Payment terms are usually discussed as a percentage — how much deposit, how much on completion. The percentage matters less than what triggers each payment. A structure where the final payment is released against evidence gives you leverage at the only moment you have any.
The common structures
Deposit and balance
The standard arrangement: a deposit to start production, the balance before shipment or against shipping documents. It is simple, universally understood, and adequate for most orders.
The important detail is what the balance is paid against. "Balance before shipment" and "balance against inspection report" are very different agreements. The second one means the factory has a direct interest in passing inspection; the first means they have your money either way.
Letter of credit
A bank undertakes to pay against a specified set of documents. It gives both sides a neutral party and is common on larger orders.
Two things to understand. Banks check documents, not goods — a compliant set of paperwork triggers payment regardless of what is in the container. And letters of credit cost money and administrative effort on both sides, which is why they rarely make sense below a certain order size.
Escrow and platform protection
Marketplace trade assurance schemes hold funds until you confirm receipt. Useful for smaller orders, with the caveat that the protection generally applies only to transactions conducted entirely within the platform. Moving the conversation and the payment off-platform, which suppliers often propose, usually removes it.
Open account
Paying after delivery. Rare for a new relationship and generally only available once you have a substantial history, since it puts the entire risk on the supplier.
What the deposit is actually for
A deposit is not a gesture of good faith. It funds materials, which the factory buys before production. This is why a supplier who asks for nothing up front on a custom order is unusual rather than generous, and why asking for the entire amount before production is a different proposition altogether.
Be deliberate about timing as well as amount. A deposit paid immediately before a long shutdown — Chinese New Year in particular — means committed money, limited visibility and slow communication for weeks.
The failure that costs the most
It is not a factory taking a deposit and disappearing. That happens, and it is survivable because deposits are partial.
The expensive failure is payment redirection. Someone with access to the email thread — often through a compromised mailbox on either side — sends revised bank details shortly before a large transfer. The message is in the existing conversation, references the correct order, and arrives at exactly the moment a payment is expected. The money goes to the wrong account and is generally unrecoverable.
The defence is a single rule, and it is not technical:
Never accept changed bank details by email. Ever. Verify by voice, on a number you already had, before any transfer to new details.
Not a number in the email. Not a number on the new invoice. A number you were already using. Our own payment security policy commits us to the same rule in the other direction, because the risk runs both ways.
Other things worth insisting on
- The account holder must be the contracting company. If the invoice is from one entity and the account belongs to another, stop and find out why before transferring anything.
- Payment milestones tied to evidence. Production photographs, an inspection report, shipping documents. Each one is a checkpoint you otherwise do not have.
- Everything in the contract. Amounts, triggers, currency and who pays bank charges. Charges are small and they generate arguments.
- Consistency. Beneficiary name, invoice entity and business licence should all match. Where they do not, there should be a clear and verifiable explanation.
Which instrument you settle with is a separate question from how the payments are staged — what each method actually protects is in how to pay Chinese suppliers.
