Payment Terms for a First Order: what the three offers actually cost you

Telegraphic transfer, letter of credit or open account - the three payment shapes a Chinese factory will offer a new buyer, what each one shifts onto whom, and the wording that prevents the fight later.

The three shapes you will be offered

Deposit by transfer, balance before shipment. The most common opening position. Costs you almost nothing and protects the factory's material spend; leaves you paying the balance against a photograph rather than against documents.

Letter of credit at sight. The bank pays against a compliant document set. It costs a fee and it forces you to write the specification into the credit exactly, but it moves the payment question to the banks.

Open account, payment 30 or 60 days after shipment. Reserved in practice for buyers with an order history. If a factory offers it on a first order, ask what they are protecting themselves with instead.

The trade term decides who owns the problem

The three-letter term is not decoration: it fixes where risk passes and who pays freight and insurance. EXW, FOB and CIF give three different answers to the same damage claim.

The current set is Incoterms 2020, published by the International Chamber of Commerce. Ask the factory which year's version they are quoting, because the term name alone is not the whole answer.

The letter of credit, in one paragraph

Documentary credits are governed by the ICC's Uniform Customs and Practice, UCP 600 (ICC Publication No. 600, in force since 1 July 2007) unless the credit says otherwise.

The consequence that catches buyers: banks examine documents, not goods. The credit must mirror the proforma invoice and the specification exactly, including spelling, or the presentation is discrepant and the money stops.

Schedule wording that avoids arguments

Attach money to events, not dates. Deposit on the countersigned proforma invoice, balance against the copy of the bill of lading. A date can be missed by a public holiday; an event cannot be argued about.

Say who pays the bank charges on each side. On a small order the transfer fees are a real percentage and the argument is always about whose side it comes out of.

What we do not do

We do not act as agent, we do not quote prices, we take no commission and we hold no funds for either side. Nothing on this page is legal or financial advice; the contract is between you and the factory.

The practice notes are ours. Incoterms 2020 and UCP 600 are ICC standards; both links above were reachable on the verification date shown.