time.

In practice, part-advance arrangements are common, with a deposit committing the buyer before production starts and the balance due at some later point: on shipment, against a copy of the bill of lading, or at another agreed milestone. Splitting the payment does not remove risk; it divides it. During the period between the deposit and the balance, the seller has taken on production cost and the buyer has paid for goods it does not hold.

From the seller's side, advance payment has an obvious attraction and a hidden constraint. The attraction is certainty of cash. The constraint is that buyers with alternatives may decline it, especially a buyer dealing with a new, unfamiliar supplier. A seller who insists on full advance payment from a buyer who has other options may simply lose the order. The usual compromise is a deposit large enough to cover the seller's early costs and signal commitment, with the balance tied to an event the seller controls.

From the buyer's side, the safer path is to look for evidence of the seller's reliability, such as a prior trading history, references the buyer has checked itself, or a balance tied to shipping documents. A buyer who has no way to verify the seller may ask for a bank-backed instrument instead.

Advance payment says nothing about documents by itself. The seller still prepares the commercial invoice, packing list and transport document, because customs and the buyer need them. The difference is only that payment does not wait for them.

Open account: shipping first and waiting

Open account is the mirror image. The seller ships the goods and sends the documents directly to the buyer, and the buyer pays on agreed credit terms after receiving them, usually by bank transfer on or before a due date. No bank handles the documents, and no bank promises to pay.

For the buyer, open account is the most comfortable position: it receives and can inspect the goods before paying, and it enjoys a period of credit. For the seller, it is among the most exposed. The goods have left, the documents including the bill of lading are in the buyer's hands or will be, and the seller's only protection is the buyer's willingness and ability to pay, plus whatever legal remedies exist in the buyer's country, which can be slow and costly to pursue abroad.

Because of that exposure, open account is usually built on a prior relationship: repeat orders, a payment history, or credit information the seller has verified rather than assumed. Sellers who do extend it commonly manage the risk through steps outside the payment mechanics: setting a credit limit per buyer, shipping in smaller lots, tying later shipments to payment of earlier ones, or covering the receivable with credit insurance or a financing arrangement from their bank. Whether and on what terms those tools are available is a matter for your bank or insurer; this article does not describe their pricing or terms.

Two cautions apply. The first concerns documents: if the seller sends original bills of lading to the buyer, the seller has handed over control of the cargo, whereas a carrier release arrangement may let the buyer obtain goods without an original at all. Because the shipment's transport document type affects who controls the goods, it should be settled when the term is agreed, not after the cargo has sailed. Our articles on the bill of lading and telex release explain the options. The second concerns disputes: with open account, a buyer unhappy with the goods holds the money, which hands the buyer leverage in any quality or quantity disagreement.

Documentary collection: D/P and D/A

Documentary collection sits between open account and letter of credit. The seller ships the goods and then hands the shipping documents, with a collection instruction, to its own bank, known as the remitting bank. That bank sends them to a bank in the buyer's country, the collecting bank, which presents them to the buyer. What the buyer must do to obtain the documents depends on the instruction.

Under documents against payment (D/P), the collecting bank releases the documents only when the buyer pays. Because the buyer needs the original bill of lading to take delivery in many cases, the seller keeps practical control of the goods until payment. Under documents against acceptance (D/A), the buyer instead accepts a time draft, a written promise to pay at a stated future date, and receives the documents immediately. The buyer can then take the goods and pay later, which is why D/A is closer in risk to open account, with the difference that the seller now holds an accepted, written payment commitment.

The thing to understand is what the banks do not do. In a collection, the banks act as agents handling documents and money; they do not promise to pay if the buyer does not. If the buyer refuses to pay under D/P, or refuses to accept under D/A, or does not pay at maturity, the seller has only what any unpaid seller has: a claim against the buyer, and goods that may now be sitting at a foreign port, accruing charges, with decisions to make about re-routing, resale or return. That is the structural gap between collection and an L/C, and it is why collection tends to suit buyers the seller already has reason to trust, and cargo the seller could realistically redirect.

Collection is also lighter than an L/C in the document scrutiny it involves. The collecting bank follows the instruction as written, but it is not examining the set against a detailed credit in the same way, so the strict compliance risk of an L/C is absent. The practical cost of that is that the seller's protection is thinner.

The collection instruction is where the seller sets out which documents are included, how many originals, whether protest is required on non-payment, and who bears charges. These are details to settle with your bank, and the details of how rules and practices apply vary, so ask your bank for the current form and wording rather than writing your own.

Letter of credit: a bank's promise, bought with exact documents

A letter of credit changes the structure in one important way: the seller is no longer relying only on the buyer. The issuing bank, at the buyer's request, undertakes to pay or accept against a stated set of documents presented in exact compliance with the credit's terms, within its dates. That promise is independent of the sale contract and of whether the buyer is satisfied with the goods. A second bank can add its confirmation, giving the seller a separate undertaking from a bank in or near its own country.

For the seller, the L/C is the strongest of the documentary options because it replaces the buyer's promise with a bank's, but the protection is real only to the extent the documents comply. A shipment that left perfectly and a set of papers with a small mismatch can still end up refused. The bank examines documents, not cargo, so the exporter's effort must go into preparation: reading the draft credit before production, matching every document to it, and watching dates.

For the buyer, the L/C provides assurance that payment will only be made against documents showing shipment within the agreed terms, though it does not prove that the goods are good. A buyer who worries about quality may add an inspection certificate to the required documents, which shifts some of that concern onto paper.

The L/C comes with more process, more bank involvement and more documents than any other term, and it brings bank charges and time that the other terms do not. Whether that cost buys enough security depends on the deal, as discussed in our seller's guide to letters of credit and in the comparison with telegraphic transfer. Sight and usance versions exist, giving immediate or deferred payment, and the structure of confirmation, discrepancies and presentation is covered in the seller's guide, to which this article refers rather than repeating.

One point belongs here because it links payment and freight directly. Under an L/C, the bill of lading is not just a transport document; the credit tells the bank exactly what it must say, including the shipped-on-board date, consignee, ports and freight indication. That makes the transport document a payment document, and it means the exporter's forwarder has to work from the credit's wording. For the failures that typically result, see our article on shipping document mistakes under an L/C.

Consignment: the seller's most exposed position

In a consignment sale, the seller ships goods to a buyer or agent abroad, who holds and sells them to end customers, and pays the seller only when, and to the extent that, the goods are sold. Until then, ownership stays with the seller. There is no purchase at the moment of shipment, so there is no payment due, and the seller carries both the risk that the goods never sell and the risk that proceeds are not remitted.

This is why consignment is rare and usually confined to a narrow set of situations: a trusted distributor, a long relationship, or a seller wishing to enter a market and willing to bear stock risk to do so. The seller's exposure includes goods in a foreign warehouse that it does not physically control, the distributor's honesty and accounting, unsold stock whose return costs money, and legal questions about ownership if the distributor becomes insolvent. A buyer is the least exposed party: it pays after selling, owns no unsold stock and has little to lose.

From a risk-management view, consignment is more like a market-entry investment than a sale. If a seller does use it, the terms are the safeguards: a written agreement stating who owns the goods, who insures them, how often sales reports are delivered, when proceeds fall due, how unsold goods are returned and who bears that cost, plus the seller's audit rights. Whether the goods and the seller's ownership are protected under the destination's law is a legal question that varies by country, so take advice there before shipping.

The freight implications are also distinctive. Goods under consignment still clear customs on import, and the importer of record and declared value matter even though no purchase price has been paid. The seller should ask the destination customs broker how such shipments are treated before dispatch rather than discover the answer at the border. Destination rules change, so check with the importer and a customs broker there.

Reading the ladder, and how Incoterms interact with it

Putting the five terms side by side, the pattern is clear. Moving from advance payment to L/C to documentary collection to open account to consignment, the seller's exposure rises and the buyer's falls. The L/C and collection are the instruments that use documents and banks to hold the middle ground, with the L/C adding a bank's own promise and collection relying on control of the documents alone.

Incoterms interact with this ladder through two channels: who controls the goods and documents at each stage, and who arranges and pays for carriage and insurance. Our article on what Incoterms are explains the framework, and the specific rules are covered in our articles on EXW versus FOB, CIF versus FOB and CIP, among others.

The first channel matters most for collection and L/C. The seller's protection under D/P depends on the seller controlling the original bill of lading until the buyer pays. That works well when the seller is the one who books and controls the main carriage and the bill, as under terms such as CIF or CFR in sea freight, where the seller contracts for the carriage. Under a term such as EXW, where the buyer arranges carriage from the seller's premises, the seller may never see a bill of lading and has little leverage over goods that have already left its hands. Under FOB, the seller delivers on board a vessel the buyer has arranged, and the bill of lading often reaches the seller via the buyer's forwarder; the seller's control of the documents is therefore weaker unless it is agreed explicitly. If you rely on documents for security, check that the trade term actually gives you those documents. See our articles on FOB at Laem Chabang and on CIF versus FOB for how the document flow differs.

For L/C, the trade term also affects whether the credit asks for an insurance document, how freight is indicated on the bill of lading and which party's forwarder issues what. That is why the credit and the sale contract must agree on the trade term, and why mismatched freight indications are a classic discrepancy.

The second channel is risk of loss in transit. Incoterms set when risk of loss passes from seller to buyer, and that is separate from when payment is due. A seller on open account under an FOB-type term may have no risk of damage after delivery on board but still bear all the risk of non-payment. Conversely, a seller on advance payment under a delivered term may be fully paid and still bear transit risk to the destination. Our article on Incoterms and cargo insurance explains how insurance should follow the risk. The practical lesson is never to assume that a payment term transfers transit risk or that a trade term transfers payment risk; they are separate dials, set together.

Air freight changes the document picture, because an air waybill is not a document of title the way an original sea bill of lading is, so the control that D/P relies on is weaker by air. Our article on Incoterms for air freight covers that difference, and any collection arrangement for air cargo should be designed with it in mind.

Choosing a term and writing it down

Choosing is a matter of weighing, not of finding a single right answer. A new buyer in an unfamiliar market with a large order points toward advance payment or an L/C, ideally confirmed if the issuing bank or its country is a worry. A repeat buyer with a clean record and a modest order points toward open account or collection, with credit limits and perhaps credit insurance as backup. A buyer who needs time to resell before paying points toward a usance L/C, D/A or open account, with the seller consciously accepting more exposure and pricing for it. Consignment is a market-entry decision and deserves its own legal and commercial analysis, not a payment-term shortcut.

The choice is also negotiable and changeable. Many exporters start a relationship on a secured term and move to a looser one as trust builds, and equally many tighten terms after a late payment. A deposit with the balance against documents, or an L/C for the first orders followed by collection for later ones, are common bridges. None of these needs to be framed as distrust; they are simply how the two sides price the unknown.

Whatever is chosen, write it down in the sale contract with the same precision as the price. State the payment term and amounts, the documents on which payment depends, who bears bank charges, the dates and what happens if either side is late, the trade term and its named place, and the transport document type and who holds originals. Vague phrases like payment on arrival leave room for exactly the disputes the term was supposed to prevent.

Bring the forwarder into the decision early. A forwarder such as TGF can coordinate booking, documents and customs handoff, and can tell you what transport document and routing the chosen term assumes. If the term needs original bills of lading controlled by the seller, or a credit-compliant bill with specific wording, that has to be in the booking instruction from the start. And at every stage, remember that rules and bank practice change and differ between countries: confirm the current requirements with your bank, your forwarder, and the importer and customs broker at destination.