Payment terms are one of the most negotiated — and least understood — aspects of sourcing from China. The method you use (T/T, letter of credit, escrow), the split you agree (30/70, 20/80, milestone), and the trigger that releases each payment together decide how much risk you carry and for how long.
The short answer: the default for a first China factory order is 30% deposit by T/T before production and 70% balance before shipment — but the safer version pays that balance against a copy of the bill of lading and a passed pre-shipment inspection, not before the goods are packed. Use a letter of credit or escrow on larger or higher-risk orders. And always pay to a company account matching your contract — never a personal account or Western Union.
T/T: the default workhorse
T/T (telegraphic transfer) is a direct bank-to-bank wire. It is fast, has low fees, and is the standard for orders above roughly $5,000. It is also irreversible and carries no buyer protection: once you have sent the money, it is gone. The protection comes entirely from how you stage it — deposit, inspection, balance — not from the method itself.
The standard structure:
- 30% deposit on order placement, to start production. This gives the factory enough to buy materials and start the line.
- 70% balance before the goods ship — but tie it to proof, not to a calendar date. Release it only after a pre-shipment inspection (at AQL 2.5) confirms the goods are correct and packed, or against a copy of the bill of lading.
Two rules that are not negotiable:
- Never pay 100% up front. No legitimate factory needs full payment before production on a first order.
- Pay only to the registered company account. The beneficiary name must match the company you contracted with, character for character. A personal name, a Hong Kong account for a mainland supplier, or a name that does not match is the single biggest fraud red flag. Personal-account payments are also illegal under Chinese regulations for commercial transactions — if a factory asks you to pay to a personal bank account or via Western Union, decline immediately.
Put the milestones in the proforma invoice in writing: 30% on PI, 70% against the pre-shipment inspection report (or copy of B/L). Written, not verbal.
Letter of credit: bank protection for large orders
A letter of credit (L/C) is a bank-issued guarantee: your bank pays the supplier only once the supplier presents documents that exactly match the credit’s terms — typically a clean bill of lading, commercial invoice, packing list, certificate of origin, and any required inspection certificates. The most common form for importers is L/C at sight: the bank pays as soon as the documents are correct. Most L/Cs are governed by the ICC’s UCP 600 rules.
L/C protects both sides: you know goods must be shipped before payment is released; the factory knows payment is guaranteed once it ships correctly documented goods. The downsides are cost and friction: expect bank fees of roughly 1–3% of the L/C value (other guides place the range near 0.5–2% plus about $150–$500 in opening and advising charges), exact document compliance, and 5–10 extra days to settle. Total cost for a $200,000 L/C typically runs $1,500–$5,000 all-in.
And one limit buyers forget: an L/C guarantees documents, not goods. A factory can ship conforming paperwork around a container of defects. You still need inspection.
L/C makes sense above roughly $50,000 — below that, the fees and friction usually outweigh the protection, and a staged T/T with an inspection-gated balance is the normal choice.
Escrow and Trade Assurance: protection for small orders
Escrow flips the leverage. Instead of the factory holding your money before goods exist, a neutral third party holds it and releases it to the factory only when you confirm the order was fulfilled to the agreed terms. The best-known version for China sourcing is Alibaba Trade Assurance, built into orders placed through Alibaba.com: you agree an order contract specifying quantity, quality standard, and ship date, pay into escrow, and the funds release when those terms are met.
For a typical first order under $50,000, a staged T/T with the deposit going through Trade Assurance escrow (where available) is a sensible default: you get the low fees of T/T with an escrow layer on top.
Open account: earned trust, never a starting point
Open account (OA) means you pay 30, 60, or 90 days after the goods ship. It is the best cash flow of any method — and it is a trust prize earned after repeat, clean orders. It is never offered to strangers, and anyone who offers it upfront is a red flag.
Which method for your order size
- Under $5,000: Trade Assurance escrow (T/T or card into escrow), or Wise for small payments. PayPal is almost never right for B2B — high fees, and suppliers dislike it.
- $5,000–$50,000: T/T 30/70, with the balance gated on a passed pre-shipment inspection. First choice for most importers.
- $50,000–$200,000: T/T 30/70 with strong supplier verification remains the most common; letter of credit if you want maximum payment-side security.
- Above $200,000: Letter of credit if buyer-side security is critical, or T/T 30/70 with a verified supplier and inspection-gated balance for established relationships.
The safe payment process, step by step
- Agree written terms: 30% deposit, 70% balance, with the balance tied to inspection.
- Verify the supplier and confirm the receiving bank account name matches the business license exactly.
- Release the deposit only after terms are signed.
- Inspect the finished goods before shipment.
- Release the balance only after the inspection passes — against the report, the B/L copy, or both.
- Keep every document: PI, inspection report, B/L, payment confirmations. If a dispute ever goes to Trade Assurance or your bank, the paper trail is your case.
Sources
- China Makers Hub, “Payment Terms with Chinese Factories: T/T, L/C and Escrow (2026 Guide)” — https://chinamakershub.com/journal/payment-terms-china-factory-tt-lc-guide
- Quality Sourcing from China, “How to Pay Chinese Suppliers: Wise vs PayPal vs T/T vs LC Compared” — https://qualitysourcingfromchina.com/guides/paying-chinese-suppliers-wise-paypal-tt-lc
- Mila Sourcing, “What Are Safe Payment Terms When Buying From a Chinese Supplier?” — https://www.milasourcing.com/answers/safe-payment-terms-chinese-supplier/
- Youna Global, “China Supplier Payment Terms: T/T, L/C, OA” — https://www.youna-global.com/blog/blog-china-supplier-payment-terms.html
- Trade Entrust, “How to Pay Chinese Suppliers Safely” — http://tradeentrust.com/how-to-pay-chinese-suppliers-safely