Frequently Asked Questions

For new EU buyers, AJG recommends: (1) Irrevocable Confirmed Letter of Credit (LC) for orders above USD 100K, (2) Documents against Payment (D/P) for orders of USD 25K-100K, (3) 30% advance + 70% before shipment for orders below USD 25K. Avoid open account with new buyers.

A Letter of Credit (LC) is a bank' written undertaking to pay the Indian exporter a specified amount upon presentation of complying shipping documents within a stipulated time. Process: (1) EU buyer instructs their bank (issuing bank) to open an LC, (2) LC is transmitted via SWIFT MT700 to an Indian advising bank, (3) Indian exporter ships goods and presents documents to the advising/negotiating bank, (4) if documents comply, the bank pays the exporter. The LC is the most secure payment method for India-EU trade.

An unconfirmed LC is a payment undertaking by the issuing bank (EU buyer' bank) only. A confirmed LC adds a payment undertaking from an Indian bank (confirming bank). Confirmation eliminates the risk that the EU issuing bank defaults or the EU country imposes foreign exchange restrictions. For first transactions or buyers from higher-risk countries, always request a confirmed LC.

Standard documents for India-EU LC: (1) Commercial invoice, (2) Packing list, (3) Bill of Lading (negotiable, full set 3/3), (4) Certificate of Origin (from EEPC/FIEO/EIC/Chambers), (5) Packing certificate, (6) Insurance certificate (if CIF), (7) Inspection certificate (if required), (8) Phytosanitary/sanitary certificate (for agro-food). Additional documents vary by product and buyer requirements.

Common discrepancies that cause LC rejection: (1) Late presentation (documents presented after LC expiry or after 21 days of shipment date), (2) Description of goods does not match exactly, (3) Short shipment (quantity less than LC amount), (4) Missing endorsement on B/L, (5) Insurance cover insufficient or incorrect currency, (6) Inconsistency across documents (invoice and packing list amounts differ). Always use an experienced customs house agent to prepare documents.

ECGC (Export Credit Guarantee Corporation of India) is the government-owned export credit insurer. ECGC provides: (1) Buyer exposure limits — ECGC assesses your EU buyer and issues a credit limit, (2) Export credit insurance — if buyer defaults, ECGC pays 60-90% of the loss, (3) Bank guarantees — allowing Indian banks to provide pre/post-shipment credit. AJG recommends ECGC cover for all new EU buyer relationships.

Pre-shipment finance (packing credit) is a loan from an Indian bank to fund the procurement, production, and packaging of goods before shipment. Two types: (1) PCFC (Pre-Shipment Credit in Foreign Currency) — in USD/EUR at SOFR/EURIBOR-based rates, typically lower than INR credit; (2) Packing Credit in INR — at concessional rates for confirmed export orders. Apply with your confirmed purchase order or LC.

Export factoring allows Indian exporters to sell their export invoices (accounts receivable) to a factor at a discount, receiving immediate cash instead of waiting for the EU buyer to pay. Two-factor system: Indian export factor purchases the invoice and bears the buyer credit risk; EU import factor collects payment from the EU buyer. Available via FCI (Factors Chain International) member institutions in India and EU.

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is the global messaging network banks use for international payment instructions and LC communications. Key SWIFT messages in India-EU trade: MT700 (LC issuance), MT710 (LC advice by bank), MT103 (international wire transfer), MT202 (bank-to-bank transfer). All India-EU international payments are routed through SWIFT.

India is promoting INR settlement for bilateral trade. An INR settlement mechanism requires: (1) EU importer opens a special INR Vostro account at an Indian bank, (2) EU importer pays in INR; Indian exporter receives INR. As of 2026, INR settlement with EU is limited — most India-EU trade remains in USD or EUR. RBI has approved INR trade with UAE, Russia, Malaysia, and several other countries.

Supply chain finance (SCF) is a set of financial solutions allowing large EU buyers to extend payment terms while enabling Indian suppliers to receive early payment at a lower cost. Example: EU retailer (Buyer) has 90-day payment terms; SCF platform allows Indian exporter (Supplier) to receive payment in 2-5 days at a small discount — using the EU buyer' credit rating. Programmes offered by Santander, BNP Paribas, HSBC, and others in EU.

Standard EU buyer payment terms by product type: Consumer goods/FMCG: 30-60 day open account (for established buyers). Industrial/engineering: D/P or 30 day usance LC. Pharma/medical devices: D/P or LC, 60-90 day usance. Capital equipment: LC, 90-180 day usance or forfaiting. Always use ECGC cover for open account trade.

Forfaiting is the purchase of an Indian exporter' medium-term export receivables (bills of exchange or promissory notes) by a forfaiter at a fixed discount rate, without recourse to the exporter. Suitable for: capital goods exports with credit periods of 1-7 years. Indian machinery, power equipment, and turnkey project exporters use forfaiting to offer EU buyers extended payment terms while receiving immediate cash.

Indian exporters can hedge EUR/INR exposure using: (1) Forward contracts with Indian banks — lock in the EUR/INR rate for a future delivery date; (2) Cross-currency swap — exchange EUR receivables for INR at a fixed rate; (3) Options — buy the right (not obligation) to exchange at a fixed rate. Under FEMA, Indian exporters can hedge up to 100% of contracted foreign currency exposures with RBI-authorised banks.