Safe Payment Methods for Chinese Factories: T/T, Letters of Credit and Platform Escrow

Sourcing· 07.08.2026· 5 min read Safe Payment Methods for Chinese Factories: T/T, Letters of Credit and Platform Escrow The short answer The most common arrangement with Chinese factories is a T/T bank transfer split 30 percent deposit and 70 percent balance, paid after a passed pre-shipment inspection and against a copy of the Bill of Lading. For large orders or untested suppliers a letter of credit is safer, while platform escrow suits smaller orders within the platform's limits. This article is for buyers who have reached the point of wiring money to a Chinese factory, the single riskiest moment in the import cycle. Choosing the payment method and structuring the instalments protects your money more than any other contract clause, because it keeps part of the value under your control until you have verified the goods. What payment methods are available when buying from a Chinese factory? Bank transfer (T/T): the most common, fast and cheap; its safety depends entirely on how the instalments are structured. Letter of credit (L/C): a bank undertaking to pay against compliant documents, normally governed by UCP 600. Documentary collection (D/P): the bank releases shipping documents against payment, lighter and cheaper than an L/C but no guarantee of quality. Platform escrow: funds held by a third party until receipt is confirmed, within the platform's own rules and limits. Personal remittances and cash: no protection whatsoever, and not advisable for any commercial order. How do I use a T/T bank transfer safely? A bank transfer is not risky in itself; the risk lies in the timing. The most balanced market split is 30 percent deposit and 70 percent on completion of production, with the balance paid after a passed pre-shipment inspection and against a copy of the Bill of Lading. Four practical rules: Never pay 100 percent up front, except for a low-value sample you can afford to lose. Tie the balance to inspection in writing: the balance falls due on issuance of an acceptable inspection report. Hold a retention of 5 to 10 percent payable after arrival on customised orders, where you can negotiate it. Confirm the account name matches the company name on the business licence and Proforma Invoice exactly. A larger deposit can be justified when the product needs dedicated tooling or special materials, but it should be offset by other safeguards such as a factory audit or during-production inspection. When do I need a letter of credit? A letter of credit makes sense in three situations: a high-value order, an untested new supplier, or a product with a long manufacturing lead time. The bank pays only against documents that comply exactly with the credit terms, which imposes strong discipline on paperwork and deadlines. But remember its founding principle: banks deal in documents, not in goods. An L/C does not protect you against quality defects unless you make an inspection report from a named inspection body one of the required documents. Fees are also higher, your bank may require cover or collateral, and a single typographic discrepancy can hold up payment and trigger amendment costs. Is platform escrow enough to protect my money? Escrow is genuinely useful on small and mid-sized orders because it holds funds until receipt is confirmed and provides a dispute route. Its limits are real, though: It generally covers only what was documented inside the platform; side agreements made elsewhere do not count. It runs on strict objection deadlines, so a buyer who inspects late effectively forfeits the claim. It is judged against the written order specification, so a vague spec makes non-conformity hard to prove. It rarely extends past customs clearance or to latent damage. The rule: document everything inside the payment channel itself, inspect immediately, and never confirm receipt before a physical check. How do the payment methods compare? Payment methodBuyer protectionCostBest suited to T/T split 30/70 tied to inspectionModerate to goodLow transfer feesMost routine orders T/T paid fully in advanceVery weakLowLow-value samples only Letter of creditHigh when the terms are drafted preciselyHigher bank fees, may need collateralLarge orders and new suppliers Documentary collection (D/P)ModerateCheaper than an L/CReasonably established relationships Platform escrowModerate within platform limitsUsually built into the priceSmall and mid-sized orders Personal remittance or cashNoneLowNot advisable under any circumstances How do I avoid bank-detail change fraud? One of the most common losses in international trade happens when a third party compromises the supplier's email or spoofs their domain, then sends an updated bank account notice just before a transfer is due. Run this checklist before every payment: The account holder name matches the company name in the contract and business licence, letter for letter. Any change of bank details is verified by calling a number you already held, never a number given in the new message. Inspect the sender's email domain character by character for subtle letter substitutions. Treat requests to pay a personal account, or a third country with no written contractual basis, as highly suspect. Where possible, send a small test transfer the first time you use a new account. What clauses should the Proforma Invoice contain? Full legal names and addresses of both parties, with bank details in the same company name. A precise technical description of the product, referencing the approved reference sample. Quantity, unit price, total and currency. The Incoterms 2020 delivery term with the named port or place. Lead time counted from receipt of the deposit and sample approval. Packaging, export carton and marking specification. The right to pre-shipment inspection, the agreed AQL levels under ISO 2859-1, and who pays for re-inspection. Defect remedies: repair, replacement or discount, with warranty period and claim window. A late-delivery remedy. Governing law and dispute resolution, signed by an authorised representative and stamped with the official Chinese company chop. Practical takeaway Safe payment is not about picking one instrument; it is about tying money to verifiable milestones: a limited deposit, a balance released against a passed inspection and a Bill of Lading copy, an account in the company's own name, and a contract that fixes the specification and the remedies. Add a letter of credit for large orders, and use escrow with immediate inspection for small ones. If you need a neutral party inside China to verify the factory and run the inspection before the balance is released, that is what ALSHUMUL provides from Guangzhou. Share this article WhatsApp Facebook X TikTok Instagram Copy link All questions → All services → Back to the blog → Frequently asked questions on this topic The questions most often asked before importing from China: costs, factories, quality, shipping and payment. All questions → What deposit percentage is normal with Chinese factories? – The most common structure is 30 percent deposit and 70 percent on completion of production or against a Bill of Lading copy. Some factories ask 50 percent for customised products requiring tooling or special materials, which is acceptable if offset by other safeguards such as a factory audit and during-production inspection. Avoid paying in full up front, and make the balance conditional on an acceptable inspection report written into the contract. Does a letter of credit protect me against poor quality? + Not automatically. Banks deal in documents rather than goods, so if the supplier presents documents complying with the credit terms, payment is due regardless of the condition of the cargo. The fix is to require an inspection report from a named inspection body, with an acceptable result, as one of the documents under the credit. Inspection then becomes a condition of payment rather than a parallel formality. Can I pay Chinese factories by credit card? + Mostly through platforms, and rarely direct with factories, since many will not absorb processing fees and lack a suitable acquiring channel. Cards are useful for samples and small orders because they provide a chargeback route with the issuer. For larger orders, a bank transfer or a letter of credit remains the practical norm. What if the supplier asks me to pay an account in another country? + Stop and verify before transferring. Holding an account in another financial centre is not proof of fraud by itself, but it must be stated in the contract and held by an entity documented as connected to the supplier. Ask for a written explanation and proof of account ownership, and confirm by calling a number you already held. Always refuse personal accounts in an individual's name. Can I recover my money if the goods do not match the specification? + Full recovery after shipment is difficult, which is why the system is built on prevention rather than cure. Your practical tools are withholding the balance until inspection, a signed specification and reference sample, and an independent inspection report documenting the non-conformity. With those in place, most suppliers prefer to settle through a discount or replacement rather than lose the customer and their reputation. Why does the Chinese company chop matter on a contract? + The official red company seal carries significant legal weight in China and is often treated as the expression of the company's will more than an individual signature alone. Require the contract or Proforma Invoice to bear the company chop matching the legal name on the business licence, signed by the legal representative or an authorised delegate, and keep a clear copy on file. 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