How should I structure payment terms with a Chinese supplier?
The principle is to keep a meaningful balance outstanding until after you know the goods are right. A deposit funds materials; the balance should attach to an inspection result rather than to a shipping date. Paying in full before dispatch removes the only leverage that reliably works.
Payment terms are usually treated as a financing question. They are really a control question: at each moment, who is holding something the other side wants? Every dispute that ends badly for a buyer has the same feature — by the time the problem was visible, the buyer had already paid and had nothing left to withhold.
What each stage is buying
| Stage | What it is for | What to attach it to |
|---|---|---|
| Deposit | Materials, tooling, and the supplier’s confidence that you are real | The signed contract and specification, not a verbal agreement |
| Progress payment (larger orders) | Funding a long production run | A verifiable milestone, not a calendar date |
| Balance | The goods being right | A satisfactory inspection result — before dispatch where possible |
| Retention (occasionally) | Defects that only appear later | A defined period after arrival; needs to be agreed up front, not imposed |
Why the balance should attach to inspection, not shipping
The common term is balance against a copy of the bill of lading — that is, against the goods having left. It is easy to administer and it is precisely the wrong trigger, because it pays for dispatch rather than for conformity. A pre-shipment inspection, with the balance released on a pass, moves the decision point to before the goods are on the water and before the money is gone. Suppliers who are confident in their work generally accept this; the reaction to the proposal is itself informative.
Verify the account before the first transfer and re-verify on any change, through a channel you initiated — a phone number you already had, not one in the email requesting the change. Bank details that change by email are the single most common supply-chain fraud, and it is usually the buyer’s or the supplier’s mailbox that has been compromised rather than either party acting dishonestly.
The instruments, briefly
- Telegraphic transfer. The default. Fast, cheap, and with no built-in protection once sent.
- Letter of credit. Shifts the risk into documents: the bank pays against conforming paperwork, which is not the same as conforming goods. Useful at scale, administratively heavy, and it rewards precision in the documentary conditions.
- Platform escrow. Real protection, but only for orders placed and paid inside the platform. Moving the payment off-platform to save a fee usually means leaving the protection behind.
What suppliers reasonably push back on
A new customer with no history asking for extended terms, a small order with a large retention, or an inspection right with no agreed standard to inspect against — these are fair objections. The way through is symmetry: a clear specification, an approved sample, a named inspector and a defined pass criterion give the supplier certainty about what they must achieve, which is what makes payment on inspection acceptable rather than open-ended.
The first order is different
On a first order with an unverified counterparty, the exposure is not really the payment terms — it is that you may be paying an entity you have not established the existence of. Terms are a control that operates within a relationship. Verifying who the counterparty is comes before the question of how to pay them.
Want this done rather than explained?
Verify a Chinese supplier before you pay — from US$220, 3–7 working days.
Sources
- International Chamber of Commerce — UCP 600, the rules governing documentary credits
- National Enterprise Credit Information Publicity System (GSXT) — for confirming the account name matches the registered entity
All sources checked 7 September 2026. This page is general information, not legal, tax or customs advice. Requirements vary by product, market and circumstance — confirm your own position before acting.