The Main Payment Methods: T/T, L/C, and Platform Payments

Most cross-border transactions with Chinese manufacturers use one of three primary mechanisms: Telegraphic Transfer (T/T), Letter of Credit (L/C), or platform-based escrow payments (Alibaba Trade Assurance being the most common for buyers who source through that platform). Each has distinct risk profiles, cost structures, and use cases.

Telegraphic Transfer (T/T / Wire Transfer)

T/T is the dominant payment method for established factory relationships. You send a wire transfer directly to the factory's bank account. It's fast, cheap (typical fees are $25–$45 per transfer at most banks), and universally accepted. The risk is that once the money leaves your account, recovery is essentially impossible if something goes wrong — wire transfers are irrevocable.

T/T is appropriate for established factory relationships with a track record of delivering on terms. For new factory relationships, especially those involving significant bulk purchasing orders, T/T with a large advance payment exposes you to meaningful financial risk.

Letter of Credit (L/C)

A Letter of Credit is a bank-issued payment instrument where your bank guarantees payment to the factory's bank upon fulfillment of specified documentary conditions. The factory presents documents — bill of lading, commercial invoice, packing list, certificate of origin, inspection certificate — and your bank releases payment when all documents conform to the L/C terms.

L/Cs are the gold standard for supply chain management risk protection in large-value international trade. They shift significant risk to the banking system and create a clear documentary trail for trade compliance purposes. The cost is higher — L/C fees typically run 0.5%–2% of the transaction value, and the documentary requirements add administrative complexity on both sides.

For orders above $50,000 with a new factory, or for any order above $100,000 regardless of relationship, an L/C is worth the additional cost. Below $10,000, the L/C overhead rarely justifies the protection it provides — platform payments or structured T/T terms are more practical.

Alibaba Trade Assurance

If you source through Alibaba, Trade Assurance provides escrow-style payment protection — your payment is held by Alibaba and released to the factory only after you confirm receipt and satisfaction with the goods. It's not a perfect protection (the fine print matters — see our separate article on Trade Assurance coverage and limitations), but it provides meaningful recourse against factories that don't ship, ship significantly different products, or ship with major quality deviations.

30/70
Standard T/T split for most new factory relationships: 30% deposit, 70% before shipment
0.5–2%
Typical Letter of Credit bank fee as a percentage of transaction value
$1.4B+
Annual wire transfer fraud losses reported by U.S. businesses and consumers, per FBI IC3 data

Payment Term Structures: How Splits Protect You

The payment term structure — when you pay and how much — is one of your primary levers for managing financial exposure in Chinese manufacturing relationships. Understanding the logic of different structures helps you negotiate intelligently and calibrate risk appropriately.

The 30/70 T/T Split (Standard New Relationship)

The most common term for new factory relationships: 30% of the total order value is paid as a deposit at order confirmation (enabling the factory to procure materials), and the remaining 70% is paid after production is complete and before the goods are loaded for shipment. Pre-shipment inspection typically happens between production completion and the final payment trigger.

The 30/70 split works well because: the factory has enough capital to begin production (addressing their cash flow concern), and you retain significant leverage until the goods are ready (addressing your quality concern). The final payment should always be conditional on a passed pre-shipment inspection report.

50/50 Split

Some factories request a 50/50 split — particularly for complex products with expensive tooling or materials, or for first orders where they assess you as an unknown buyer risk. This increases your advance exposure but may be appropriate when the factory has legitimate reasons for needing more capital upfront. Never agree to 50% before delivery for a first order without a corresponding quality protection mechanism — whether that's Alibaba Trade Assurance, a milestone-based L/C, or at minimum a signed and executed contract with penalty clauses.

100% T/T Advance (Avoid with Unknown Factories)

Some factories — particularly smaller operations and those you've found through cold outreach rather than established channels — will request 100% payment in advance. This is a significant red flag for a new relationship. Legitimate, stable manufacturers don't need 100% of your order value to begin production. If a factory insists on 100% advance payment with a new buyer, the risk of advance payment fraud is elevated enough to warrant serious reconsideration.

Net 30 / Open Account (Established Relationships Only)

Some well-established factory relationships eventually evolve to open account terms, where goods are shipped before full payment is required. This is common in mature wholesale pricing relationships with years of transaction history. Reaching these terms typically takes 2–4 years of reliable two-way business. Attempting to negotiate open account terms prematurely signals a misunderstanding of how Chinese manufacturing relationships are structured — and will likely be declined.

Negotiating Better Terms: Payment terms are negotiable, and your leverage increases with order volume, relationship history, and your willingness to pay quickly. A factory that requires 30% upfront may accept 20% for a buyer ordering 3× the MOQ on their third order. The MOQ negotiation and the payment negotiation are often interconnected — larger committed volume justifies better terms on both dimensions.

Wire Transfer Fraud: How It Happens and How to Prevent It

Business Email Compromise (BEC) fraud targeting international wire transfers has become one of the most costly financial crimes affecting importers. The mechanism is specific: a criminal intercepts your communication with a factory (through email hacking, phishing, or domain spoofing), then impersonates the factory's finance contact and provides fraudulent wire transfer instructions. The buyer sends payment to the criminal's account instead of the factory's account. By the time the discrepancy is discovered, the funds are gone.

Real-World Scenario: BEC Wire Fraud

A Texas-based housewares importer was in the middle of a reorder from a factory she had worked with for two years. She received an email from what appeared to be her factory contact's address, explaining that their bank had changed and providing new wiring instructions. The email was professionally written and used the correct greeting and product reference numbers from recent correspondence.

She wired $18,400. When the factory's next routine email arrived asking about the payment status, she realized she had been defrauded — the previous email had come from a spoofed domain that looked identical to the real factory's email domain at a glance. The new bank account was in a different country. The funds were not recoverable.

Mandatory Protocol: Any time you receive new or changed bank account information from a supplier — regardless of relationship history — you must verify by calling the factory directly on a known, verified phone number before sending any payment. Do not use the phone number in the email that provided the new bank details. Call your established contact on the number in your records. Confirm account details verbally. This one step would prevent the majority of BEC wire fraud incidents targeting importers.

Additional Wire Transfer Safety Practices

  • Verify banking details in person or by verified phone call before the first transfer — not by email, which is the compromised channel.
  • Check the SWIFT code independently — look up the SWIFT/BIC code for the receiving bank directly on the SWIFT website, not from the supplier's email.
  • Confirm the factory's company name matches the bank account name exactly — a mismatch is a significant red flag.
  • Use your bank's beneficiary verification services — many banks offer callback verification for high-value international transfers.
  • Never rush a payment under artificial urgency — "you must send today or we lose our production slot" is a classic social engineering pressure tactic.

Formalizing Payment Terms in Your Purchase Order

Verbal agreements on payment terms are unenforceable. Every order, regardless of size or relationship history, should be governed by a written purchase order that specifies:

  • Total order value and currency (USD is standard for U.S. buyers; avoid agreeing to CNY unless you have a specific reason and currency risk management in place)
  • Payment method (T/T, L/C, Trade Assurance)
  • Payment structure (deposit percentage, balance trigger conditions)
  • What constitutes the trigger for final payment — specifically "passing pre-shipment inspection as documented by [inspection company name] AQL report" rather than simply "completion of production"
  • Currency exchange provisions if applicable
  • Penalty provisions for late delivery or quality failures, and how these interact with the payment schedule

For buyers working through Aqualora Distribution's Asia Pacific sourcing team, payment terms and purchase order structuring are handled as part of the supply chain management service — including contractual protections, inspection integration, and banking verification protocols built on years of China factory relationships. This reduces the exposure that individual U.S. buyers face when managing direct manufacturing payments for the first time.

Currency Considerations: USD vs. CNY

The vast majority of Chinese manufacturing transactions with U.S. buyers are denominated in U.S. dollars. This is standard practice and appropriate — it eliminates currency risk for U.S. buyers and is accepted by virtually all factories that regularly work with international customers.

Factories may occasionally quote in Chinese Yuan (CNY/RMB) or request payment in CNY. Unless you have a specific reason to operate in CNY — and a corresponding forex risk management approach — negotiate for USD invoicing. The wholesale pricing on large bulk purchasing orders can shift meaningfully if the CNY/USD exchange rate moves between order placement and final payment, and that exposure is yours to manage if you've agreed to CNY terms.

Key Takeaways

  • T/T (wire transfer) is the dominant payment method; L/C provides stronger protection for high-value orders with new suppliers at the cost of additional administrative complexity and bank fees.
  • The 30/70 T/T split is the standard term for most new manufacturer relationships — 30% deposit at order confirmation, 70% before shipment after a passed inspection.
  • Never send 100% advance payment to a new factory — this is the primary mechanism for advance payment fraud, and legitimate manufacturers do not require it.
  • Any change in bank account details must be verified by direct phone call on a known, confirmed number before payment — Business Email Compromise fraud targeting this exact scenario is common and costly.
  • Formalize all payment terms in a written purchase order that ties final payment to a specific, objective trigger — a passed pre-shipment inspection report, not just "completion of production."
  • Request USD invoicing — avoid CNY-denominated payment terms unless you have currency risk management in place.