Payment Terms With a China Supplier: What Each Structure Really Costs
Every quote you receive from a Chinese machine shop ends with a payment line, and most buyers read it as an afterthought. It is not. That line tells you how much working capital the shop has, how badly it wants the order, and how much of the risk it is willing to carry before it has seen a single dollar from you.
A shop with 40 machines and a full order book will ask for a deposit and hold firm. A shop with empty spindles will offer net 30 to a customer it has never met. Neither is a moral position; both are statements about cash flow. Here is what the common structures actually cost each side, and how to sequence them across a first order and the ones that follow.
Why the deposit exists, and what 30% covers
Machining is cash-negative before it is cash-positive. Aluminum plate at USD 3.60-4.20/kg for a 40 kg billet, anodizing paid on collection, cutters consumed, and 12-18 hours of machine time per setup — all of it leaves the shop's account before your part ships. A 30% deposit on a 500-piece run does not cover that. It covers material for the first lot and signals that you are serious.
That is why the deposit percentage barely moves. What moves is the balance trigger and what happens after the parts are finished. Expect 30% as a starting point from any shop with a real order book. An offer of 10% deposit usually means the shop intends to fund your job from someone else's deposit, which is a liquidity warning, not a discount.
Ask one question before negotiating: "What does the deposit buy?" If the answer is "material on the floor by next Tuesday," you are talking to a shop that plans. If the answer is vague, the deposit is working capital.
Balance before dispatch or balance against documents
This is the clause worth arguing over, because it decides who holds the risk during the four to six weeks when the parts exist but you cannot touch them.
Balance before dispatch means you pay the remaining 70% when the goods are packed, before the container leaves Yantian. The shop is fully paid before the vessel sails, so any transit damage, delay, or customs problem is yours alone. Balance against documents — paid when the shop presents the bill of lading and packing list — shifts a few days and gives you proof that the cargo actually loaded on a named vessel.
For a first order, the practical middle ground is 30% deposit, 60% against the pre-shipment inspection report and photos, 10% against documents. It costs the shop nothing but paperwork and it removes the scenario where you have paid in full for a crate that never loads.
See also: A Supplier Audit Checklist for Uncertified Machine Shops and Machining Purchase Order Terms That Actually Protect the Buyer.
T/T versus L/C: the real cost of each
Telegraphic transfer is cheap and fast. Expect USD 25-50 in sending charges from your bank, USD 15-30 in intermediary charges deducted in transit, and one to two business days of value date. On a USD 20,000 order that is 0.2-0.4% of value. The weakness is that T/T gives you no protection at all: once the money lands, your only leverage is the remaining balance.
A letter of credit costs more than the fee sheet suggests. Issuance typically runs 0.15-0.5% of value with a minimum around USD 150-300, plus a confirmation charge of 0.1-0.25% per quarter if you want a second bank's risk, plus amendment fees of USD 50-100 every time a detail changes. Realistic all-in cost on a USD 50,000 order is USD 400-900, or roughly 1-2%. For that you get payment against compliant documents rather than against a promise. Below about USD 30,000 the fixed costs make an L/C hard to justify unless the relationship is new and the amount matters to your business.
| Structure | Deposit | Balance trigger | Cost to buyer | Risk carried by buyer |
|---|---|---|---|---|
| 100% T/T in advance | 100% | Before production | USD 40-70 in wire fees | Total, from day one |
| 30 / 70 before dispatch | 30% | Packing complete | Wire fees only | Transit and customs |
| 30 / 60 / 10 against documents | 30% | Inspection, then B/L | Wire fees plus inspection USD 300-800 | Transit only |
| L/C at sight | 0-30% | Compliant document set | 1-2% of order value | Almost none, if documents are clean |
| Net 30 after track record | 0% | 30 days from delivery | none | None until payment date |
Net 30 and net 60: when they become real
Net terms are credit, and a machine shop is not a bank. A shop turning USD 400,000 a month with 22% gross margin cannot fund 60 days of receivables across five customers without borrowing at 4-6% annualized in RMB. That cost has to appear in the price, usually as a 1.5-3% uplift for net 60 versus deposit terms.
In practice net 30 arrives after six to twelve months and three to five clean orders, and it arrives with a credit limit — often USD 20,000-50,000 — not a blank cheque. Net 60 usually requires either a larger limit, a parent guarantee, or a supply chain finance arrangement where a bank pays the shop early at a discount and you pay the bank at 60 days.
If a shop offers net 30 on the first order, ask what happens if you fail to pay. A shop with no credit process has no collection process either, which usually means it is under financial pressure and pricing the risk into the quote anyway.
Structuring the first order
Sequence matters more than the percentage. A workable first order looks like this: 30% deposit to release material, a pre-shipment inspection you or a third party attend, 60% on the inspection report, 10% on the bill of lading, then a move to 30/70 before dispatch for the next two lots, then net 30 with a limit once the parts have run clean for two quarters.
Write the trigger events, not the calendar. "Balance within 7 days of B/L date" is enforceable; "balance on shipment" is not. State the currency (USD is standard), who pays the wire fee at each end, and what happens if a bank holiday delays value date.
If you want to see how this maps onto a real sequence of samples, first articles and batches, our how we work page walks through it, and you can raise any of these structures directly through contact before a PO exists. Terms are easier to agree before there is money on the table.
Frequently asked questions
Is a 30% deposit negotiable?
The percentage rarely moves much below 30% for a new customer, because it is tied to material cost rather than to bargaining. What is negotiable is the balance trigger — splitting the 70% into inspection and documents stages costs the shop nothing and buys you real protection.
How much does a letter of credit add to an order?
Budget 1-2% of order value all in: issuance at 0.15-0.5%, confirmation at 0.1-0.25% per quarter, and USD 50-100 per amendment. Below roughly USD 30,000 the fixed minimums make it poor value compared with a staged T/T structure.
Can I get net 30 on a first order?
Occasionally, and it is usually a signal to look harder rather than to celebrate. A shop extending unsecured credit to an unknown buyer has either no credit process or a cash problem. Six to twelve months and three to five clean lots is the normal path.
Who pays the bank charges on a T/T?
Each side pays its own bank by default, but intermediary banks deduct USD 15-30 from the amount in transit, so the shop receives less than you sent. Agree in the PO that you will cover the intermediary charge, or expect a shortfall claim on every payment.
Related reading
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