Payment Terms with Chinese Factories: T/T, Deposits and Incoterms
The standard payment structure with a Chinese factory is a 30% deposit by T/T to start production and the 70% balance before shipment — and for a first order that is exactly what a serious factory will ask. The negotiation is not about removing the deposit; it is about what you get in exchange for it: written terms, defined milestones, inspection rights, and a balance payment tied to documents you can verify.
Payment terms are where sourcing relationships either get built or get poisoned. Buyers who understand why deposits exist — raw material is bought against your order, and the factory does not want to own your custom parts — negotiate better than buyers who fight the deposit itself. This guide covers the instruments, the typical structures, and how to align payment with risk on both sides.
The Instruments: T/T, L/C and the Rest
Telegraphic transfer (T/T) dominates Chinese factory trade because it is fast and cheap. Letters of credit (L/C) appear on larger orders or when the buyer's bank requires them. Each instrument shifts risk differently, and neither replaces the contract — they are the plumbing, not the terms.
| Instrument | How it works | Typical use | Risk balance |
|---|---|---|---|
| T/T (wire transfer) | Bank-to-bank transfer, days to settle | Most orders of any size | Trust-based; deposit funds material, balance funds shipment |
| L/C at sight | Bank pays against compliant documents | Larger orders, new relationships, bank requirements | Document risk shifts to banks; discrepancies can delay payment |
| L/C usance | Bank pays 30–90 days after documents | Buyer cash-flow needs | Supplier carries post-shipment risk; priced into the quote |
| Escrow / platform payment (e.g. Alibaba Trade Assurance) | Platform holds funds, releases on milestones | First orders, smaller values, online platforms | Both sides protected; platform fees and limits apply |
| PayPal / credit card | Fast, high fees, low limits | Samples, small deposits | Buyer-friendly; too expensive for production values |
The takeaway: T/T with a deposit is the market default because it is honest about how custom manufacturing works — material is committed at order, work is done over weeks, and neither side wants to finance the other without leverage. The tool to master is not the instrument, it is the milestone structure around it.
The Typical Structures and What They Mean
Industry practice clusters into a few recognizable patterns. The structure tells you a lot about the supplier's confidence and cash position — within reason.
| Structure | Deposit | Balance | Typical situation |
|---|---|---|---|
| Standard production | 30% T/T | 70% before shipment | Most custom parts orders, established suppliers |
| Prototype/sample | 50–100% upfront | — | Small values, engineering-driven; full prepayment is normal and fair |
| First order, new relationship | 30–50% deposit | Balance against copy of B/L or before shipment | Higher deposit reflects unknown trust; third-party inspection often added |
| Repeat orders, strong history | 0–20% deposit | Balance before shipment or net 30–60 | Negotiated after months of clean batches |
| High-value or bank-driven | L/C at sight | — | Often required above a buyer's internal threshold |
Deposit percentages above 50% on a production order are a yellow flag for most commodity precision parts, because material typically costs far less than half the order value — a supplier asking for 70–80% may be financing something else with your money. Conversely, a factory that asks for zero deposit is usually not a factory: it may be a trader planning to place your order downstream.
Incoterms: Who Pays for What After the Factory Gate
Incoterms decide where the factory's responsibility ends and yours begins. The most common terms in China trade are EXW, FOB, CIF and DDP — in rising order of supplier responsibility.
| Incoterm | Supplier covers | Buyer covers | Buyer risk note |
|---|---|---|---|
| EXW (Ex Works) | Goods ready at factory | Everything after: trucking, export, freight, insurance, import | You control all legs; you need a forwarder who knows China export |
| FOB (Free On Board) | Factory to ship's rail at named port, export clearance | Sea freight, insurance, import | Most common for sea freight; cost split is clean |
| CIF (Cost, Insurance, Freight) | Freight and insurance to destination port | Import clearance, inland haul, duties | Supplier controls freight; check the insurance level actually bought |
| DDP (Delivered Duty Paid) | Everything to your door, duties included | Unloading and onward risk | Maximum convenience; freight and duty margins are built into price |
Quote comparison trap: two quotes for the same part can differ by 15–30% purely because of Incoterms and the freight assumptions under them. Always convert every quote to the same Incoterm before comparing — an EXW quote versus a DDP quote is not a price difference, it is a scope difference. Our sourcing red flags guide covers this and other quote-comparison traps in detail.
Building Terms That Protect Both Sides
The best payment structure is boring: deposit sized to material cost, balance tied to verifiable shipment or inspection documents, and everything written down. A practical sequence for a first production order with a new factory:
1. 30% T/T deposit against a written order acknowledgment that includes price, lead time, tolerance responsibilities, and inspection requirements.
2. Factory sends progress photos and batch inspection data during production — free and common for serious suppliers.
3. Optional third-party pre-shipment inspection; result sent to you before the balance is due.
4. Balance paid against the copy of the bill of lading or before shipment, whichever your structure specifies.
5. Keep 0–10% leverage only if you truly need it — most Chinese factories will price it in or decline; it is not a standard practice for precision parts.
Written terms are the part buyers skip. If the payment schedule, tooling ownership (see our IP and tooling guide) and inspection rights are not in the order documents, a dispute later has nothing to stand on.
What a Factory with Clean Terms Looks Like
For reference, here is the commercial structure BQUQ operates, stated plainly so you can compare it against any supplier's terms. We quote within 12 working hours of receiving a drawing, and the quotation states price, lead time and the assumptions behind them in writing. Standard terms for custom parts are a 30% T/T deposit with the balance before shipment, and we will walk a first-time buyer through the sequence with written order acknowledgment. Samples and small prototype runs are quoted with full or high prepayment because the engineering cost dominates and there is no shipment risk for the buyer to carry. Every batch ships with a dimensional inspection report, and we accept third-party pre-shipment inspection as a normal part of a first order — the schedule simply needs to include it. If you want to test the process at small scale before negotiating production terms, start with a prototype order on our CNC turning parts line or a general inquiry via our company page; the terms on a sample order are the fastest way to see how a factory actually handles money and documents.
Email sc@bquq.com or WhatsApp +86 137 1315 7787 with your PDF/DXF/STEP file. An engineer reviews it and replies with price, lead time and DFM notes on working days.
Frequently Asked Questions
Q: Is a 30% deposit with Chinese factories normal, or can I avoid it?
30% is the standard for custom parts because material is bought against your order. Avoiding it entirely is possible only with established history or platform escrow. A zero-deposit "factory" on a first order is often a trader placing your job elsewhere.
Q: What is the difference between paying before shipment and after delivery?
Before shipment is standard in China trade and is safe when tied to verifiable triggers — inspection reports, photos, or the bill of lading. After delivery (net terms) is a concession suppliers grant to proven customers, usually priced into quotes.
Q: Which Incoterm should a first-time China buyer use?
FOB for sea freight and DDP for small air-freight orders are the two most practical starting points. FOB keeps freight competitive and transparent; DDP gives you a door-to-door price with duties included. Avoid comparing quotes across different Incoterms.
Q: Should I pay the balance before seeing the goods?
For custom parts, yes — balance against shipment documents is the market norm, and the factory has no use for your unpaid custom parts. Protect yourself with inspection rights before the balance is due, not by refusing to pay it.
Q: Do Chinese factories accept escrow or platform payment?
Many accept platform escrow for first orders and smaller values, though fees and payment limits make it impractical for large production invoices. Treat escrow as a first-order bridge, then move to T/T terms as trust is proven.
Authored by the BQUQ Engineering Team. BQUQ is an ISO9001-certified source factory in Dongguan, China, running CNC machining, metal stamping, custom springs, heat sink and collet lines under one roof. Send drawings to sc@bquq.com or WhatsApp +86 13713157787 for a quote within 12 working hours. www.bquq.com
