Negotiating Payment Terms with Chinese Suppliers: Pitfalls and Solutions

Payment terms determine when and how much money changes hands, and they have a major impact on risk in supplier agreements.

Large upfront deposits can reduce a buyer’s leverage. Deposits of 50 percent or more before production may leave little recourse if problems arise.

Single final payments before shipment also expose buyers to risk. Without splitting payments, the supplier has little incentive to fix quality issues.

Unclear or absent milestones make it difficult to manage delays. Payments should be tied to specific stages such as tooling, sample approval and production completion.

Unspecified payment currency and bank fees can cause unexpected costs. The contract should state the currency, allocate exchange‑rate risks and clarify which party pays wire fees.

To reduce risk, consider a 30 percent deposit with the remaining 70 percent payable after inspection. Break payments into milestones so progress is clearly linked to money.

Escrow services and letters of credit provide additional protection because funds are released only when agreed conditions are met.

Clear payment schedules, defined currencies and written instructions help both parties understand their obligations and avoid disputes.