Paying an overseas supplier from India

Import payments are governed differently from personal remittances. They do not touch LRS at all, they have their own documentation, and they carry deadlines that are genuinely enforced. A business that treats an import payment like a wire transfer to a relative finds this out at the wrong moment.

• Advance payment — money first, goods later. Simple for the supplier, and it puts the risk entirely on the importer. Advance remittances above prescribed limits may require a guarantee from the supplier's bank.
• Documentary collection or letter of credit — the bank releases payment against shipping documents. Slower and dearer, and the standard arrangement where the parties do not know each other well.

Where an advance payment is made, the importer must produce evidence of import — normally the Bill of Entry — within the prescribed period. This is the obligation businesses most often miss, because the payment feels finished once it leaves. It is not finished until the import is evidenced to the bank that made the remittance.

Unmatched outward remittances accumulate on a bank's records and generate queries, and eventually reporting. Keeping the Bill of Entry against the remittance reference is unglamorous and saves a great deal of correspondence later.

1. 1The supplier's proforma or commercial invoice.
2. 2The purchase order or contract.
3. 3The Importer Exporter Code.
4. 4The company's PAN and GSTIN.
5. 5The A2 declaration with the appropriate import purpose code.
6. 6Shipping documents, where paying against documents rather than in advance.

• Beneficiary name on the invoice differing from the name on the supplier's bank account — trading name versus registered name is the classic.
• Paying in a currency the supplier's account does not hold, causing a conversion at their bank's rate and a shortfall against the invoice.
• Under-remitting because correspondent charges came out of the transfer. Agree who bears them before the first payment, and put it in the contract.
• No reference on the payment, so the supplier cannot match it and holds the shipment.
• Letting the evidence-of-import deadline pass on an advance payment.

A business importing regularly has a rupee cost that moves with the exchange rate between quoting a customer and paying a supplier. Where margins are thin, that movement matters more than the dealer's markup. Forward contracts fix a rate for a future date and turn an unknown cost into a known one. They are not speculation — they are the opposite of it.