Payment terms with Chinese suppliers: T/T, LC, OA, and trade assurance explained
Getting started · Updated
How you pay your Chinese supplier determines how much risk you carry, how much leverage you have if something goes wrong, and in some cases whether your bank will finance the transaction. The four main payment methods each make a different trade-off between cost, protection, and supplier acceptance.
This guide explains T/T, LC, OA, and Alibaba Trade Assurance -- what each one protects, what it costs, and which one fits your situation.
Key takeaways
- --T/T 30/70 is the most common payment method for China imports -- 30% deposit before production, 70% balance before shipment.
- --T/T offers no formal buyer protection. Reduce risk with pre-shipment inspection and paying to a company account, not an individual.
- --Alibaba Trade Assurance is practical for first orders under $20,000 with unknown suppliers -- but only if the product specification is written in detail into the contract.
- --Letters of credit are worth the cost on large orders ($50,000+) where formal bank protection justifies the fees.
- --Open account terms (pay after delivery) are rare for new buyers -- they typically require an established relationship and supplier credit insurance.
Telegraphic transfer (T/T)
T/T is a wire transfer sent directly from your bank to your supplier's bank. It is the most common payment method for China imports and the one most Chinese suppliers prefer because it is fast, cheap to process, and carries no bank fees on their end.
The typical structure is 30% deposit before production and 70% balance payment before shipment (sometimes called 30/70). Some suppliers ask for 50/50. The supplier will not ship until the balance is received.
The risk for the buyer: once the deposit is sent, you have committed. If the supplier fails to deliver, or delivers the wrong goods, recovering money from an overseas wire transfer is very difficult. T/T offers you no formal protection -- you are relying on the supplier's reputation and your contract.
How to reduce T/T risk:
- Use a factory audit or third-party inspection service before releasing the balance payment.
- Require pre-shipment photos or video of the finished goods.
- Never send 100% upfront. The 30/70 split ensures the supplier has incentive to complete and ship the order correctly.
- Pay to a company account, not an individual's personal account.
Letter of credit (LC)
A letter of credit is a bank instrument where your bank (the issuing bank) guarantees payment to the supplier's bank (the advising or confirming bank) once the supplier presents documents proving the goods were shipped correctly -- commercial invoice, bill of lading, packing list, and any required certificates.
The LC protects both parties: the buyer knows the supplier must produce shipping documents before getting paid; the supplier knows payment is guaranteed by a bank once they do.
LCs are standard for large orders (typically $50,000 and above) because the bank fees and administrative cost are significant -- expect $500 to $1,500 or more in fees on each side, plus the time to negotiate the LC terms. For smaller orders, the cost and complexity are rarely worth it.
Key LC terms to know:
- Irrevocable LC: cannot be cancelled without both parties' consent. This is the standard type for trade.
- At sight vs. usance: 'at sight' means payment on presentation of documents. 'Usance' or 'deferred' LCs give the buyer 30, 60, or 90 days after documents are presented, effectively financing the transaction.
- Confirmed LC: a second bank (usually in the supplier's country) adds its guarantee to the issuing bank's. Reduces risk if the buyer's bank is less well-known.
Open account (OA)
Open account means the supplier ships the goods and invoices you, and you pay after the goods are delivered -- typically net 30, net 60, or net 90 days. This is the most buyer-favorable arrangement and the riskiest for the supplier.
Most Chinese suppliers will not offer OA terms to new buyers. It becomes available after an established relationship, often combined with trade credit insurance on the supplier's side.
If a supplier offers OA immediately to a new customer with no prior relationship, treat that as a red flag -- it is sometimes used to build a large receivable before disappearing.
OA is common in established B2B relationships where both parties have years of transaction history and the buyer has verifiable creditworthiness.
Alibaba Trade Assurance
Trade Assurance is Alibaba's built-in payment protection for orders placed through Alibaba.com. The buyer pays through the Alibaba platform, and Alibaba holds the funds until the buyer confirms receipt or the dispute window closes.
Trade Assurance covers: non-delivery, late shipment (if a specific date was agreed in the Trade Assurance contract), and goods that do not match the product specifications written into the order.
What it does not cover: quality disputes not covered by the written specification, damage not attributable to the supplier, or goods you simply changed your mind about.
Trade Assurance is a practical option for first-time orders with an unknown supplier, especially for orders under $10,000 to $20,000. The protection is real but limited -- a detailed, specific product specification in the Trade Assurance contract is what makes claims succeed.
For repeat orders with a known supplier, most buyers move off-platform to T/T to avoid Alibaba's payment processing fees.
Which payment method to use
A rough framework based on order size and supplier relationship:
- First order, unknown supplier, under $20,000: Alibaba Trade Assurance if the supplier is on Alibaba.com, or T/T 30/70 with a pre-shipment inspection for off-platform suppliers.
- Repeat orders with a verified supplier: T/T 30/70 or negotiate better terms (50/50, or balance against copy of B/L).
- Large orders ($50,000+), unknown supplier: LC at sight, issued by a reputable bank.
- Established relationship, strong supplier track record: T/T or OA terms negotiated directly.
FAQ
What does T/T 30/70 mean?
T/T 30/70 means you pay 30% of the order value as a deposit by wire transfer before production begins, and the remaining 70% before the goods are shipped. The supplier holds the shipment until the balance is received. This is the most common payment structure for China imports.
Is Alibaba Trade Assurance safe?
Trade Assurance provides real but limited protection. It covers non-delivery, late shipment (if agreed in the contract), and goods that do not match the written specification. The key is to write a detailed product specification into the Trade Assurance contract before paying -- vague specifications make claims very hard to win.
When should I use a letter of credit?
LCs are most cost-effective for large orders, typically $50,000 and above, because each LC costs $500 to $1,500 or more in bank fees per transaction. For smaller orders, the cost and administrative complexity usually outweigh the protection. Most small importers use T/T or Trade Assurance instead.
Can I negotiate payment terms with a Chinese supplier?
Yes, but terms depend on your leverage. New buyers with no track record will almost always be asked for 30% to 50% upfront. After several successful orders, you can negotiate a lower deposit, balance against copy of bill of lading (rather than waiting for the original), or extended payment windows. Reputation with the supplier is the main lever.
What does 'balance against copy of B/L' mean?
Instead of paying the balance before shipment, you pay when the supplier sends you a copy of the bill of lading proving the goods have been loaded on the vessel. This is a common middle ground -- the supplier has shipped, you have proof, and you pay the balance before the goods arrive. It reduces the risk that the supplier holds your goods hostage after payment.
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