Supplier payments are the part of the process where an importer has the least room for error and, almost always, the least information. Goods can be inspected and freight can be requoted, but a wire transfer that has already been sent does not come back. This note covers how payments are structured, which instruments are actually used, and when each portion should be released.
How is a normal payment structured?
The most common structure is 30/70: a 30% deposit so the factory can buy raw material and start production, and the remaining 70% against a copy of the bill of lading. It is not a rule or a law, it is commercial custom, and the split is negotiable.
What matters in that arrangement is not the 30, it is the 70. The deposit buys the start; the balance is the only leverage left when a quality problem shows up. A supplier asking for 100% up front is asking the buyer to give up that leverage before knowing what will be shipped.
There are reasonable variations. A custom mould or tooling is usually paid separately and in advance, because the supplier cannot resell it. A sample order is paid in full without argument: the admin cost of splitting it exceeds the amount.
Which instruments are used for supplier payments?
Almost all supplier payments to Chinese factories move by international wire, the T/T. It is fast, it is cheap compared to the alternatives, and it offers no protection: once credited, getting the money back depends on the recipient’s goodwill or on a lawsuit in China.
The letter of credit exists and works, but it carries a cost and a friction that keep it out of most small and mid-sized operations. It forces a bank to review documents, which means any discrepancy between what was agreed and what is presented stops the payment, as the International Chamber of Commerce (ICC) Academy explains. For a large first order with a new supplier it can be justified; for routine reorders, rarely.
Wholesale marketplaces offer escrow-style arrangements, where the money is held until the buyer confirms receipt. They work as a safety net for small transactions and have one clear limit: they protect the transaction that went through the platform, not the commercial relationship that continues outside it.
The destination account says more than the contract
Before releasing any of the supplier payments, the detail most worth checking is who is being paid. The beneficiary name has to match the legal name on the supplier’s business licence, the document carrying the unified registration number, according to the State Council of China. If one company issues the invoice and the account belongs to another, something needs explaining before the transfer.
Three situations that deserve a question:
- A personal account. Paying an individual rather than the company leaves the buyer without documentary standing against the company itself.
- An account in a third country. It is common and not a red flag by itself, but it changes who the legal counterparty is, and that is worth knowing before rather than after.
- A change of account mid-order. An email announcing that “the bank details have changed” is a known form of fraud in foreign trade. It gets confirmed through another channel, always.
When the balance is released
Releasing the 70% is the decision that moves the most money in supplier payments, and the one most often made out of habit rather than judgement.
The order that protects the buyer is: production finished, inspection done, report passed, and only then the balance. If the inspection happens after payment, it stops being a decision and becomes a formality: the money is gone and all that is left is a claim.
Paying against a copy of the bill of lading rather than the original follows similar logic. With the original in hand, the goods cannot be collected without the buyer. It is the last physical guarantee in the operation and it is handed over once.
Currency is a decision too
Most transactions are quoted and paid in dollars. Paying in renminbi is possible and sometimes improves the price, because the supplier stops carrying the exchange risk and can pass that saving on. The downside is that the buyer now carries it.
There is no single answer: it depends on how much time passes between the quote and the final payment, and on whether the importer has a way to hedge. What does not help is discovering the difference when the statement arrives.
How should supplier payments be organised before the first order?
Four things worth putting in writing before the first transfer, and very hard to add afterwards:
- The exact milestone for each portion. “Against shipment” is ambiguous. “Against a copy of the B/L and a passed inspection report” is not.
- What happens if the inspection fails. Rework, discount or rejection, with deadlines. Without that, the discussion starts when a container is already sitting still.
- Bank details verified through a different channel. A phone call is enough.
- Currency and price validity. A quote with no expiry date is not a quote.
Frequently asked questions
What is the 30/70 structure in supplier payments to China?
It is the most common structure: a 30% deposit so the factory can buy raw material and start production, and the remaining 70% against a copy of the bill of lading. It is not a rule or a law but commercial custom, and the split is negotiable.
Why is paying 100% up front a bad idea?
Because the balance is the only leverage the buyer has left when a quality problem shows up. The deposit buys the start of production; paying everything in advance means giving up that leverage before knowing what will be shipped. The reasonable variations are custom tooling, paid separately, and sample orders.
What should be checked on the destination account before supplier payments?
That the beneficiary name matches the legal name on the supplier’s business licence. Three situations deserve a question: a personal account, an account in a third country and, above all, an email announcing changed bank details, which is a known form of fraud in foreign trade and is always confirmed through another channel.
Does a letter of credit protect more than a wire transfer?
A T/T wire is fast and cheap, but it offers no protection: once credited, getting the money back depends on the recipient or on a lawsuit in China. A letter of credit forces a bank to review documents, but its cost and friction keep it for cases such as a large first order with a new supplier.
Should you pay in dollars or in renminbi?
There is no single answer. Most transactions are quoted and paid in dollars. Paying in renminbi sometimes improves the price, because the supplier stops carrying the exchange risk, but the buyer then carries it. It depends on the time between the quote and the final payment, and on whether the importer can hedge.
None of this replaces knowing the supplier, and no structure of supplier payments turns the wrong factory into a sound operation. What it does is keep a normal production problem from also becoming a money problem.