What is the safest way to pay China suppliers?

By justchinait
April 28, 2021

If you are buying products from China for the first time or you are going to pay China supplier, then be sure to check out this blog.
In order to succeed against your competitors in this highly competitive global market, it is essential that you obtain favorable payment terms when purchasing. Favorable payment terms can ensure that your interests are not damaged while allowing you to have a longer turnover period. Do not underestimate these advantages, the big gap is usually caused by these small gaps.
The wrong payment method may cause you to not receive the goods on time, may cause you to receive substandard products, may also cause your capital turnover can not open to carry out your business. So, when you purchase from China, except price, quality and delivery time. Payment terms are another factor you should pay attention to.

4 main payment terms in international trade

And you should know that payment terms are negotiable, just as you don’t have to accept the China supplier’s first offer. As is shown in the figure below, there are 4 main terms of payment in international transactions. During or before contract negotiations, you should consider which approach in the diagram is mutually desirable for both you and your China supplier.

Less Secure Secure More Secure
Exporter OA


100% T/T before shipment

30% deposit, balance against B/L copy

D/P at Sight

The L/C
Importer The L/C

100% T/T in advance

30% deposit, balance against B/L copy

D/P at Sight


100% T/T before shipment

The key point

There are a number of risks associated with international trade, which lead to uncertain payment times between the exporter (the China supplier) and the importer (the foreign buyer).
1. For the exporter, any sale is a gift until payment is received.
Therefore, the exporter wants to receive payment as soon as possible, preferably after placing the order or before sending the goods to the importer.
2. For the importer, any payment is a donation prior to receipt of the goods.
Therefore, the importer wishes to receive the goods as soon as possible but wants to extend the payment time as long as possible. It is better to wait until the goods are resold to generate sufficient income before paying the exporter.


The remittance mainly includes three types: Telegraphic Transfer (T /T), Mail Transfer (M /T), and Demand Draft (D /D).

T/T Transfer

T/T(Telegraphic Transfer) means that the remitting bank, upon the application of the remitter, sends a Tested Cable /Telex or via SWIFT to the receiving bank of the foreign country, instructing it to pay a certain amount to the beneficiary.
T/T is one of the most commonly used methods of remittance. The business process is: the remitter submits a wire transfer application and delivers the money to the remitting bank, and then the remitting bank sends a telegram or telex to the paying bank. The paying bank sends a wire transfer notice to the beneficiary, and the beneficiary goes to the bank to redeem the payment after receiving the notice, and the bank conducts the payment. After the payment is completed, the paying bank will issue a debit notice to the remitting bank, and the remitting bank will also send a telegraphic transfer receipt to the remitter.
Telegraphic transfer in the telegram cost by the remitter to bear, the bank to telegraphic transfer business are generally the same-day processing. Larger remittance to the amount or through SWIFT or the remittance between the bank uses telegraphic transfer means more.
TT, although it has some risks, low cost, is now very popular in the world of foreign trade payment.

Several ways of TT

1. TT 100% prepayment. This means you need to pay in full when you place your order. This is rare and riskier for the buyer. When you pay, the whole ball is in the supplier’s court and you have no control over anything. Dishonest China suppliers may be free to delay the delivery time, can send you substandard products, or worse. This is absolutely not acceptable for large orders.
2. 100% T/T before shipment (after finishing the order), which is riskier for China suppliers. Unless you’re a strong company like Apple, Walmart, and have long-standing relationships with China suppliers who otherwise would not accept such payment methods.
3. 30% deposit, balance against B/L copy, which is the most common and the fairest way of payment. Especially in the electronics industry.
4. 20% T/T deposit, 50% T/T payment after production and after passed QC inspection, 30% after delivery in buyer’s country.  This method of payment is also relatively favorable to you, but the only drawback is that you need to arrange three payments. There is a bit of trouble, and you have to pay three commission fees, which can run into hundreds of dollars. This payment term give you “some leverage until you receive the goods. If the China manufacturer played games during the inspection, or ‘salted’ bad products into your order just before shipment, you can still catch it.”

The initial 30% PO value is the deposit.

This allows China suppliers to buy materials and lock in prices (especially important if they have long lead times or handle materials with high price fluctuations, such as metals). The second payment, 50%, occurs upon confirmation of mass products quality. Buyers will then pay the final 20% when they receive the goods and inspect them at their final destination.
Let’s look at this 30-50-20 from the buyer and seller’s point of view to find out why it’s an acceptable middle ground. The sellers are worried that the buyers will default on payment, so getting 80% (30 + 50) before the goods leave the port limits their exposure. Since the average factory markup in China is between 20 and 30 percent, 70 percent of the cost covers at least most of his internal costs, so even if the buyer defaults, it won’t bankrupt him.
The biggest concern for buyers is that the goods will be of poor quality or not be available at all. By reserving the last 20% until delivery, the buyer can leverage if quality problems require rework or replacement of parts. It is also important to remember that only 50% of the payment is paid when they inspect the goods in China. Therefore, if you want to be safe, quality verification must be a critical part of the payment process.
Generally speaking, the standard payment terms are 30% down payment prior to China manufacture and the balance on completion but prior to shipment (or at least prior to the issuance of the original bill of lading). When and under what conditions you make your second and final payment is crucial.、
It’s all about motivating China suppliers to comply with your requirements. Therefore, balance payments must be withheld until the lot has been approved by the quality inspector and the final laboratory test results are returned. In this case, if the China supplier does not provide the goods that meet your requirements, you can refuse to accept the goods and arrange a balance payment. The China supplier will suffer a great loss. Because their production costs are usually around 70% of sales, a 30% deposit is far from making up for their losses. So in this condition, the China supplier will be in strict accordance with your requirements of production.
But please note that the results of many quality inspection companies can not be trusted. You must cooperate with a quality inspector you can trust, otherwise you may receive a false inspection report and create a risk of receiving defective products. This is a fact that you should know, 5 secrets of China suppliers that will affect your interests (Every buyers should know)

T/T payment process (30% deposit, balance against B/L copy)

  1. Deposit (30%)
  2. Started to produce
  3. Production of complete
  4. Quality inspection/conformity testing
  5. Buyer approves lots
  6. Deliver to the port of loading (e.g. Shenzhen)
  7. Provide a scanned copy of bill of lading
  8. Loading and shipping
  9. Balance payment (70%)
  10. Seller sends an original bill of lading and other shipping documents (need to release goods at the destination port)

The L/C

Letter of Credit (L/C) is one of the most secure instruments available to international traders. A letter of credit is an undertaking made by the bank on behalf of the buyer to pay the exporter provided that the terms and conditions specified in the letter of credit have been met and have been verified by providing all the necessary documents.
The buyer establishes a Letter of Credit and makes a payment to its bank to provide this service. Letters of credit are useful when reliable credit information about the foreign buyer is difficult to obtain, but the exporter is satisfied with the creditworthiness of the buyer’s foreign bank. A letter of credit also provides protection to the buyer because the obligation to pay does not arise until the goods have been shipped in the promised manner.
A letter of credit is a very safe way of payment for both parties. For buyers, it can reduce the risk of products not in accordance with the documents. For China suppliers, they can receive money on time. In addition, the way has no limit for the order amount, so it is suitable for large orders. You can choose to issue the usance L/C, which is beneficial for you to manage your cash flow. But L/C will need a lot of extra paperwork and not all companies can issue L/C. The issuing bank will give the credit line after evaluating the China company’s performance. So for small orders, L/C is inadvisable. And your bank is going to charge 2% or so of the entire payment.
It’s entirely up to the buyer and seller to negotiate which specific documents the latter must provide before the transaction is made. A few examples of such conditions are listed below:

  • Bill of Lading (issued on or before a certain date, to avoid delays)
  • Approved Quality Inspection Report/s (to avoid shipment of defective items)
  • Approved Laboratory Testing Reports (to avoid shipment of non-compliant items)

Type of Letter of Credit

According to the payment time, it can be divided into

1. Sight L/C.

The issuing bank or the paying bank shall make payment upon receipt of documentary drafts or shipping documents in conformity with the terms of the credit.

2. Usance L/C.

The issuing bank or the paying bank shall, upon receipt of the documents of the L/C, fulfill the payment obligation within the specified time limit

3. Usance Credit Payable at Sight.

A credit stipulates that a usance draft drawn by the beneficiary is to be discounted by the drawee bank and that all interest and charges are for the account of the openers.

This letter of credit is still payable at sight for the beneficiary and has a clause  of “usance L/C payment at sight.”

The basic contents of a letter of credit

1. Description of the letter of credit itself: type, nature, number, amount, issuing date, expiry date and place, names and addresses of the parties, transferability of the right to use this letter of credit, etc.
2. Drawer, drawee, time limit and draft terms, etc.
3. Name, quality, specification, quantity, packing, transportation mark and unit price of the goods;
4. Transportation requirements: time of shipment, port of shipment, port of destination, mode of transportation, whether freight should be prepaid, whether partial shipment and transshipment can be made in transit, etc.
5. Requirements for documents: type, name, content and number of copies, etc.;
6. Special provisions: different provisions may be made according to the changes in the political, economic and trade conditions of the importing country or the needs of each specific business;
7. Issuing bank’s obligation to beneficiary and draft holder to ensure payment.

L/C payment process (Sight L/C)

1. The seller and the seller sign a sales agreement which sets out the conditions that must be met before the payment can be released

2. The buyer will contact his local bank to fill out the application form and pay the deposit or provide other security according to the contract

3. The issuing bank shall issue a letter of credit to the beneficiary and forward it to the advising bank at the place where the exporter is located.

4. The advising bank shall deliver the L/C to the beneficiary after verifying the seal

5. Started to produce

6. Production of complete

7. Quality inspection and product testing

8. The sellers shall make shipment, prepare the documents and draw the draft under the L/C and present the draft to the negotiating bank for negotiation within the validity of the L/C.

9. The negotiating bank shall advance the payment to the beneficiary after verifying the documents according to the L/C terms and conditions.

10. The negotiating bank will forward the draft and shipping documents to the issuing bank or its designated paying bank for reimbursement.

11. After the issuing bank verifies the documents, the payment will be made to the negotiating bank.

12. The issuing bank notifies the applicant to pay the redemption note.


There are mainly two kinds of collection: Documents Against Payment (D/P) and Documents Against Acceptance (D/A).
D/P means documents against payment. The seller prepares the documents for negotiation after delivery and delivers the documents through the seller’s bank to the customer’s bank. The customer’s bank will inform the customer that the documents have arrived and the bank will deliver the documents after the customer pays.
D/A means Documents Against Acceptance, which is also delivered to the customer’s bank through the seller’s bank. The difference is that the customer can take the original documents only after accepting the seller’s documents, and pay after maturity.
The difference between D/P and D/A is that D/P must pay the money first and then get the bill of lading. If the bank releases the document without authorization, the bank is responsible for it.
D/A, The bill of lading shall be available when the importer makes payment after XX days’ acceptance of the bill of exchange.  If the payment is not made after the expiry of the time limit, the bank is not liable.
D/P Documents Against Payment is a method of document delivery under the mode of documentary collection. It indicates that the presentation of Documents by the exporter is conditional on the payment of the importer. In other words, the importer can only collect the documents from the collecting bank after the payment of the importer.
It is divided into D/P Sight (D/P Sight), which means that the exporter issues the draft at sight, and the collecting bank presents it to the importer. The importer shall pay the bill at sight, and the importer will get the shipping documents when the payment is paid off.

D/P after sight or after date means that the exporter issues a usance draft, and the collecting bank presents it to the importer. After the importer accepts the draft, the importer shall pay the bill of redemption on the maturity date or before the maturity date of the draft.

D/A Documents Against Acceptance is a method by which the exporter (or collecting bank) delivers the Documents to the importer on the condition of Acceptance under the documentary collection method.
The so-called “acceptance” is the bill payer (import side) in the collection of the bank to prompt the usance bill, the bill of exchange recognition behavior. The procedure of acceptance is that the drawee signs the bill, marks “accepted” and the date, and returns the bill to the holder.No matter how many times a bill has been transferred, the drawee should pay against the draft at maturity.

Compared with L/C, the above only D/P Sight is OK, and the others are all relatively risky for China companies. Unless it is a long-term relationship with the old customer, otherwise the China supplier is unlikely to accept.

D/P payment (D/P) and D/A payment (D/A) are seldom used. Mainly because these two kinds of payment methods belong to commercial credit, that is, whether the export China company can receive the payment depends entirely on the credit of the importer. Whether the importer can receive the goods on time, quality and quantity also depend on the credit of the exporter. Therefore, these two kinds of payment are mostly used by importers and exporters with good reputations.
D/P is very risky, but if it is combined with T/T, it is still a good mode of delivery. Because some countries, some companies like to use D/P. So for example, 30%T/T in advance, 40% after shipment, the balance D/P. That’s safer than 100% T /T.

D/P Payment Process(D/P at sight)

1. The buyer and the seller agree in the contract to adopt D/P settlement method, which is the basis
2. Started to produce
3. Production of complete
4. The seller prepares all the documents (including shipping documents such as bill of lading, and commercial documents such as bill of exchange, invoice, etc.) after delivery of the goods
5. The seller shall submit the D/P collection request to its foreign exchange correspondent bank, fill out the collection instruction and deliver all documents
6. The seller’s foreign exchange bank will accept the collection instruction and all the documents after verification and acceptance, and issue a receipt to the seller
7. The seller’s correspondent bank shall send the full set of documents in two installments to the buyer’s correspondent bank (which may be appointed by the seller’s bank or as specified by the seller in the collection instruction, the latter being more likely)
8. The buyer’s bank will present all the documents to the buyer upon receipt of the documents.
9. Payment by the buyer to the buyer’s bank
10. The buyer’s bank will hand over all documents to the buyer upon receipt of the buyer’s payment.
11. The buyer’s bank transfers the money received to the seller’s bank, which transfers the money to the seller’s bank.

Open account

Generally abbreviated as “O/A”, it is payment after delivery. After the goods are exported, the seller shall send the shipping documents directly to the buyer, and the payment for goods shall be recorded into the buyer’s account in the name of credit. Settlement shall be made after the expiration of the contract period. Such bookkeeping transactions, which are risky for the seller, are rarely used in international trade except by large companies selling their products to overseas subsidiaries. This is a payment method of trade credit, which completely depends on the credit of both the buyer and the seller, and contains a great risk of foreign exchange collection.

4 FAQs about the payment terms

What are the standard payment terms when importing from China?

Most china companies require a 30% deposit, the remaining 70% must be paid before shipment or before you receive the original bill of lading. Although this means that you are putting money at risk, you will still have to control the remaining balance and pay only after quality control and laboratory testing.

Can I pay my China supplier after the goods arrive?

No, the China manufacturer needs your deposit to secure the order and purchase the raw materials, so you have to pay the supplier before they can arrange the production. At best, your supplier can agree to accept payment upon release of B/L and nothing more.
It is too risky for the China manufacturer to pay when the goods arrive, just as you are required to pay in full when you place an order. Suppliers may also be afraid of cheating by dishonest sellers.

Can I get credit from China suppliers?

Powerful buyers such as Apple and Walmart can get generous credit lines from China suppliers that, for example, allow them to pay within 90 days of delivery. But smaller buyers don’t get the same discounts.

What is the safest way to pay for imported products?

It all depends on the type of transaction and how it is managed. Wire transfers, for example, are not secure in the sense that there is no refund mechanism. However, if you manage the payment process well, it can control you to the maximum extent possible, while also making it relatively easy to ensure that you pay the right China company.
On the other hand, letters of credit offer greater security, but may also pose risks if the terms are made by people without the proper experience.
Generally speaking, while there are many ways you can pay your Chinese suppliers, in the end, wire transfers are still the most direct and popular way. Only the larger, more established factories have the flexibility to support other payment methods.
Now that you know the terms of payment, you can boldly continue your business journey to China!

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