Export–Import Finance · Question

How do I finance imports of raw material from overseas suppliers?

Short answer

Choose among four broad routes: pay the supplier in advance from working capital, open a letter of credit through your bank, negotiate credit terms with the supplier, or arrange credit from an overseas lender through your authorised dealer bank. The right route depends on how much trust the supplier has in you, how long you need to pay, and how you will manage the currency exposure.

In more detail

Imports create two needs at once: money to pay the supplier, and a plan for the currency in which you owe it.

An advance or open-account payment from your own working capital is the simplest, but it ties up cash and can strain your limit. A letter of credit, issued by your bank on your request, promises the supplier payment when compliant documents are presented, which comforts a supplier who does not know you and often secures better terms. It consumes part of your working capital limit and carries fees.

Some suppliers will themselves offer deferred payment, often covered by a bank instrument. Alternatively, buyer credit, a short-term foreign currency loan from an overseas lender arranged against an import, may suit longer periods and its interest cost is linked to international benchmarks. Eligibility and permitted terms for such borrowing are governed by regulations and the authorised dealer bank, so check them before relying on this route.

Look at the total cost, not the headline interest: bank charges, commitment fees, hedging cost and any margin you must deposit. Look at how long you need to bridge, usually from the date of payment to the date you sell the finished goods. Look at the paperwork you must keep, since imports must be documented for customs and for banks.

A plastics processor

A processor imports polymer granules with a lengthy sailing time. By opening a letter of credit with a deferred payment period, it pays only after the material has arrived and been converted into finished goods that it can sell. It then books a forward contract for the foreign currency payment so that the rupee cost is known in advance.

Whatever the choice, remember the currency risk. An unhedged dollar or euro payment can change your margin, and treasury advice on hedging should run alongside the finance decision.

Key points

Main routes are advance payment, letter of credit, supplier credit and overseas buyer credit.
A letter of credit helps with unfamiliar suppliers but uses part of your bank limit.
Compare total cost including charges, margin deposits and hedging, not only interest.
Currency risk on the payment should be planned along with the financing.

Who this applies to

Manufacturers who import components or raw material.
Traders buying goods from overseas suppliers for resale.
Finance heads deciding how to fund a repeat import programme.

Last reviewed 3 October 2026

This answer is general information, not advice on your particular case. Terms, eligibility, and requirements change, so check the current position with the relevant institution or authority. Lalsar Holdings' financial advisory and financing work is advisory and facilitation only. Lalsar Holdings is not a lender. Sanction and disbursement of any credit facility is at the sole discretion of the partner bank, NBFC, or financial institution involved, subject to their own eligibility criteria and credit policy.