Payment Terms When Buying from China - T/T, LC, and What to Watch For

Payment terms are where many first-time importers feel uneasy. Chinese suppliers commonly use different methods than local vendors. Knowing the options protects your cash flow and reduces fraud risk.

Telegraphic transfer (T/T)

T/T is the most common method for China trade. Typical structure:

• 30% deposit before production
• 70% balance before shipment or against copy of bill of lading

T/T is fast and widely accepted. The risk is paying before you receive goods. Mitigate this by working with verified suppliers and using inspection or escrow where possible.

Letter of credit (LC)

An LC is a bank guarantee: the bank pays the supplier when they present correct documents (invoice, bill of lading, packing list). LCs add cost and paperwork but suit high-value orders or new supplier relationships.

Most small and mid-size Sri Lankan importers use T/T; LCs are more common above USD 50,000 or for regulated goods.

PayPal and trade assurance

Some suppliers accept PayPal or Alibaba Trade Assurance for smaller orders. These offer buyer protection but often at higher fees and limited order sizes.

Red flags to avoid

• Suppliers insisting on 100% upfront to a personal account
• Prices far below market with pressure to pay quickly
• Refusal to provide company registration or factory details
• Changing bank account details after you have started the order

Currency and timing

Most China trade is quoted in USD. Plan for:

• Bank wire fees (both sides)
• Exchange rate at transfer date
• Lead time between deposit and balance payment

How payment terms connect to shipping terms

Payment terms say when you pay. Incoterms say what the price includes and when risk passes to you. The two work together:

• EXW (Ex Works): you take over at the factory gate and pay all transport from there.
• FOB (Free On Board): the supplier delivers the goods on board the vessel at the Chinese port. You pay ocean freight and insurance.
• CIF (Cost, Insurance, Freight): the supplier pays freight and insurance to Colombo. You handle clearance and local costs.

A quote that looks cheaper on EXW may cost more than an FOB quote once local charges in China are added. Compare offers on the same Incoterm.

Documents to collect before paying the balance

When the balance is due before shipment or against documents, ask for:

1. Commercial invoice and packing list
2. Photos or video of the finished goods and packing
3. Inspection report, if you arranged an inspection
4. Copy of the bill of lading or airway bill once shipped
5. Any certificates the product needs for clearance in Sri Lanka

Check that names, quantities and values match your order before you release the payment.

Negotiating better terms

Suppliers are often flexible, especially on repeat business:

• Ask to pay the balance against a copy of the bill of lading rather than before loading.
• For larger orders, propose a smaller deposit, or milestones linked to production stages.
• Agree a penalty or discount for late delivery and write it into the contract.
• After several successful orders, some suppliers offer short credit terms.

Whatever you agree, put it in a signed proforma invoice or sales contract.

Paying from Sri Lanka

Import payments go through your bank. The bank will normally ask for the proforma invoice and may require other documents depending on the payment method and current regulations. Speak to your bank before you commit to payment dates, so the supplier's schedule and the bank's processing time fit together.

Protecting yourself against payment fraud

A common scam is an email, apparently from your supplier, saying their bank details have changed. Before paying to any new account:

• Confirm by phone or video call using contact details you already had.
• Check that the account name is the company name, not a personal name.
• Be careful when the bank is in a different country from the supplier.

Frequently asked questions

Is a 30% deposit normal? Yes. Thirty percent before production and seventy percent before shipment is the most common structure.

Can I pay after the goods arrive? New buyers are rarely offered this. It becomes possible after you build a track record.

What if the goods are wrong? Inspection before the balance payment is your strongest protection. Read Alibaba vs using an import partner for how verification works.

How does payment affect my duty? Customs compares declared value with payment records. See how import duties are calculated.

How an import partner helps

Sinofetch verifies suppliers, structures payment milestones, and coordinates documentation so you pay at the right stage, after specs are confirmed and before goods leave the factory.