Payment terms are your main control lever

Once you have selected an overseas supplier, the money has to move — and that is where most of your real leverage lives. Payment terms determine how much you have at risk at any given moment and what recourse you have if something goes wrong. The standard structure is 30% deposit with the purchase order and 70% before shipment, but the safer version for a buyer splits the balance further and ties each installment to something you can independently verify. A well-structured payment agreement prevents most supplier disputes before they start.

Projects House is an engineering firm. The material below is general commercial and engineering guidance, not legal, tax, or financial advice — have your actual contracts and international payment arrangements reviewed by qualified counsel and your bank.

The standard structure, and a better one

The conventional 30/70 split exists for a reason: the deposit covers raw material purchase and secures a slot on the production line, and the balance closes out completed goods. The problem is that the 70% typically falls due before you have any independent evidence of quality.

A stronger structure for a buyer is three stages: 30% on order, 30% on approval of a signed production sample, and 40% after a passing quality inspection and before release of the shipment. The principle is simple — every payment attaches to a milestone you can verify from a distance.

Tooling is a separate negotiation. Because a mold is built specifically for you and has no alternate use for the factory, deposits are typically higher, often around half. In exchange, insist in writing that the tool is your property, that the design files are yours, and that you may move it to another factory at the end of the relationship. That clause is worth more than a small discount — the full argument is in who owns your mold in China.

Transfer methods and what each one actually protects

An international wire transfer (T/T) is the default in manufacturing. It is cheap and fast, and it is also very close to irreversible once sent, so verification of the recipient matters more than anything else about it. Other options:

  • Documentary letter of credit. Your bank releases funds only against conforming shipping documents. Appropriate for large orders, comes with bank fees and real paperwork discipline, and is familiar to established factories. It protects against non-shipment, not against poor quality — the documents can conform while the goods disappoint.
  • Trade platform escrow. Funds are held by a third party and released on confirmed receipt. Convenient for small first orders and sample purchases; usually impractical at production scale.
  • Credit card. Generally limited to samples and small amounts, with a surcharge, but it does give you a chargeback path that a wire does not.

The one rule that prevents most fraud

Pay only into a bank account in the name of the company on your contract and invoice, in the country where that company is registered. A request to pay a personal account, an account in a different company's name, or an account in a third country is a full stop — not a nuisance to work around. Business-email-compromise fraud in this channel is common and specifically targets a change of banking details late in a deal. Treat any mid-transaction change of account details as hostile until confirmed through a separate, previously known channel.

Before the first payment, also confirm you are dealing with the entity you think you are. A trading company presenting itself as a factory changes both your quality control approach and your payment structure — see factory vs trading company, and verify the company registration details independently rather than relying on the profile you were sent.

Tying payment to quality

The most effective single practice is refusing to release the final installment before an inspection. Write into the contract that final payment is contingent on a passing report from an independent inspector, normally on a sampling standard — the mechanics are in AQL inspection explained. In the same spirit, approve and physically retain a signed golden sample before mass production starts.

Equally important: the contract must define what counts as a defect and what counts as acceptable variation. Without written acceptance criteria, every quality argument becomes an argument about interpretation, and you will lose it because the goods are on their side of the ocean. A supply agreement should cover technical specification, tolerances and defect classification, schedule with late-delivery consequences, tooling ownership, and confidentiality — the last of which is the subject of NNN agreements for China manufacturing.

Costs that never make it into the cash-flow model

Founders often plan around unit price alone and are then surprised by the total. Add: outbound and intermediary wire fees, currency conversion spread, inland freight to the port, ocean or air freight, cargo insurance, customs brokerage, duties and tariffs, a customs bond, port and terminal fees, inspection fees, and domestic delivery. The delivery term you agreed determines who pays which of these and from what point — two quotes can look different purely because one excludes port handling, which is why FOB vs EXW vs CIF is worth understanding before you compare prices. Tariff classification alone can swing landed cost materially; see import duties and tariffs from China.

Order quantity also drives your flexibility on terms. Larger commitments buy better terms and better attention; very small orders buy neither — the context is in minimum order quantity.

Negotiating terms over time

On a first order you will almost always face a higher deposit, simply because there is no shared history. After two or three clean cycles you have standing to improve terms — a lower deposit, a longer balance window, or net terms after shipment. One tactical note: do not push for a unit price reduction and improved payment terms in the same conversation. Pick the one that matters more to your cash position, because asking for both usually gets you neither. A sourcing partner on the ground can also change the dynamic; see using a sourcing agent in China.

Before you wire a deposit, make sure the engineering package you are paying against is genuinely complete — ambiguous drawings are the most expensive thing you can buy at 30% down. If you want your specification and inspection criteria reviewed before the first production order, reach out through our contact form and we will go through the package with you.