First order from a Chinese supplier: how to structure payment
Deposit plus balance against bill of lading is the standard structure, but the words against what decide who carries the risk. Tying payments to verifiable milestones beats pushing the deposit down.
What payment structures are common?
Three: full advance payment, usual for small orders and samples; deposit plus balance, which is the mainstream; and letter of credit for large or first-time orders. Smaller variations include payment against documents and escrow. No structure is inherently good or bad — what matters is which verifiable milestone each payment is tied to.
What does the deposit ratio actually mean?
The deposit is the supplier's material money — he uses it to buy blocks and reserve production slots. Set it too low and he either raises the price to cover the risk or puts your order behind bigger customers. So lower is not automatically better. The right level is enough to get him moving without putting your whole payment at stake.
What is the critical phrase in a T/T arrangement?
Against what. Balance against a copy of the bill of lading means the goods are already on board and the risk is mostly yours. Balance on arrival is something suppliers generally refuse. The middle path is balance against a third-party inspection report plus a bill of lading copy: inspection happens before loading, the report shows the goods match specification, the B/L shows they actually shipped. You pay an inspection fee to remove the risk on the entire balance.
What does a letter of credit solve, and what does it not?
An L/C guarantees payment against complying documents, not that the goods are correct. Discrepancies lead to charges or refusal, and they are common in a non-standard product like stone — thickness tolerance, colour description, packing method, any vague wording can create one. An L/C also carries issuing, negotiation and time costs. It is a payment instrument, not quality insurance.
How should risk be split on a first order?
Start with a small trial order rather than a full container; ship in batches and release the second only after the first goes well; place third-party inspection before loading, not after arrival; tie the balance to the bill of lading. The logic is that if any step fails, the loss stops there instead of running through the whole payment.
How do payment milestones map to verifiable events?
Deposit against production start, with a scheduling sheet in return. Progress payment against completion photos or video of the packed goods. Balance against the inspection report and B/L copy. Each milestone needs evidence the supplier can produce and you can check. Wording like paid before shipment is not a milestone at all.
What else belongs in the contract?
What happens if delivery slips, what happens if colour deviates from the approved sample, who bears breakage above a stated rate, and how many days after arrival a claim may be filed. Without those four, even a tight payment clause only says how money is paid, not what happens when it was paid for the wrong goods.