Payment terms with Chinese suppliers

Telegraphic transfer — a bank-to-bank wire, and the default for most orders. It is fast, cheap relative to the alternatives and almost universally accepted. What it is not is a protection: once it is sent it is gone, and the recall process depends entirely on the receiving bank's cooperation. A wire protects nobody; the schedule you attach to it is where any protection lives.

Documents against payment. The exporter ships, then sends the shipping documents through the banks, and the buyer's bank releases them only against payment. Because the buyer cannot collect the goods without those documents, it links payment to the shipment having actually happened. It says nothing at all about the goods being right — the documents can be perfect for a container of the wrong product.

Documents against acceptance. The same mechanism, except the documents are released against the buyer's written promise to pay at a later date rather than against payment now. That converts the arrangement into credit extended by the supplier, which is why it is rarely offered to a new customer and is worth asking about once a relationship has a history.

Letter of credit. A bank substitutes its own credit for the buyer's, and pays the exporter when the exporter presents documents that comply with the terms. The critical word is documents: an L/C pays against paper, not against goods. It is a real protection against the counterparty's ability to pay and a poor protection against what is in the box, and it carries bank charges and administrative work that only make sense above a certain order value.

Open account — goods first, payment later. This is the term established importers eventually get and the term a first order will not. If it is offered unprompted on a first order by a supplier you found online, treat it as a question rather than a gift.

Escrow and marketplace payment products. A third party holds the money and releases it on a defined trigger. The protection is only ever as good as the specific trigger and the specific exclusions written in that operator's terms, and those terms change — so read the current version on the day you rely on it rather than the summary you read once.

The useful way to hold all six: each one protects against a different failure. A wire protects against nothing. Documentary collections protect against the shipment not happening. An L/C protects against the buyer not paying. Escrow protects against the money moving before a trigger. None of them protects against the goods being wrong — only inspection before the balance does that.

China's State Administration of Foreign Exchange sets out the principle plainly. In its Circular on Further Advancing Foreign Exchange Administration Reform to Enhance Authenticity and Compliance Reviews, Article V, domestic institutions are to handle trade receipts and payments "in the principle of 'whoever exports shall receive foreign exchange, and whoever imports shall make payments'". Read once, it reorganises the whole subject: the money is expected to travel between the same two parties as the goods.

So the beneficiary name on the proforma invoice should be the company that will appear as the exporter on the export declaration, and it should match the company on the business licence you checked. When those three names agree, your paperwork tells one story. When they do not, you are being asked to make your payment evidence and your import documents describe two different transactions — and those are precisely the two documents your own customs or tax authority will eventually want to see side by side.

There are ordinary reasons a supplier gives for the mismatch, and they are worth understanding rather than dismissing. A small factory may genuinely have no import-export licence of its own and may legitimately export through an agent — in which case the agent is the exporter, the agent is the correct beneficiary, and the agent should be named on your contract, not mentioned in a chat message the week payment is due. An offshore group company may be the contracting party for real commercial reasons. The test is not whether an explanation exists; it is whether the explanation appears in the contract you signed, before the invoice arrives.

The version to refuse outright is payment to an individual's personal account. There is no ordinary trade reason for it. It leaves you with no counterparty — you have paid a person who is not party to your contract — and it is the single clearest signal available about how the rest of that supplier's obligations are being handled.

And the practical consequence for you is not abstract. If a dispute ever reaches a lawyer, an arbitrator or an insurer, the first question is who was paid and under what contract. A payment trail that runs from your company to the company you contracted with, in the amount and currency the invoice states, is a boring answer — and boring is what you want to own on that day.

A payment term is enforceable when four things are written down: the EVENT that triggers the payment, the DOCUMENT that proves the event happened, the DEADLINE for payment once it has, and the BENEFICIARY the payment goes to. Most disputes about money are really disputes about one of those four having been left implicit.

The event has to be observable by you, not asserted by the supplier. "After production is complete" is asserted. "After the inspection report is issued" is observable. "Before shipment" is a date; "against the inspection report and the packing list" is an event with evidence attached. Tie the balance to something a third party generates and the term stops depending on goodwill.

The document is the part people skip. Name it: which report, issued by whom, in what form, addressed to whom. An inspection carried out by the factory's own quality department and one carried out by an independent inspector are both "an inspection", and only one of them means anything at the point where you need it to.

Write the beneficiary into the contract, in full, exactly as it appears on the business licence, with the bank name and account number. Then treat any later change as a new negotiation rather than an administrative update — because the most common serious fraud in this trade is not a fake factory, it is a real order whose bank details change by email two days before the balance is due. Confirm any change by voice, on a number you already had before the change was announced. Never on a number contained in the message that announced it.

And keep the currency explicit. State the currency of the contract and who bears the cost of conversion and the bank charges at each end. An amount that arrives short because intermediary bank fees were deducted is a real and recurring argument, and it is settled for free by one sentence written in advance.

This page does not publish a standard split, and the omission is deliberate. The figures repeated across the sourcing web are an opening position that has been quoted so often it now reads as a convention, and a buyer who arrives believing it is a convention has conceded the negotiation before it starts. What a supplier can accept genuinely depends on the product, the materials they must buy in before they can start, the tooling, their own cash position and whether they have ever shipped to you before. None of that is knowable from a web page, and a number here would be planned against rather than negotiated.

What is worth pressing on instead: how much of the deposit is genuinely funding materials rather than working capital, and can it be reduced on the second order once you have a history. Whether the balance falls due before or after inspection — and a supplier who accepts inspection before the balance is telling you they expect to pass it. Whether any part of the balance can be held briefly after arrival against a defined defect threshold. Whether the tooling payment is separate from the goods payment, so that owning the tool is not tangled up with paying for the run.

And be honest about what a deposit is buying on both sides. From the supplier's position, a deposit is evidence that the order is real and money that pays for material they cannot return. A buyer who refuses any deposit on a first order is often quoted a worse price, a longer lead time or nothing at all — and that is not sharp practice, it is a factory pricing an unknown counterparty exactly as you would.

The one rule that survives every variation: never let the amount outstanding fall to zero before you have seen evidence that the goods are right. That single sentence is worth more than any split, and it is compatible with almost any percentage.

➡️ And run the terms you intend to use at volume on the pilot order. Finding out that your bank needs a document nobody mentioned, or that the beneficiary on the invoice does not match the licence, is cheap on a small order and expensive on a container.