You negotiated the price, the MOQ and the lead time — then the supplier asks, “What payment terms do you prefer?” For new importers, this question is more confusing than the price itself. Get your China payment terms wrong and you either overpay in fees, give away all your leverage, or risk losing a deposit to a fraudster. This guide explains how T/T, L/C, PayPal and escrow actually work, what ratios Chinese factories expect, and how to negotiate terms that protect both sides.
1. T/T (Telegraphic Transfer): The Industry Standard
T/T is simply a bank wire from your bank to the supplier’s Chinese (or Hong Kong) corporate account. It is the default payment method for 80% of China trade. There is no intermediary holding the money — once wired, it is the supplier’s cash.
Common T/T ratios you will see:
- 30% deposit / 70% balance before shipment (30/70): the universal standard. The supplier starts production with your 30%, and you pay the remaining 70% against the copy of the bill of lading or before the container leaves China.
- 30% / 30% / 40: deposit 30%, second 30% after pre-production sample approval, final 40% against copy B/L. Common for custom mold projects.
- 50/50: requested for very custom or low-MOQ items where the supplier bears raw-material risk. Negotiate it down.
- 100% against B/L after shipment (O/A 30/60): open account — only available to established buyers with repeat order history, or via your trade-insurer / bank.
Pros: low fees (USD 20–50 per wire from your side, plus intermediary bank fee USD 15–30), fast (1–3 working days), universally accepted by Chinese factories. Cons: no buyer protection — once wired you must trust the supplier. Mitigate by paying balance against inspection report, not just against B/L.
2. L/C (Letter of Credit): Bank-Backed, Fraud-Proof, Expensive
A Letter of Credit is a guarantee from your bank to the supplier’s bank: if the supplier presents the exact documents listed in the L/C (commercial invoice, packing list, bill of lading, inspection certificate), the bank pays them automatically. It is the most secure payment instrument for large or first-time deals.
- Sight L/C (L/C at sight): supplier is paid as soon as compliant documents are presented. Best for buyers who want certainty.
- Usance L/C (L/C 30/60/90 days): payment is deferred 30–90 days after document presentation. Useful for cash-flow management; supplier usually builds the financing cost into the price.
- Cost: your bank typically charges 0.125–0.25% of the L/C value plus issuance and amendment fees. For a USD 50,000 L/C, expect USD 150–400 in bank charges.
- Watch out: L/Cs are legal instruments. Any discrepancy between the documents and the L/C wording gives the supplier’s bank an excuse to refuse payment — or gives you an excuse to refuse payment. Engage your bank’s trade desk early and never accept an L/C draft without your bank reviewing it.
Best for: orders over USD 30,000, first-time suppliers you cannot fully verify, or commodity purchases where you want bank-grade protection. Overkill for small Alibaba orders.
3. PayPal, Escrow and Platform Protection
For small orders and early-stage relationships, third-party platforms do the trust work for you.
- PayPal: fees are 4.4% + fixed fee per transaction, plus a 2.5% currency conversion surcharge. Buyer protection covers goods not received or not as described, but Chinese suppliers often push back hard on fees. Use for samples (USD 50–500) only, never for bulk.
- Alibaba Trade Assurance: free built-in escrow on Alibaba-verified suppliers. You pay Alibaba; they release funds to the supplier after you confirm receipt or after a set date. Covers product quality, shipping damage and non-delivery. Best first-order protection for deals under USD 20,000.
- Made-in-China / Global Sources escrow: similar platform protection, slightly less common.
- Independent escrow (Escrow.com): neutral third party for deals not on a B2B platform. Fees start around 0.9% (minimum USD 25). Works for custom tooling and one-off projects.
4. How to Negotiate Payment Terms Like a Pro
Terms are a negotiation, not a fixed menu. Use this ladder to improve your position order by order:
- Order 1 (test): Alibaba Trade Assurance or PayPal for the sample, then T/T 30/70 with a third-party pre-shipment inspection on the balance. Do not ask for better terms yet.
- Order 2–3 (build trust): move to T/T 30/70 to the corporate account. Ask for the balance to be payable after your QC inspection, not just against B/L.
- Order 4+ (repeat buyer): ask to reduce the deposit to 20% or even 15%. Suppliers will usually agree if your volume is predictable.
- Large / strategic orders: ask for L/C at sight (supplier protection) or offer L/C 60 days (your cash-flow protection) depending on who has more leverage.
- Always negotiate: mold/amortization fees, tooling ownership, and who absorbs the bank charges (typically split 50/50). Put the agreed payment route, bank name and account number in the signed Proforma Invoice — never change bank details verbally or by email alone.
One final safety rule: if a supplier ever asks you to wire to a different account mid-project, call them on a previously known number to confirm. Email-hijacking scams on China T/T payments are common and can cost you the entire order.
Which Terms Should You Use?
Match the instrument to the order size and relationship stage: samples on PayPal, first bulk orders on Trade Assurance with a 30/70 T/T structure, repeat orders on plain T/T 30/70, and large strategic orders on L/C. Never pay 100% upfront, and never wire to a personal account. For a complete walk-through of how payment terms fit into a safer sourcing workflow, browse our China procurement guides on supplier verification, order contracts and customs clearance.