Expert opinion · Imports

Paying a supplier in advance: what your bank will expect

Paying in advance is often the price of getting the goods. For your bank, it is a payment that has left India with nothing to show for it yet, which is why it stays open until the Bill of Entry arrives.

FxLayer compliance deskFEMA, RBI reporting and cross-border tax 5 min read Updated
  1. ProformaSupplier's proformaValue, terms, delivery date
  2. S0101Advance remittedRequest letter and Form A1
  3. WaitingGoods in transitAdvance open in IDPMS
  4. CustomsBill of Entry filedGoods cleared into India
  5. ClosedAdvance settledBill of Entry linked by the bank
An advance, from proforma to closure

Key points

  • An import advance is paid under purpose code S0101, against a proforma invoice or contract.
  • Above the limit RBI sets, banks ask for a letter of credit or a guarantee from the supplier's bank.
  • The goods should arrive, and the Bill of Entry reach the bank, within the period the rules set.
  • If the goods never come, the advance should be refunded and reported against the original payment.

Documents for an advance

The bank needs the proforma invoice or contract, a request letter and Form A1. The proforma should name the goods, quantity, value, delivery terms and expected shipment date, because the bank will compare it later with the Bill of Entry.

Limits and security

Advances up to the limit RBI sets can generally be paid without a guarantee. Above it, the bank will usually ask for an unconditional, irrevocable standby letter of credit or a guarantee from an international bank of repute, unless the bank is satisfied with the supplier's track record under its own policy.

Closing the advance

When the goods arrive, give the bank the Bill of Entry number, date and port code, and ask it to link the Bill of Entry to the advance in IDPMS. If the advance covered part of the invoice, the balance payment is made under S0102 and linked to the same Bill of Entry.

When the goods do not come

If the supplier cannot ship, ask for a refund of the advance through the banking channel. The refund closes the original remittance. If a refund is not possible, the bank will need documents explaining why before it can close the entry.

FxLayer records the advance against its proforma, counts the days the advance has been open and moves it onto the Bill of Entry when the goods arrive, so the settlement letter is ready the same day.

Questions

The advance is paid against the proforma, and the proforma is then linked to the commercial invoice and Bill of Entry. FxLayer keeps that chain so the bank sees one continuous trail.
Courier imports are cleared on a courier Bill of Entry, which serves as the evidence of import for the bank.

This article is general information on Indian foreign exchange and tax rules as they stood on the date shown. It is not legal or tax advice. Rules and limits change; confirm the current position with your AD bank, the relevant RBI Master Direction or your adviser before acting.

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