China Sourcing Payment Terms
Deposit structures, L/C and trade assurance.
1. Why it matters
Payment terms are the single largest source of loss in cross-border sourcing. The money you wire before you hold conforming goods is money you can lose to a non-shipment, a quality dispute, or a supplier that quietly becomes insolvent. Good terms are not about paying less — they are about keeping leverage until the goods prove themselves.
2. The common structures and what each risks
The classic "30% deposit / 70% before shipment" (T/T) is supplier-friendly: by the time you pay the balance you have usually not seen the goods, and once the balance clears the supplier has no reason to fix defects. Shift risk back toward the goods.
| Structure | Buyer protection | When to use |
|---|---|---|
| 100% before shipment (T/T) | Very low | Avoid; only trusted repeat suppliers, small value |
| 30% deposit / 70% against B/L copy after QC pass | Medium | Standard for a vetted supplier |
| 30% / 70% after inspection report, balance to escrow | High | New supplier, larger value |
| Irrevocable L/C at sight | High (bank-mediated) | Large orders, both sides bankable |
3. Verify the payee before the first wire
The most preventable loss is paying the wrong account. The beneficiary name on the proforma invoice must match the licensed company you verified, and the bank must be onshore in the same jurisdiction. A sudden request to pay a Hong Kong personal account, a "finance partner", or a changed account mid-order is the classic fraud pattern — stop and re-confirm by phone with a known contact.
- Beneficiary name == verified business license entity (exact match).
- Bank onshore in the supplier's jurisdiction, not a third-country personal account.
- Treat any mid-order account change as fraud until re-verified out-of-band.
- Keep the signed PI/contract, bank slip and invoice as one matched set.
4. Retention, escrow and the balance lever
Keep a lever after delivery. A 5-10% quality-retention held for 30-60 days after receipt, or the balance released only against a passed third-party inspection, gives the supplier a concrete reason to accept re-work. Platform escrow (Alibaba Trade Assurance and similar) can substitute when you cannot negotiate retention, but read what the escrow actually covers — most cover non-shipment and gross non-conformance, not subtle spec drift.
5. Checklist
- Match beneficiary name exactly to the verified license before wiring
- Tie the balance to a passed pre-shipment inspection, not to the ship date
- Negotiate a 5-10% quality retention held 30-60 days
- Re-confirm any account change by phone with a known contact
- Use L/C or escrow for large or first-time orders