Factory payment terms in China: deposit, balance, L/C

T/T, for "telegraphic transfer", refers to the electronic transfer made via the SWIFT network between your bank and the seller's. It is the usual channel for trade with China. It is not a protection instrument: money leaves one account to arrive in another, without escrow or condition. The level of risk therefore depends on what has been verified before the transfer, and on when it is sent.

The usual structure splits the payment into two stages: a deposit at order, then the balance at an agreed stage. The deposit covers the purchase of materials and the start of production; the balance remains due until the goods are ready to ship. A supplier who demands the full amount before production leaves you without leverage. Conversely, factories generally refuse to finance a run without a deposit.

The division commonly cited in the industry is 30% deposit at order and 70% at balance: the so-called '30 70 deposit' structure. These proportions have no legal basis: they are a standard practice that has become a reference. They reflect a balance: the factory finances its raw materials, the buyer retains most of the amount until the goods exist.

A deposit significantly above the norm should be justified. Sometimes the reason is valid: expensive raw materials, tooling to be built, short run that poorly absorbs setup costs. Molds and specific equipment are paid separately, usually in full before production, and are isolated from the unit price on the invoice. A factory that demands half or the full amount on a first order, with no explanation, places almost all the risk on you.

The trigger for the balance is the main risk. Two formulas dominate: a balance before shipment, when the goods are produced, the usual trigger because the factory wants to be paid before releasing the cartons, or a balance against copy of the bill of lading, a document issued after loading. The factory then waits for the vessel's departure, leaving you a trace of what was actually loaded.

In both cases, the reflex is the same: place a pre-loading inspection between production completion and payment. If the inspection finds non-conformities, the balance is not released and correction is negotiated while the goods are still at the factory. Once the container is on the water, the same non-conformity becomes a long, uncertain cross-border dispute. The balance is your last lever: it is not released until an inspection has validated it.

A letter of credit, or documentary credit (L/C), is a bank's irrevocable commitment to pay the seller upon presentation of compliant documents: bill of lading, invoice, packing list, certificates as specified in the contract. Payment no longer depends on the seller's word but on document compliance. The whole process is governed by the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce, publication UCP 600.

This instrument has a downside: cost and formality. Each bank charges for its services, with fees typically split between the two parties, and the file requires documents without any discrepancy. Even a formal difference can give the bank a reason to refuse, and a documentary dispute freezes both goods and payment. For a small order, the mechanism costs more than it protects. For a large amount or a new partner, it remains the banking standard.

An escrow places a third party between you and the seller: your payment is held by this third party and released when conditions are met. Trade Assurance on Alibaba works on this principle: funds follow the terms of the contract made on the platform, with claims to be filed within the specified deadlines. On 1688, transactions go through a sequestered deposit with the platform's payment service.

This protection has clear limits. It holds as long as the transaction stays within the platform's channels and the conditions are written: specifications, quantities, delivery dates. As soon as the conversation moves off the platform or the payment bypasses it, it disappears. The escrow arbitrates on what was promised and proven: it does not verify the goods. An independent inspection is still useful, especially for a first container.

Whatever the chosen method, certain requests must stop payment: a transfer to a personal account or to a company other than the seller, a payment via Western Union or cryptocurrencies with no bank trace, and any change of bank details received by email during an order. This scenario is costly: it occurs on an ongoing transaction, often just before the balance.

The remedy is mechanical. Every beneficiary account is validated before the first transfer, in the name of the legal entity. Any change of bank details is confirmed through a channel independent of the email that announced it: call or video on a contact you find yourself, never on a number printed in the message. Money diverted through email interception is rarely recovered.

Our brokerage and sourcing firm handles the payment question at the time of the quote, not after. We negotiate the two-part structure, the trigger for the balance, segregation of tooling, and we make inspection before loading a payment step when the product lends itself to it. Our sinophone team in Guangzhou validates the bank account in the name of the legal entity, follows each deadline against the production schedule, and alerts at any request outside the framework. We do not speak Chinese ourselves: that is the role of this team, on the ground, in the language of the factory.

In most cases, you do not pay fees: you open a file, we negotiate the goods for you and we take a commission on their ex-works value. Payment conditions are part of the standard process, from the first supplier verification to the pre-shipment inspection.