LiquidTrust™ is a payments innovation company serving financial institutions, B2B platforms, and SMBs globally.
As we discussed in our previous post, counterparty verification helps confirm who is involved in a transaction. The next question is how and when payment should move.
For a first cross-border transaction between two parties, this can be difficult. The buyer may not want to pay before receiving the agreed goods or services, while the supplier may not want to begin work, provide services, or ship goods without knowing payment is available.
Payment terms help both sides decide how that risk will be shared.
What Payment Terms Decide
Payment terms do more than establish a due date.
- When the buyer must pay
- What the supplier must complete first
- What conditions trigger payment
- Who carries the risk at each stage
- What happens if the transaction changes
Clear terms give both sides the same understanding before money, goods, or services move.
Vague terms can create delays and disputes, particularly when important details are spread across contracts, invoices, emails, and payment instructions.
Five Common Payment Structures
There is no single structure that works for every international transaction. Each option distributes risk differently between the buyer and supplier.
1. Advance Payment
The buyer pays all or part of the amount before the supplier begins work, provides services, or ships goods.
This protects the supplier from nonpayment but requires the buyer to trust that the supplier will deliver the goods or services as agreed.
Advance payment may be requested for custom goods or services, smaller orders, or transactions where the supplier must commit significant resources upfront.
2. Partial Payment
The buyer pays part of the amount upfront and the remainder at an agreed stage, such as completion of a service, shipment, delivery, or acceptance.
This divides the financial commitment between both sides. However, the agreement must clearly define when the remaining amount becomes due.
Terms such as “balance upon delivery” should explain what counts as delivery or completion and how it will be confirmed.
3. Milestone Payment
Payment is divided across defined stages of the transaction.
- A portion when the agreement is signed
- A portion when production or an agreed phase of work is completed
- A portion when goods are shipped or a service milestone is reached
- The remainder after delivery, completion, or acceptance
Milestone payments can work well for manufacturing, professional services, custom orders, and longer projects.
They are most effective when each milestone is objective, documented, and easy to confirm.
4. Open Account
The supplier delivers the goods or services first, and the buyer pays later, often within 30, 60, or 90 days.
Open-account terms support the buyer’s cash flow but place more nonpayment risk on the supplier.
They are generally more appropriate when the parties have an established relationship or when the supplier has other protection against nonpayment.
5. Letter of Credit
A letter of credit is a bank commitment to pay the supplier when the required terms and documents are presented correctly.
It can provide additional assurance for larger or more complex transactions. However, it also involves banking requirements, fees, documentation, and careful compliance with the stated conditions.
The U.S. International Trade Administration provides a broader overview of these and other international payment methods.
How to Choose the Right Terms
Before agreeing on a payment structure, both sides should consider four questions.
How Much Is Each Side Committing?
Consider the payment amount, production costs, inventory, labor, service delivery costs, shipping expenses, and other resources that may be difficult to recover.
What Transaction History Exists?
A first transaction usually carries more uncertainty than a relationship with a documented history of successful orders, completed services, and payments.
What Can Be Confirmed Objectively?
If payment depends on production, shipment, delivery, completion of services, a project milestone, or acceptance, both sides should agree on what evidence will confirm that the condition has been met.
What Happens if Something Changes?
The agreement should address delays, partial delivery or completion, damaged or nonconforming goods, incomplete services, changing requirements, and disputed completion.
The right terms balance the buyer’s need to receive what was promised with the supplier’s need to be paid for the goods or services it provides.
Making Payment Terms Work
Choosing a payment structure is only the beginning. The process used to manage it must match the agreement.
Before the transaction begins:
- Identify the correct buyer, supplier, and payment beneficiary.
- State the amount, currency, and payment schedule.
- Define each payment condition clearly.
- Decide what evidence confirms delivery, completion, or acceptance.
- Document how changes will be approved.
- Establish how concerns or disputes will be raised.
For example, “payment due on delivery” may mean different things depending on whether the transaction involves goods or services.
For goods, a clearer condition might explain whether payment becomes due when the carrier records delivery, when the buyer confirms receipt, or when the buyer completes an agreed inspection.
For services, the condition might instead specify completion of a defined deliverable, approval of a milestone, submission of agreed documentation, or formal acceptance by the buyer.
This level of clarity can take time to organize, especially when the agreement, supporting evidence, approvals, and payment are managed across separate systems.
A stronger transaction process keeps the verified businesses, agreed conditions, supporting evidence, and payment events connected.
Solutions such as Micro Escrow® can help put those terms into practice by holding funds and releasing payment when agreed conditions are met. If payment depends on the delivery of goods, completion of services, or another milestone, the transaction process can connect the release of funds to confirmation that the agreed condition has been completed.
This gives both sides more structure than relying only on contracts, invoices, and email conversations to manage the transaction.
Looking Ahead
Counterparty verification establishes who is involved.
Payment terms establish how risk and responsibility will be divided.
The next step is determining how both sides can protect the transaction without relying only on full advance payment, open-account credit, or a traditional letter of credit.
In our next article, we will explore modern transaction-protection options for SMBs and how conditional payment structures can create greater confidence for both buyers and suppliers.
The right payment terms establish the agreement.
The right transaction process helps both sides carry it out.
Key Takeaways
- Advance, partial, milestone, open-account, and letter-of-credit structures distribute payment and fulfillment risk differently.
- The appropriate terms depend on the transaction value, existing relationship, commitments made by each side, and conditions that can be verified for goods or services.
- Micro Escrow® can connect agreed conditions to the holding and release of payment, giving both sides a more structured transaction process.
Learn more about how LiquidTrust helps SMBs protect international transactions.
