Payment Terms with Chinese Suppliers: T/T, L/C, and Managing Risk

Payment terms are the single most negotiable element of a purchase order with a Chinese supplier, and the structure you agree to determines who carries the risk at each stage of production. This guide explains why the 30/70 telegraphic transfer split became the industry default, when a letter of credit is worth its cost, and how to recognize the payment fraud patterns that catch even experienced buyers.

Why 30/70 T/T Is the Default Structure

The most common arrangement in China trade is a telegraphic transfer (T/T) split into a 30 percent deposit paid against the proforma invoice and a 70 percent balance paid before or around shipment. This structure did not emerge by accident. It balances two opposing risks: the supplier's exposure to a buyer who cancels mid-production, and the buyer's exposure to a supplier who takes money and underdelivers.

The 30 percent deposit typically covers the supplier's raw material purchase for your order. For made-to-order goods, the factory has no resale market if you walk away, so the deposit is their hedge against cancellation. From the buyer's side, keeping 70 percent of the value unpaid until goods exist and can be inspected preserves real leverage. A supplier who has only received 30 percent still has a strong financial incentive to finish the order correctly, because their margin sits entirely in the balance payment.

Deviations from 30/70 tell you something. A supplier demanding 50 percent or more up front may be undercapitalized, may be quoting below cost to win the order, or may simply be pricing in perceived risk from a first-time buyer. Conversely, established relationships often migrate toward 20/80 or even open-account terms with 30 to 60 day payment after shipment, but that is earned over multiple successful orders, not requested on the first one.

Negotiating the Balance Payment Trigger

The percentage split gets most of the attention, but the trigger for the balance payment matters more. There are three common formulations, and they carry very different risk profiles.

Balance before shipment

The supplier's preferred wording. You pay the remaining 70 percent once goods are finished, before the container leaves the factory. Your only protection is whatever inspection you performed before wiring the money. If you pay and the supplier ships late, ships short, or does not ship at all, your remedies are contractual, which in practice means slow and uncertain.

Balance against copy of bill of lading

A middle position that is widely accepted. The supplier books the shipment, the goods are loaded, and the carrier issues a bill of lading. You pay the balance when the supplier sends you a copy of the B/L, and the supplier releases the original documents (or telex release) once payment clears. The goods physically exist and are on the water, which eliminates the non-shipment scenario. The residual risk is quality: the container is sealed and you are paying before you can open it, which is why this term should always be paired with a pre-shipment inspection.

Balance after passed inspection

The buyer's preferred wording: the balance becomes due only after a third-party or buyer-conducted inspection confirms the goods meet the agreed specification. Suppliers accept this more readily than many buyers assume, provided the inspection criteria, AQL sampling level, and re-inspection cost allocation are written into the purchase order in advance. Vague inspection clauses cause disputes; specific ones prevent them. If you source through a directory such as the CNFX manufacturer listings, treat the payment trigger as a standard question in your first supplier qualification email, because the answer reveals how the factory thinks about risk sharing.

Letters of Credit: When They Fit and When They Do Not

A letter of credit (L/C) replaces trust in the counterparty with trust in banks. The issuing bank commits to pay the supplier when the supplier presents documents that comply exactly with the credit's terms. For large transactions with new counterparties, this is a genuinely strong instrument: the supplier knows payment is assured if they perform, and the buyer knows payment only occurs against conforming documents.

For small orders, an L/C is usually the wrong tool, for two reasons. First, cost: issuance fees, advising fees, confirmation fees if the supplier's bank requires confirmation, negotiation fees, and discrepancy fees accumulate to a fixed cost floor that is hard to justify on a shipment worth twenty or thirty thousand dollars. Second, the doctrine of strict compliance: banks pay against documents, not goods, and they examine documents literally. A misspelled consignee name, a date inconsistency between the invoice and the packing list, or a missing signature can constitute a discrepancy that delays or blocks payment. Preparing a clean document set requires experience many smaller factories do not have, which is why some suppliers refuse L/C terms outright or add a price premium to accept them.

The practical threshold most trading professionals use: below roughly the value where bank fees exceed one percent of the order, use T/T with an inspection-linked balance. Above it, and especially for six-figure first orders, a sight L/C with a required third-party inspection certificate among the presentation documents is worth the friction.

The Boundaries of Third-Party Escrow

Escrow-style services offered by sourcing platforms hold your payment until you confirm receipt, which sounds like complete protection. Read the terms before relying on it. These programs typically have claim windows measured in days after delivery, coverage caps, and dispute processes that favor documented, objective defects over subjective quality complaints. They work well for trial orders and sample purchases where the amounts are small and the failure mode is outright non-delivery. They are not a substitute for inspection on production orders, and they generally do not cover consequential losses such as missed selling seasons. Treat escrow as a floor for small transactions, not as a payment strategy for your supply chain.

Fraud Prevention Fundamentals

Most payment fraud in China sourcing follows a small number of patterns, and basic discipline defeats nearly all of them.

• The beneficiary name must match the contract party. Before wiring anything, confirm the bank account name is identical to the legal entity name on your contract or proforma invoice. Payments to a personal account, to a differently named company, or to an offshore entity the supplier cannot explain are the single largest red flag in the trade. A legitimate manufacturer can always receive payment in its registered corporate name.
• Treat any mid-transaction bank change as fraud until proven otherwise. The classic business email compromise (BEC) pattern: after you receive the invoice, a follow-up email arrives claiming the supplier's account is under audit or frozen and asking you to wire to a new account. The email often comes from the supplier's real, compromised mailbox, so its authenticity proves nothing. Verify any account change by phone or video call to a contact number you already had on file, never one supplied in the email itself.
• Match every remittance to a written document. Pay only against a proforma invoice or contract bearing the company chop, and reference the invoice number in the wire. This creates the paper trail you will need if anything goes wrong.
• Verify the entity, not just the contact. Cross-check the supplier's registered company name and scope of business before the first payment. Company profiles in the CNFX directory are a starting point for confirming that the entity you are paying actually manufactures what you are buying.

RMB or USD Settlement

Most export contracts from China are still quoted and settled in US dollars, and for many buyers that remains the simplest path. But settling in renminbi through the cross-border RMB system is increasingly available and worth evaluating. When a supplier quotes in USD, they typically build a buffer against exchange-rate movement into the price; agreeing to pay in RMB can remove that buffer and occasionally yields a modest discount, because the factory eliminates its own conversion step and currency risk. The trade-off is that the exchange risk moves to you, and your bank's RMB conversion spread may consume the savings. If your volumes are meaningful, get quotes in both currencies and compare the landed cost including your own bank's foreign exchange margin. Also confirm which entity is invoicing you: RMB settlement generally requires dealing with the mainland-registered manufacturer directly rather than a Hong Kong trading affiliate, which is itself useful clarity about who your legal counterparty is.

Key Takeaways

• 30/70 T/T persists because it splits risk in proportion to who can control it at each stage; large deviations from it deserve an explanation.
• The balance payment trigger matters more than the percentage: payment against B/L copy plus a pre-shipment inspection is a defensible middle ground, and inspection-linked release is better where you can get it.
• Letters of credit suit large first orders but punish small ones through fixed bank fees and strict documentary compliance.
• Never wire to an account whose name differs from your contract party, and verify any account change through a previously known channel, because BEC fraud routinely uses the supplier's real email.
• Ask for parallel USD and RMB quotes on meaningful volumes; the currency buffer in USD pricing is sometimes recoverable.

This guide is editorial reference material, not legal or transactional advice. Verify supplier claims and regulatory requirements independently. See our data sources and editorial policy.