Payment Terms with Chinese Suppliers: Deposit, Balance, LC or Escrow?
The uncomfortable truth about importing: at the moment you pay the deposit, you have no goods. At the moment you pay the balance, you have goods you have not yet seen in your own warehouse. Every payment structure is an attempt to shrink those two gaps.
Most buyers default to 30/70 T/T because that is what the supplier asked for. It works most of the time — but "most of the time" is exactly the phrase you want to eliminate when the deposit is five figures.
Here is how the main options compare, what each actually protects you from, and the clauses that make a deposit recoverable.
1. What the market actually does
| Structure | Common in | Buyer protection | Cost |
|---|---|---|---|
| 30% deposit / 70% before shipment | Standard for furniture and panels | Moderate — balance held until goods exist | Bank fees only |
| 30% / 70% against copy of B/L | Established relationships | Better — documents in hand before balance | Bank fees only |
| 50/50 | Custom / OEM tooling work | Weaker for buyer | Bank fees only |
| LC at sight | Larger orders, new relationships | Strong on shipment, weak on quality | 0.5–1.5% of value + fees |
| Escrow / platform | Small orders, marketplace trade | Strong for delivery, thin for quality disputes | 1–3% of value |
| 100% upfront | Should be rare | None | — |
2. T/T: 30/70 and its variants
Telegraphic transfer is the default because it is cheap, fast and both sides understand it. The structure matters more than the method.
| Structure | What protects you | What you are still exposed to |
|---|---|---|
| 30% deposit / 70% before shipment | The balance stays with you until the goods are made | The deposit is gone if the supplier disappears or produces something unusable |
| 30% / 70% against copy of B/L | You pay when the goods have actually shipped and the documents are in your hand | A "copy" B/L gives no title — pair it with a clause that originals are released only after the balance clears |
| Deposit + balance on passed inspection | 70% payable only after a passed pre-shipment inspection — USD 250–400 well spent | Nothing structural. Suppliers who refuse this are telling you something about their own production |
The deposit covers materials, not the whole order. That is why 30% is the floor: below that, the factory is financing your order, and factories that finance customers tend to prioritise the customers who are not asking them to.
3. Letter of credit: expensive, and often misunderstood
An LC is a bank undertaking to pay against compliant documents. It is the right tool when the order value is large and the relationship is new.
What it protects: non-shipment, and documentary non-compliance. If the supplier never ships, no compliant documents exist, no payment is made.
What it does not protect: quality. An LC pays against a bill of lading, an invoice and a packing list — none of which tell you whether the hinges are the ones you specified.
The fix is simple and underused: make a third-party inspection report a required document under the LC. Then payment cannot be released without a passed inspection. That single line converts an LC from a shipping guarantee into something closer to a quality guarantee.
Cost: typically 0.5–1.5% of the credit value in bank charges, plus your bank's margin and the effort of getting every document exactly right. Discrepancies are the main reason LCs fail — a misspelled company name can hold up payment for weeks.
4. Escrow and platform payment
Escrow holds funds with a third party and releases them on agreed conditions — usually delivery confirmation. Trade assurance schemes on B2B platforms work this way.
Good for: small and mid-size orders, first transactions, and situations where you want a neutral record of the agreement.
Weak for: quality disputes. Most schemes release funds on delivery, not on quality, and resolving a "the board density is wrong" dispute through a platform is slow. If you use escrow, define the release condition as inspection passed, not goods received.
Cost: 1–3% of transaction value, usually paid by one side or split. On a USD 40,000 order that is USD 400–1,200 — worth it for a first order, hard to justify for a tenth.
5. Payment fraud: the one rule that matters
Most deposit losses are not bad factories. They are correct payments to the wrong account.
The pattern: mid-conversation, an email arrives from an address that looks almost like your contact's, explaining that the company has changed banks and asking you to remit to a new account. Or the proforma invoice arrives with a Hong Kong company name that does not match the supplier you have been talking to.
The rule: the bank account name must match the contracting company name on the proforma invoice, which must match the business licence. No exceptions, no "our HK office", no "my colleague's account". If a group structure genuinely requires a different entity, get it in a signed contract amendment and verify it through a second channel — a phone call to a number you already had, not a number in the email.
Two more practical safeguards:
- Verify by video call before the first payment. Seeing the person and the factory floor costs twenty minutes.
- Send a small test payment first — even USD 100 — and confirm receipt with your contact before sending the deposit.
6. Clauses that make a deposit recoverable
A deposit is only recoverable if the contract says what triggers a refund. Five clauses do most of the work:
| Clause | Wording that works |
|---|---|
| Delivery date with consequence | "Shipment by [date]. Delay beyond 14 days entitles buyer to cancel and receive full deposit refund within 10 working days." |
| Quality standard by reference | The signed sample and the specification annex — not "good quality" |
| Inspection right | "Buyer or its nominated third party may inspect before shipment; failure to pass entitles buyer to withhold balance pending remedy or cancel." |
| Refund mechanism | Who pays the transfer fees, in which currency, within how many days |
| Governing law & forum | Name it. Chinese courts or CIETAC arbitration are the realistic options; ignoring it means arguing about jurisdiction after the problem |
These clauses do not make you difficult. They make you the customer whose order gets scheduled first, because the factory knows the terms are real.
The short version
Use 30/70 for normal orders, and move the 70% to "after passed inspection" on anything new or custom. Use an LC above roughly USD 50,000 with a new supplier — and put the inspection report in the required documents. Never pay an account whose name does not match the contract. And write the refund trigger down before you send money, not after.
Payment terms are the cheapest risk management available to an importer. Everything else — insurance, inspection, contracts — costs money. This costs a paragraph.
I can review the proforma invoice and payment terms before you transfer anything, and tell you which clauses are missing. Send it over or message me on WhatsApp.
3 years studying international trade in the UK · 5 years running international projects · 7 years in China's furniture and panel export. I help importers specify, verify and ship — from the factory floor, in your language.