Payment Terms in China Sourcing: T/T, L/C and Reducing Risk

How you pay matters as much as how much you pay. This guide explains the common terms — 30/70 T/T, letters of credit and milestone payments — where the risk really sits in each, the red flags worth walking away from, and how to stage payments so your money follows verified quality.

The Standard Terms You Will See

Most quotes from Chinese suppliers start with the same shape: a deposit by telegraphic transfer (T/T) to fund raw material and production, then the balance before shipment. The familiar version is 30% deposit and 70% before shipment. It is popular because it is fair in structure — the supplier is not financing your whole order, and you are not paying for goods you have not seen. What varies is the split: a new supplier may ask for a heavier deposit, while a repeat supplier with a good record may accept a lighter deposit or a balance against shipping documents.

The important detail hidden in 'before shipment' is exactly when the balance is due. If it is due before the goods leave the factory, your leverage disappears at the gate. If it is due against a copy of the bill of lading, the goods have at least been handed to the carrier. If it is due against a passed inspection, quality has been verified first. Each step along that chain shifts a little more security to you, and it is worth negotiating precisely rather than accepting the vague phrase at face value.

The deposit is a negotiation too. A supplier with real production capacity will usually tie the deposit to raw material cost, which is a fraction of the order, rather than to a round percentage of the full value. If a supplier insists on a heavy deposit without a material cost breakdown, ask for one. Seeing how the money maps to material, labour and tooling is a quick way to tell a genuine factory from one that is only passing the order along to someone else.

How a Letter of Credit Changes the Picture

A letter of credit (L/C) inserts a bank between the buyer and the seller. The buyer's bank issues a credit promising to pay the seller once the seller presents a defined set of documents that comply with the credit terms — typically an invoice, a full set of shipping documents, and any certificates the order requires. The seller gains a bank-backed assurance of payment; the buyer gains the assurance that payment is released against documents rather than against a promise.

The trade-off is cost and rigidity. An L/C carries bank charges on both sides and demands that the documents match the credit terms almost exactly; a small discrepancy can delay or block payment until it is resolved. That makes an L/C sensible for a large first order or a new relationship where both parties want a neutral mechanism, and less sensible for frequent small orders where the documentation effort outweighs the protection. Where you do use one, keep the terms simple and align the required documents with what your supplier can actually produce.

Payment Methods Compared

The table below compares the methods you are most likely to discuss. Read it as a trade-off between buyer security and supplier cash flow: the more security you gain, the more of the financing burden the supplier carries, which usually shows up in the price.

Where the Risk Actually Sits

The label on the payment method matters less than the moment money moves relative to the moment you gain control of the goods. Ask one question of any term you are offered: at the instant I pay, what do I hold if things go wrong? A deposit paid to start production is money at risk, but it is small and it unlocks the order. A balance paid before the goods leave the factory removes your leverage just when you need it most. A balance released against inspection or shipping documents keeps some control until quality or dispatch is demonstrated.

material certificates shows why the balance is best paid only once the documents actually match the goods, and our supplier audit service is how you establish whether a new supplier can be trusted with a lighter deposit at all." data-zh="这也是为什么付款条款绝不应孤立谈判。它们应与质量关口结合——发货前检验、材质证明书、首件批准——使每次付款由证据放款，而非由日历日期放款。我们关于材质证明书的说明展示了为何尾款最好只在文件确实与实物相符后才支付，而我们的供应商审核服务，正是您判断新供应商是否可以被托付较低定金的方法。">This is also why payment terms should never be negotiated in isolation. They belong with the quality gates — the pre-shipment inspection, the material certificate, the first-article approval — so that each payment is released by evidence rather than by a calendar date. Our summary of material certificates shows why the balance is best paid only once the documents actually match the goods, and our supplier audit service is how you establish whether a new supplier can be trusted with a lighter deposit at all.

Red Flags Worth Walking Away From

• 100% payment before production, especially for a new supplier. It hands all leverage to the seller. A deposit is normal; total prepayment for finished goods is not.
• Payment to a personal account or to a company unrelated to the contract. The account name should match the contracting company and the invoice. Anything else removes your ability to prove who you paid.
• Sudden changes to bank details, often sent by email late in the order. Verify any change by a second channel and a phone call to a known contact before money moves.
• Pressure to pay urgently to secure a price or a slot. Urgency is a classic lever to stop you checking. A fair supplier will wait for a properly verified payment.
• Reluctance to name a legal entity or to put the terms in writing. Payment terms belong in the purchase order, not in a chat. If the supplier resists a written contract, treat that as a signal.

Staging Payments by Milestone

For custom or tooled parts, a single 30/70 split often does not match how the work actually progresses. A better structure ties each payment to a verifiable event and delays the largest sums until quality is demonstrated. The shape below is a starting point to adapt, not a fixed formula.

• Deposit on PO — funds raw material and starts production. Keep it proportionate to the material cost, not to the whole order value.
• Sample and tooling payment — released only after samples are approved and before tooling is committed. Tie it to the drawing revision you signed off.
• First-article payment — follows dimensional and material verification on the first parts off the tool, before the full run.
• Balance against inspection — the largest payment is released after a passed pre-shipment inspection and, where agreed, against a copy of the shipping documents.

Incoterms for sourcing explains how the two fit together, and our overview of shipping from China covers the legs your payments will track." data-zh="这些里程碑与您选择的交货术语自然对应。在 FOB 或 FCA 安排下，尾款可在承运人收货后凭单据放款；而在 DAP 安排下，您可以保留更多，直到货物到达您的门口。我们关于采购用 Incoterms的指南说明了二者如何配合，而关于从中国发货的概述则涵盖您的付款将要跟踪的各个运输段。">These milestones line up naturally with the delivery term you choose. Under an FOB or FCA arrangement the balance can be released against documents once the carrier has the goods, while under a DAP arrangement you keep more until the shipment is at your door. Our guide to Incoterms for sourcing explains how the two fit together, and our overview of shipping from China covers the legs your payments will track.

Tooling Payments and Ownership

Tooling is where payment disputes most often begin, because the money and the asset can drift apart. If you pay a tooling charge, the purchase order should say plainly that the tooling belongs to you, identify it specifically, and set out what happens if you move the work to another supplier — that it will be returned, or that a documented buyout applies. Without such a clause, ownership is ambiguous, and a supplier you have fallen out with holds a physical asset you believe is yours.

sourcing programme: if you cannot show what you own and where it is, you cannot move it when you need to." data-zh="把模具款与生产款分开支付，使两项成本可见，模具也不会被埋进日后无法拆解的单价里。给模具清晰标注识别号，拍照留存，并保留图纸和任何模具证书归档。这与正规采购项目的记录纪律如出一辙：如果您无法说明自己拥有什么、它在哪里，就无法在需要时将其转移。">Pay tooling separately from production, so the two costs are visible and the tooling is not buried in a unit price you cannot later unpick. Mark the tooling clearly with an identifier, photograph it, and keep the drawings and any tooling certificate on file. This mirrors the record-keeping discipline of a proper sourcing programme: if you cannot show what you own and where it is, you cannot move it when you need to.

Conclusion

There is no single correct payment term, only the one that matches your leverage at each stage of the order. A 30/70 T/T split is a sound default for routine orders with a known supplier. A letter of credit buys bank-backed security for a large or unfamiliar deal, at the cost of fees and documentation discipline. Milestone payments are the strongest fit for custom and tooled parts, because they put the largest sums behind inspection and first-article approval. Whatever you choose, verify the payee, keep the terms in writing, and make the money follow verified quality.