Key takeaways
- 30/70 is the market standard for new relationships. Tie the 70% to a passed pre-shipment inspection.
- A letter of credit protects both sides on documents, not on quality. Add an inspection certificate to the required documents.
- Pay tooling separately, typically part on order and the rest on first-article approval.
- Verify bank details by phone on a known number before the first payment and after any change.
- Move towards open account as trust and volume grow; it is the supplier's reward for performance.
On this page10 sections
The trade-off every payment term makes
Every payment term answers one question: who carries the risk between the order and the goods arriving? If you pay everything up front, you carry it. If the supplier ships before you pay, they carry it. Good terms share the risk sensibly and link each payment to evidence.
This guide describes common market practice with suppliers in India, China and Vietnam. It is general information, not legal or financial advice; for large contracts, talk to your bank and a lawyer.
The common options
| Term | How it works | Risk sits mainly with | Best for |
|---|---|---|---|
| 100% advance | Pay in full with the order | Buyer | Samples, very small orders |
| 30/70 (or 40/60, 50/50) | Deposit with order; balance before shipment or against B/L copy | Shared | New relationships, most orders |
| Letter of credit (LC) at sight | Your bank pays the supplier against compliant documents | Shared, through banks | Larger orders, new relationships |
| Documentary collection (D/P) | Banks release shipping documents when you pay | Supplier | Established buyers |
| Escrow or platform protection | A third party holds funds until conditions are met | Shared | Small orders through marketplaces |
| Open account (net 30, 60, 90) | Pay after shipment or receipt | Supplier | Long, trusted relationships |
30/70: making the standard work for you
The deposit pays for materials and shows commitment. The balance is where your protection is. Three ways to structure it, from least to most protective for the buyer:
- 70% before shipment, no condition. You rely entirely on trust.
- 70% before shipment, after a passed pre-shipment inspection. The most common good practice. You pay only for goods that met the standard.
- 70% against a copy of the bill of lading, after a passed inspection. You have evidence the goods are on board. The supplier holds the original bill of lading, or delays the telex release, until paid, so it keeps control of the goods.
Write the condition into the purchase order: “Balance of 70% payable within 5 working days of receipt of a passed pre-shipment inspection report and a copy of the bill of lading.” The purchase order generator has fields for milestones like this.
Letters of credit
A letter of credit (LC) is your bank’s undertaking to pay the supplier when it presents documents that comply exactly with the credit’s terms. Most LCs are issued subject to the ICC’s UCP 600 rules.
What an LC does well: the supplier knows it will be paid if it ships and presents correct documents; you know nothing is paid until the documents, such as a bill of lading showing shipment by the agreed date, are presented.
What it does not do: banks examine documents, not goods. If the documents comply, the bank pays even if the goods are poor. So add an inspection certificate issued by your nominated inspector to the required documents. Keep the document list short and precise; discrepancies delay payment and irritate good suppliers.
LCs carry bank fees on both sides and take time to set up, so they suit larger orders. Your Incoterms rule must fit the documents: see Incoterms 2020 for importers.
Documentary collections
In a documentary collection, the supplier’s bank sends the shipping documents to your bank, which releases them when you pay (documents against payment, D/P) or accept a bill of exchange (documents against acceptance, D/A). Collections are usually handled under the ICC’s URC 522 rules.
The supplier ships before being paid, trusting that you will take up the documents. That makes collections a term for established relationships, and cheaper than an LC.
Tooling payments
Pay for tooling separately from parts. A common structure is 50% with the tooling order and 50% when first-article samples from the tool are approved. Get written confirmation that the tool belongs to you once paid, with its tool number and a photo. See tooling and mould ownership.
Worked example: a first order of $60,000
A US brand places a first order of $60,000 FOB with a new supplier in Ningbo, plus a $9,000 injection mould.
| Milestone | Payment | Condition |
|---|---|---|
| Mould ordered | $4,500 (50%) | Signed tooling agreement naming the buyer as owner |
| First articles approved | $4,500 (50%) | Dimensional report and samples approved |
| Production order | $18,000 (30% of $60,000) | Signed purchase order and golden sample |
| Balance | $42,000 (70%) | Passed pre-shipment inspection and copy of the bill of lading |
Before the first transfer, the buyer calls the supplier’s finance manager on the number listed in the supplier’s registration documents to confirm the bank account, and checks that the account name matches the company’s legal name.
Order three. With two on-time, passed shipments, the buyer moves to 20/80 with the balance against the B/L copy, and plans to offer net 30 after a year of clean performance in exchange for a price review.
Currency and bank charges
Two smaller details decide whether the supplier receives what the invoice says:
- Currency. Most export contracts from India and China are in US dollars or euros. Paying in the supplier’s currency (Indian rupees or Chinese yuan) moves the exchange risk to you but can win a better price. Decide who carries the currency risk, and fix it in the purchase order.
- Bank charges. International transfers carry charges at the sending bank and often at intermediary banks. The charge code on a SWIFT payment decides who pays: OUR (sender pays all), SHA (each side pays its own bank) or BEN (the beneficiary pays all). With SHA, the supplier may receive slightly less than the invoice, which causes small, irritating short-payment disputes. Agree the code once and use it every time.
Protecting yourself from payment fraud
Payment diversion fraud, where someone intercepts email and sends “new” bank details, is a real risk in cross-border trade. Simple rules stop most of it:
- Verify by phone on a number you already hold, never one from the email requesting a change.
- Match names. The account name should match the supplier’s registered legal name. A personal account or an unrelated company needs an explanation you can verify.
- Treat any change of bank details as suspicious until confirmed by two people on both sides.
- Pay the entity you contracted with. The supplier health check helps you confirm who that is.
Moving to better terms over time
Payment terms are part of the relationship. As a supplier proves itself on quality and delivery, move the balance later, reduce the deposit, and eventually offer open account. Suppliers value predictable cash; offering better terms in exchange for price or priority is fair trade. When comparing suppliers, put payment terms into the comparison: the quote comparison tool accounts for them alongside price.
Free tools for this guide
Sources
- ICC: Uniform Customs and Practice for Documentary Credits (UCP 600)store.iccwbo.org/icc-uniform-customs-and-practice-for-documentary-credits
- ICC: Uniform Rules for Collections (URC 522)store.iccwbo.org/icc-uniform-rules-for-collections
- International Chamber of Commerce: Incoterms® 2020iccwbo.org/business-solutions/incoterms-rules/incoterms-2020
Checked on 28 September 2026. Rules and rates change: confirm against the official text before you act. This guide is general information, not legal or tax advice.