China Payment Terms Explained: T/T, L/C, and How Not to Get Burned

Payment terms are where sourcing deals go wrong. Not because of fraud (usually) — but because buyers and factories have opposite incentives, and poorly structured terms leave one side holding all the risk.

This guide explains every payment method you’ll encounter sourcing electronics from China, and how to structure terms so you’re not the one taking all the risk.

The core tension

Factories want money before they spend on materials and labor. Buyers want goods before they pay in full. Neither is wrong — both have legitimate business reasons.

The result is a negotiation. Understanding the tools gives you leverage.

Telegraphic Transfer (T/T)

T/T is a direct bank wire. It’s the dominant method for China sourcing because it’s fast, cheap, and requires no bank infrastructure beyond a SWIFT-capable account.

The standard structure you’ll see quoted

30% deposit / 70% before shipment — this is the most common structure for first orders. You pay 30% to confirm the order, factory produces, you pay the balance before they release goods.

Why this is the factory’s preferred structure: they’re covered for materials and most of the labor before you see anything. If you disappear, they have product they can sell elsewhere. If they produce badly, you’re still obligated to pay or walk away from your deposit.

50/50 — more common for smaller orders or established relationships. The factory may accept this when they know the buyer, or when the order is small enough that materials cost is under the deposit.

100% upfront — what factories want from unknown buyers. Walk away from this unless you have very strong trust signals about the factory, or you’re ordering samples.

30% deposit / 70% against copy of B/L (Bill of Lading) — this is the buyer-friendly variation. You pay 70% when the factory hands the goods to the freight forwarder, and they send you a scan of the B/L as proof. Still some risk (goods are on a ship you haven’t inspected), but meaningfully better than paying before shipment.

Structuring T/T to protect yourself

1. Pre-shipment inspection before releasing the balance. Write this into your PO: “Balance T/T released upon successful pre-shipment inspection.” You can hire a third-party inspector for $200-300; the cost is trivial against the protection.

2. Use copy of B/L as trigger. Not “before shipment” — that can mean two days before the boat leaves, after everything is packaged. Against copy of B/L means goods are in the hands of the carrier.

3. Specify the bank account in the contract. Factory bank accounts do change. Get written confirmation of the correct account before each wire. Phone-based fraud where someone intercepts your email and substitutes a different account is rare but real.

4. Wire in USD, not RMB, from a major bank. Cross-border wires in USD route through correspondent banks and have better dispute infrastructure than local transfers.

Letter of Credit (L/C)

An L/C is a bank guarantee. Your bank issues a document promising to pay the factory’s bank when specific conditions are met (documents proving shipment, inspection, etc.). Neither you nor the factory touches the money — it moves bank-to-bank against documentary evidence.

When L/C is appropriate

• Orders over $100,000 where the risk justifies the cost
• Relationships where you don’t trust the counterparty but the deal makes sense
• When your corporate policy requires L/C for imports above a threshold
• When the factory specifically requests it (some larger factories prefer L/C because it’s bankable — they can borrow against it)

Why most hardware startups don’t use L/C

The cost is real: 0.5-2% of the letter value in bank fees, plus weeks of setup time and significant paperwork. For a $20,000 order, that’s $100-400 in fees plus the friction. T/T with good inspection structure often provides comparable protection at a fraction of the cost.

L/C also requires the factory to comply with exact document specifications — a B/L that says “107 cartons” when the L/C says “108 cartons” can trigger a discrepancy that delays payment for weeks. Factories dealing with L/C for the first time often make these mistakes.

Sight L/C vs. usance L/C

A sight L/C pays the factory immediately upon presentation of complying documents. This is what you want as a buyer — the factory gets paid immediately, so there’s no interest cost baked into your price.

A usance L/C (also called “deferred payment” or “term” L/C) pays 30, 60, or 90 days after shipment. This is effectively a credit facility — you get the goods now and pay later. The factory usually prices this in (higher quoted price to cover their financing cost), but it can be useful for managing cash flow.

Escrow

Escrow services hold the buyer’s payment until delivery and inspection conditions are met. Alibaba Trade Assurance and various third-party services offer this.

Trade Assurance (Alibaba)

Trade Assurance is Alibaba’s built-in escrow. You pay Alibaba, Alibaba releases to the factory after delivery confirmation, and Alibaba handles disputes. The protection includes refund coverage if the factory ships the wrong goods or significantly below-spec product.

When it works well: Small orders ($1,000-20,000) with Alibaba-listed suppliers. The verification that a supplier is listed on Alibaba and has Trade Assurance history is itself a meaningful filter.

Limitations: Only covers purchases through Alibaba. Once you move to direct factory relationships (which you should, eventually), you lose Trade Assurance. Dispute resolution is slow (4-6 weeks typical) and favors documented claims, not emotional ones.

Pro tip: Even with Trade Assurance, file a claim with detailed photo evidence of defects — not just “quality not as agreed.” Document specific measurements, certifications, defect categories. Trade Assurance disputes that win are the ones with clear before/after specs.

What to actually do at each stage

Samples / prototypes: 100% T/T upfront is standard and reasonable. The factory is doing custom work, quantities are low, and you’re establishing the relationship. Don’t fight this.

First production order: 30% deposit / 70% against copy of B/L, with pre-shipment inspection as a condition of releasing balance. This is defensible to any factory you’d want to work with. A factory that won’t accept pre-shipment inspection is a red flag.

Repeat orders with a trusted factory: You can relax terms. 30/70 is still standard, but you might get to net-30 against invoice (essentially open account) with strong partners. This is earned through order history, not assumed.

Large orders ($100k+): Consider L/C, or at minimum split shipments so you’re never paying 70% of a very large order before you’ve seen any of the goods.

Currency risk

Most electronics components are quoted in USD. Finished goods are often quoted in USD but manufactured in RMB. When RMB appreciates (as it has done generally over time), factory margins compress. Factories absorb short-term fluctuations, but a 5%+ move in your negotiating window can change your quoted price.

Lock your price in the PO in USD with language like: “Price is fixed at $X USD per unit regardless of currency fluctuation.” Not all factories will accept this, but established ones usually will for order windows of 90 days or less.

Payment methods compared

Summary: a decision tree

• Order value < $5,000: T/T, potentially 50% or even 100% upfront if it’s a test order. The risk is manageable.
• $5,000-50,000: 30% deposit / 70% against copy of B/L with inspection condition. Use Alibaba Trade Assurance if supplier is listed there.
• $50,000-200,000: Same structure, but make inspection non-negotiable and consider splitting into two shipments.
• $200,000+: Talk to your bank about L/C, or use an escrow service with explicit conditions. Consider phased delivery.

The goal isn’t to eliminate risk — it’s to balance risk appropriately between buyer and factory so neither party has all of it.

Working with a sourcing agent on payment terms

If you’re placing your first order through a China manufacturer, structured payment terms are one of the things a sourcing agent handles on your behalf — negotiating deposit structure, linking balance payment to inspection sign-off, and verifying bank account details before each wire.