Payment Terms With Chinese Factories: Deposit, Balance and Risk
Short answer: the standard terms for custom metal parts from China are 30% deposit by T/T with the 70% balance before shipment, and separate tooling paid on its own schedule. That structure is normal, not a red flag — it funds the material the factory must buy for your job. Your leverage points are the two things you control: never pay the balance until an independent inspection and shipping documents are in hand, and never send money to a bank account that changed by email. For orders above roughly $20,000–50,000, an irrevocable letter of credit at sight replaces trust with bank obligations.
Payment terms are where most China sourcing relationships are won and lost, and where most first-time buyer anxiety concentrates. The anxiety is justified — you are sending a deposit to a factory on the other side of the world for goods you have not seen — but the antidote is structure, not suspicion. This guide explains why the deposit exists, what the standard structures look like, how tooling should be paid separately, which payment methods cost what, and the specific fraud patterns that target buyers wiring money to China.
Why the Deposit Exists
A custom part has no value to anyone except its buyer. When you order machined or stamped parts with your drawing, the factory buys raw material to your specification — bar stock, coil, sheet — and books production capacity before it sees a yuan of revenue. The deposit is not a penalty or a power play; it is the factory protecting itself against exactly what you fear: a counterparty who disappears. Material for a serious order can run to thousands of dollars before the first part is cut, and no factory can absorb that risk across dozens of customers.
The deposit size tracks the risk the factory carries. Stock or catalog parts, which the factory can resell if you walk away, typically need no deposit or a small one. Semi-custom work — standard parts with modifications — usually runs 30%. Fully custom parts with your tooling and your drawings typically run 30–50%, because the material is dedicated and the capacity cannot be resold. Orders with expensive raw material, such as beryllium copper or specialty stainless, may carry a higher deposit or a separate material surcharge for the same reason. When a factory asks for a deposit, ask what it covers; a straight answer naming material and capacity is the answer you want.
| Term structure | Typical use | Buyer risk | Notes |
|---|---|---|---|
| 100% advance | Samples, small stock orders | Low value only | Acceptable under roughly $500 |
| 30% deposit, 70% before shipment | Custom parts, first orders | Moderate | Standard; protect with inspection before balance |
| 30% deposit, 70% against B/L copy | Custom parts, established suppliers | Lower | Balance releases when goods are on board |
| 30/40/30 across milestones | Large tooling-heavy programs | Lower | Milestones tied to first article and approval |
| LC at sight | Orders above $20k–50k | Low | Bank-guaranteed payment against documents |
| Open account (net 30/60) | Mature suppliers with history | Highest | Earned after years of clean orders |
The Balance-Release Moment: Before Shipment vs Against Documents
The 70% balance is where your control lives, and the single most valuable clause you can negotiate is what triggers it. The buyer-friendly version: the balance is due against a copy of the bill of lading plus a passed inspection report, meaning the goods are on board a vessel or courier and independently checked before you pay. The factory-friendly version: the balance is due when the goods are ready and the factory says so. Between those two sentences sits most of the risk in China importing.
For first orders, hold the line on inspection-linked release: deposit 30%, then the 70% balance after you approve an independent final inspection report and receive the shipping documents. Most legitimate factories accept this because they are confident in the goods; the ones who resist hardest are often the ones who know the batch is weak. For repeat suppliers with a clean history, the pragmatic middle is 30% deposit and 70% against the bill of lading copy — the goods are physically moving, so the supplier's cash-flow need is met while you keep the ultimate lever, the documents, until payment clears. Whichever trigger you agree, write it into the purchase order with the words "balance payable against passed inspection report and copy of bill of lading," because verbal terms evaporate when a batch fails.
Tooling: The Payment You Should Treat Differently
Tooling — molds, dies, fixtures — is a capital item, not part of the piece-price bargain, and it deserves its own payment line. The norm in China is 50% of the tooling cost with the order and 50% on approval of the first article or sample, or 100% up front for low-value tooling where the paperwork costs more than the risk. Do not let tooling cost be folded invisibly into piece price: you want it itemized so you know what you own, what it cost, and what happens to it when the program ends.
Tooling payment is also your IP document. The tooling quotation and purchase order should state, in writing, that you own the mold or die once it is fully paid, that the factory holds it in custody only, that it will not be used for any other customer without your written consent, and that it will be returned or destroyed at the end of the agreement. That clause is worth more than a handshake and costs nothing to type — and it connects directly to the China manufacturing IP protection questions every buyer should settle before tooling money moves.
Payment Methods: Cost, Speed and Protection
T/T (telegraphic transfer, bank wire) is the default for China orders and the cheapest for both sides: typically $20–$50 in bank fees per wire, with funds arriving in one to three working days. Its weakness is that it is final — once wired, the money is gone, which is why T/T terms must be paired with contractual milestones rather than trust. Letters of credit (LC at sight) replace the factory's promise with a bank's: you pay only against conforming documents, and the factory gets paid only when it ships what the documents prove. LC costs roughly 0.5–1.5% of the order value in bank charges and requires exact documentation, so it pays off above roughly $20,000–50,000 or for regulated industries. Platform payment tools (Alibaba Trade Assurance-style escrow and card payments) protect small orders by holding funds against delivery milestones; fees run 3–5% and the protection is real but bounded.
| Method | Typical fee | Speed | Protection | Best for |
|---|---|---|---|---|
| T/T wire | $20–50 per wire | 1–3 working days | None once sent | Standard terms with milestones |
| LC at sight | 0.5–1.5% of value | Weeks (document cycle) | Bank-level, document-based | Orders above $20k–50k |
| Card / platform escrow | 3–5% | Days | Milestone-based release | Small orders, first-time buyers |
| PayPal | 3–5% + FX spread | Instant | Chargeback window | Samples under $1,000 |
| Western Union | High, flat + FX | Minutes | None | Avoid for goods |
One payment habit overrides all method choice: verify bank details on a second channel before every single wire. The most common fraud in China sourcing is not a fake factory — it is a real supplier whose email was compromised, with the attacker sending "our bank account has changed" before your balance payment, and the money landing in a stranger's account. If an account number changes, call the supplier on the phone number you already have on file and confirm; do not trust the new number in the email. Wire only to a corporate account in the name of the legal entity on your contract, never a personal account, and keep every payment instruction as a record.
How to Earn Better Terms Over Time
Payment terms are negotiated once, then earned. A supplier who has shipped you ten clean orders at 30/70 before shipment will eventually accept 30/70 against bill of lading, then 20/80 against documents, and for mature relationships on stock parts, open account with net 30 or net 60. The currency that buys those improvements is exactly what you would want anyway: on-time payment, frozen drawings before production, realistic forecasts, and clean inspection results on your side. Factories remember buyers who pay on the agreed trigger and reward them with better terms, faster scheduling and priority during capacity crunches. The reverse is also true — buyers who haggle the deposit to zero on a first custom order signal that they do not understand the risk the factory carries, and serious factories price that signal into the quote. If a supplier's terms feel aggressive, compare them against the patterns in our Chinese supplier payment terms guide and the wider China sourcing red flags list; if a supplier's terms feel too easy, be suspicious in the other direction — and run the supplier checks in our China factory audit guide before any money moves.
Frequently Asked Questions
Q: Is a 30% deposit normal for Chinese factories?
A: Yes, for custom parts 30% is the industry standard, and 30–50% is normal when the order carries dedicated material or new tooling. The deposit funds the raw material the factory buys for your job. Stock parts usually need no deposit or a small one, because the factory can resell them if you cancel.
Q: Should I pay the balance before or after shipment?
A: Pay the balance against a copy of the bill of lading plus a passed inspection report, not simply when the factory announces the goods are ready. For first orders, make the balance conditional on an independent inspection you approve; for repeat suppliers, 70% against the bill of lading copy is a fair middle that keeps goods moving while you retain the documents as your lever.
Q: Are letters of credit worth it for China orders?
A: Above roughly $20,000–50,000, yes: an irrevocable LC at sight replaces the factory's promise with a bank's obligation and you pay only against conforming documents. Below that, bank charges of 0.5–1.5% and the documentation burden usually outweigh the benefit, and T/T with inspection-linked milestones is more practical.
Q: What if the factory asks for 100% upfront?
A: Treat it as a strong signal. 100% advance is only reasonable for tiny sample orders or low-value stock where the paperwork costs more than the risk. For production value, insist on a deposit structure with milestones; a legitimate factory with real orders can accept 30/70, and its reasons for needing 100% are worth hearing in detail before you agree.
Q: How do I avoid payment fraud when wiring money to China?
A: Wire only to a corporate bank account in the name of the legal entity on your contract, never a personal account, and verify any account change by phone or WhatsApp on a number you already have on file — the classic fraud is a compromised supplier email announcing a new account before your balance payment. Keep every payment instruction and confirm the receiving name matches your contract exactly.
Related Resources
- Chinese supplier payment terms: more on structuring deposits, milestones and open account terms.
- China sourcing red flags: the warning patterns that precede payment problems.
- About BQUQ: an ISO9001-certified source factory in Dongguan with standard, transparent payment structures.
- Contact us: request a quotation with full commercial terms within 12 working hours.
Authored by the BQUQ Engineering Team. BQUQ is an ISO9001-certified source factory in Dongguan, China, running CNC machining, metal stamping, custom springs, heat sink and collet lines under one roof. Send drawings to sc@bquq.com or WhatsApp +86 13713157787 for a quote within 12 working hours. www.bquq.com
