Paying Chinese factories: deposits, payment terms, and protecting your money
2 August 2026 · 10 min read
Why payment terms are where importers lose money
The biggest risk in sourcing from China is not quality, it is paying for goods you never receive, or releasing the balance before you can prove the goods are right. Get the payment structure wrong and a $30,000 order can become a $9,000 deposit chasing a factory that has gone quiet. Get it right and your money is protected at every stage, with the balance held until an independent inspection confirms the goods are what you ordered.
This guide covers the standard 30/70 deposit terms, how to stage payments against milestones, the difference between a telegraphic transfer and a letter of credit, where trade assurance and escrow help, and the scams to watch for. Payment norms shift, so treat the figures here as typical ranges and set your own terms in the contract.
The standard: 30/70 on TT terms
The most common arrangement for building materials is a 30/70 split paid by TT (telegraphic transfer, a bank wire):
- 30% deposit on order confirmation, which funds materials and starts production
- 70% balance before shipment, usually after the goods are made and inspected
The deposit is the factory's protection. It stops buyers from ordering custom goods, such as bespoke cabinetry, and walking away. The balance timing is your protection: you should pay it only after a pre-shipment inspection confirms the order is correct, not on the factory's word that it is finished.
The critical detail most first-timers miss: pay the balance against a passed inspection and photos, not against a "ready to ship" email. Once the balance is paid and the container sails, your leverage is gone.
Staging payments against milestones
For larger orders, a flat 30/70 is not the only option. You can stage payments against production milestones, which reduces the amount at risk at any one time:
| Milestone | Typical payment | What it should confirm |
|---|---|---|
| Order confirmation | 30% deposit | Contract and specification signed |
| Production sample approved | optional stage | Sample matches spec before bulk runs |
| Production complete | 30 to 40% | Goods made, before inspection |
| Pre-shipment inspection passed | Balance to 100% | Independent QC confirms the order |
Not every factory will agree to more than two payments, and pushing too hard on a first small order can cost you the deal. The single non-negotiable is that a meaningful portion of the money, ideally 30% or more, stays with you until an independent inspection passes. That is the leverage that gets defects fixed.
For what that inspection actually checks, see our guide to pre-shipment quality control in China.
TT versus letter of credit
Two payment mechanisms come up, and they suit different order sizes.
Telegraphic transfer (TT). A direct bank wire. Fast, cheap, and standard for most orders up to the low hundreds of thousands. The downside is that a TT is largely irreversible once sent, so it relies on trusting the factory and structuring the deposit and balance sensibly.
Letter of credit (LC). Your bank guarantees payment to the factory's bank once specified documents (bill of lading, inspection certificate) are presented. It protects both sides, since the factory knows payment is guaranteed and you know it is released only against documents. The downside is cost and complexity: bank fees, paperwork, and a minimum order size that usually makes LCs worthwhile only above roughly $50,000 to $100,000.
For most residential building orders, a TT with a sensible deposit and an inspection-gated balance is the practical choice. LCs come into their own on large, high-value orders with a factory you do not yet know well.
Trade assurance and escrow
If you find a factory through a B2B marketplace, an escrow-style service can sit between you and the factory.
Trade assurance and similar escrow schemes hold your payment and release it to the factory only when you confirm the order shipped on time and to spec, with a dispute process if it did not. This is genuinely useful on a first order with an unfamiliar factory. The limits to understand: coverage applies only to orders placed and paid through the platform, the dispute process favours documented terms, and many established factories prefer to deal off-platform on repeat orders once trust is built.
Escrow is a good training-wheels tool for a first transaction. It is not a substitute for vetting the factory and inspecting the goods.
Protecting your money: the checklist
A few habits remove most of the risk from paying a Chinese factory:
- Pay to a company account, never a personal one. The account name should match the company name on the contract and invoice. A request to pay a personal account or an unrelated company is a serious red flag.
- Verify bank details out of band. Email accounts get compromised and bank details swapped at the last minute. Confirm any account details by phone or video with your known contact before the first payment.
- Keep the deposit proportionate. 30% is normal. A factory demanding 50 to 100% up front on a first order is either desperate or not a factory.
- Gate the balance on inspection. Never release the final payment until an independent pre-shipment inspection passes. This is the single most important control.
- Put it in writing. Specification, payment schedule, inspection standard, and delivery terms in a contract or detailed purchase order, referenced on every invoice.
Common mistakes when paying Chinese factories
Paying the balance before inspection. Once the money is sent and the goods sail, defects become your problem. Always inspect first, pay second.
Wiring to a personal account. Legitimate factories invoice from and receive to a company account matching the contract. A personal account is a scam signal.
Skipping bank-detail verification. Business email compromise is common: a fraudster intercepts the invoice and changes the account. Confirm details on a call before paying.
Overpaying the deposit. A large up-front payment shifts all the risk to you. Keep the deposit near 30% and hold real money back to shipment.
Treating trade assurance as a guarantee. It helps on a first order but only within the platform's rules. Vet the factory and inspect the goods regardless.
Frequently asked questions
How do you pay a Chinese factory? The standard is a bank telegraphic transfer (TT) with a 30% deposit on order and the 70% balance before shipment, ideally after a pre-shipment inspection passes. Larger orders may use a letter of credit.
What is a normal deposit for a Chinese factory? Around 30% of the order value on confirmation is standard for building materials. A demand for 50% or more up front on a first order is a warning sign.
Is it safe to pay a Chinese supplier by bank transfer? Yes, when you structure it properly: a proportionate deposit, the balance gated on an independent inspection, payment to a verified company account, and everything in a written contract. The risk comes from paying too much too early or to an unverified account.
Should I use a letter of credit? LCs protect both parties but carry bank fees and complexity that usually make sense only above roughly $50,000 to $100,000. For most residential orders, a well-structured TT is simpler and adequate.
Threadline contracts and pays factories on your behalf on inspection-gated terms, verifies the factory and its banking before any money moves, and holds the balance until QC passes, so your deposit is never chasing a silent supplier. Before you pay anyone, confirm you are dealing with a real factory: see our guide to finding a reliable factory in China. If you want your order sourced and paid safely, start a request.
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