Give credit when the buyer's GSTIN is Active with regular filing, there are no court cases or supplier-reported defaults, and the owner's record is clean. Ask for advance or cash on delivery when returns are missing, cheques have bounced, other suppliers report defaults, or the buyer will not agree to checks. In between, use part advance and short terms. FundRaksha Trust gives one of three outcomes: safe to give credit, give credit with care, or avoid credit.
The signals that decide it
| Signal | Points to credit | Points to advance |
|---|---|---|
| GST status | Active for several years | Suspended, cancelled, or registered weeks ago |
| Filing record | GSTR-1 and GSTR-3B regular | Several months missing, or filed late in batches |
| Court cases | None, or old and closed | Cheque bounce complaints or recovery suits by suppliers |
| Supplier reports | None | Approved defaulter reports |
| Owner's credit record | Good score, no recent delays | Recent loan delays |
| Behaviour | Agrees to checks, clear PO, stable address | Urgency, address changes, refuses checks |
The middle options
The choice is rarely all or nothing. Options that protect you without refusing the order:
- Part advance: for example half before dispatch and half on delivery.
- Short first terms: 7 or 15 days on the first orders, longer once they are paid on time.
- Smaller first order: supply part of the quantity on credit and the rest against payment.
- Post-dated cheque: with a bounced cheque, Section 138 gives you a strong remedy, provided you send the notice in time.
- Proforma invoice and payment on dispatch: common for buyers in another state you have never met.
How to ask for advance without losing the buyer
Make it a policy, not a judgement. "Our policy for new accounts is 50% advance for the first two orders, then 30 days" is easier for a buyer to accept than a refusal that sounds personal. Offer the route to credit at the same time, and keep the promise when they pay on time.
Remember the buyer's own incentive. Under GST, a buyer who does not pay you within 180 days must reverse the input tax credit on your invoice, and for micro and small suppliers, Section 43B(h) of the Income-tax Act links the buyer's deduction to timely payment. A well-run buyer has reasons to pay on time, and will understand a supplier who asks the same.
Worked example
A Kochi spice trader receives an order for ₹5,20,000 of pepper and cardamom from a new Mumbai exporter, on 60 days. The free GST check shows an Active GSTIN (27, Maharashtra) registered two years ago. The Advance GST report shows regular filing but one approved defaulter report from another supplier. The trader offers 40% advance, 60% within 15 days of delivery, and 30 days from the third order if payments are on time. The exporter agrees.
Moving a buyer from advance to credit
Asking for advance should be the start of a relationship, not the end of one. Tell the buyer what it takes to earn credit, for example three orders paid on time, and keep to it. When the time comes, re-run the Trust report: if nothing has changed for the worse, move to short credit, and lengthen it gradually. Record the change and the new limit in your buyer master, so the next salesperson follows the same rule.
Sources
Last reviewed: 2026-10-21. Information for Indian businesses; not legal advice.