Payment Terms in B2B Hardware Manufacturing: T/T, L/C and What to Expect

A hardware manufacturing order is not a purchase from a shelf — it is a production commitment. From the moment a buyer confirms a Proforma Invoice (PI), the manufacturer begins procuring brass billets, iron sheet, aluminium extrusion, and scheduling machine time. Polish, plating, and packaging consumables are ordered against the SKU mix. That working capital has to come from somewhere, and on a custom order it cannot be redirected to another buyer if a payment falls through mid-production.

This is why payment terms are agreed in writing, on the PI, before production starts. For both buyer and manufacturer, ambiguity at this stage is the single largest source of disputes — much more so than quality or freight, which are governed by inspection reports and Bills of Lading.

The default arrangement on most Indian hardware export contracts reads: 50% T/T advance against PI; 50% balance against scan copies of B/L, commercial invoice, packing list and pre-shipment inspection report. The first tranche finances raw material procurement and production. The second is released only after the buyer has reviewed evidence that the goods exist, have been inspected, and are about to be dispatched.

This split is favoured because it keeps both sides exposed to roughly equivalent risk at every stage. The manufacturer is not producing on zero working capital, and the buyer is not paying for goods that have not been physically made and inspected.

Variants exist. Repeat buyers — typically those who have completed three to five clean orders with the same manufacturer — often graduate to 30/70 terms (30% advance, 70% against shipping documents). Trial orders and first-time small samples sometimes move on 100% advance, simply because the bank charges on splitting USD 400 of sample value across two transfers exceed the protective value of doing so.

T/T — telegraphic transfer, also known as a SWIFT wire transfer — is the dominant payment method for B2B hardware orders below USD 25,000–30,000. The buyer initiates the transfer from their bank to the manufacturer's exporter bank account in India, quoting the PI number and the manufacturer's IFSC and SWIFT details.

Funds typically settle in 1–3 working days for transfers from the UK, EU and UAE; 2–4 working days from Canada and the US; and 3–5 working days from Australia and Africa, depending on the corresponding bank chain. The manufacturer receives a Foreign Inward Remittance Advice (FIRA) from their bank, which becomes the record of receipt on the Indian side and which the buyer can request a copy of for their own files.

T/T is fast, low-cost, and well understood. Its limitation is that the bank is not adjudicating the underlying trade — it simply moves money. The contractual protection comes from the PI, the inspection report, and the shipping documents.

A Letter of Credit is a guarantee from the buyer's bank to the seller's bank that payment will be released against a defined set of documents, presented within a defined window. The most common variant in hardware trade is an irrevocable L/C at sight, payable against shipping documents — meaning the manufacturer is paid as soon as conforming documents are presented to the negotiating bank.

L/Cs introduce a layer of independent verification. The bank checks documents against the L/C terms; if anything is inconsistent — wrong port of loading, wrong description of goods, late shipment date — the L/C may be dishonoured. This discipline is valuable on larger orders, but it also means both sides need to draft the L/C terms carefully.

Indicative bank costs in 2025 for a documentary L/C run around 0.75–1.5% of the L/C value on the issuing side, with smaller advising and negotiation fees on the beneficiary side. On a USD 8,000 order the total bank cost can equal or exceed the buyer's saving from documentary protection; on a USD 50,000 order it is well-spent insurance.

Some buyers — particularly first-time importers from marketplaces — ask about escrow. Escrow is a third-party account that holds the buyer's funds until a defined release condition (typically shipment and inspection) is met. In practice, escrow is uncommon in direct manufacturer-to-buyer hardware trade. Trade Assurance on larger sourcing platforms is the closest equivalent, but it carries platform fees and reduces both sides' pricing flexibility.

Most established Indian manufacturers prefer either T/T with a milestone split or an L/C, because both produce documentary records on the Indian regulatory side (FEMA, RBI export reporting) that escrow platforms do not. If a buyer requires escrow, expect it to be reflected in pricing.

Payment terms do not exist in isolation — they sit inside a documentary chain that begins at PI and ends with the Bill of Lading. Every payment milestone should be tied to a document that the other side can verify.

The cheapest way to avoid a payment dispute is twenty minutes of verification before the first wire goes out. The Indian regulatory infrastructure makes this unusually straightforward — every legitimate exporter is registered on multiple public databases.

Indian hardware exporters typically quote in USD, with EUR and GBP available for European buyers. The currency is agreed on the PI and does not change after confirmation. Buyers paying in their domestic currency convert at their bank's spot rate at the moment of remittance — small variations in conversion mean the credited USD amount can be USD 5–25 off the invoice on a USD 10,000 transfer.

Bank intermediary charges typically deduct USD 25–50 from the credited amount when SHA (shared charges) is selected. On larger orders, opting for OUR (sender pays all charges) keeps the full invoice amount intact and avoids reconciliation work on the final 50% payment, where any shortfall would otherwise delay dispatch.