Why payment terms decide who has the leverage
A purchase order to China runs on trust you can't yet verify. You're wiring money to a company you've never visited, in a country whose courts you can't easily use, for goods that don't exist yet. Payment terms are how you turn that blind trust into something with a brake on it. The moment you've paid in full, you have no leverage left: if the goods come out wrong, the factory has your money and you have a problem. Stage the payments so money only moves when you've seen proof the work is real, and you keep a hand on the brake until the container is loaded.
The standard structure: 30 percent deposit, 70 percent balance
The default term across most Chinese manufacturing is a 30/70 split. You pay a 30 percent deposit to start production and the remaining 70 percent before the goods ship. The deposit covers the factory's raw materials and reserves a slot on the production line. No serious factory floats your materials cost for free, so a deposit is normal and fair.
The balance is the part that matters. It should fall due when production is finished and inspected, but before you've released the goods to leave the country. Some factories ask for 50/50 on first orders or on highly custom work, and that is negotiable rather than suspicious. What should stop you cold is a demand for 100 percent before production, or a balance due the day production starts rather than the day it ends.
Gate the balance on inspection, not on a promise
This is the single rule that separates importers who get burned from those who don't. Tie your final payment to a pre-shipment inspection, not to the calendar. Before the 70 percent leaves your account, have the goods checked. Either a third-party inspector (SGS, TÜV, Bureau Veritas, QIMA, or a local agent acting for you) visits the factory and inspects a random sample against your spec, or at the very least you receive dated QC photos and video of the actual finished run.
Only when it passes does the balance go out. Done this way, your money is the thing that gets a defect fixed, because the factory doesn't get paid until the product is right. Pay the balance "before shipment" with no inspection clause and you've handed over your only leverage for nothing.
Which payment method actually protects you
The method matters as much as the split. The four you'll meet:
- T/T (telegraphic transfer / bank wire). The default for most orders. Fast and cheap, but irreversible: once it's sent, it's gone. The protection comes entirely from how you stage it (deposit, inspection, balance), not from the method itself.
- Letter of credit (L/C). A bank pays the supplier only when they present documents proving the agreed terms were met. Strong protection for larger orders, usually above $50,000, where the bank fees and paperwork discipline earn their cost. Smaller suppliers often resist it because it puts the burden on them.
- Alibaba Trade Assurance or escrow. Funds sit with the platform until you confirm the order met its terms. Useful for smaller on-platform orders, but recourse is limited to what the platform will actually enforce, so read what it covers before you rely on it.
- PayPal or credit card. Real chargeback protection, but suppliers add 3 to 5 percent and resist it on anything past samples. Fine for a $200 sample, rarely offered on a $40,000 order.
For a typical first order under $50,000, a staged T/T with an inspection-gated balance is the normal, workable answer. Save the L/C for when the order size justifies its cost.
Pay the company, not a person
Wire only to the supplier's registered company bank account, with a beneficiary name that matches the business license character for character. A request to pay a personal account, an account under a different company name, or a Hong Kong account for a mainland factory strips away your last thread of recourse, and it's one of the most reliable fraud signals there is.
Watch for the other common trap: invoice interception. Fraudsters who have been reading the email thread send a polished message saying the supplier's bank "has changed, please use these new details." Treat any change of bank account as a stop sign. Confirm it through a second channel you already trust, a phone or video call to your known contact, before a single dollar moves. This kind of payment-redirection fraud costs importers real money every year, and one verification call almost always prevents it.
How terms improve as the relationship builds
First-order terms should be conservative. Once a factory has delivered for you a few times, terms loosen in your favour: a smaller deposit, a balance on net 30 after delivery, or an L/C at sight for big runs. That track record is an asset, so don't burn it by squeezing a good factory on day one. Build the history, then renegotiate from strength.
Where Mila Sourcing fits
We set the payment terms before any money moves, and we hold the line on the parts that protect you: deposit to the verified company account, a bilingual contract signed first, and the balance released only after our agent has inspected the run on the floor and you've seen it. That's built into Sourcing Activation and Full Production Management.
Related, if you're about to wire a deposit: