Develop & order
Payment terms when sourcing clothing from China
The most common payment term for apparel made in China is a T/T (bank transfer) deposit before production, with the balance paid before shipment or against a copy of the bill of lading. Letters of credit (L/C) shift risk to the banks but add cost and paperwork. The right term balances the factory's need to buy fabric against the buyer's need for evidence that the goods are right.
Key takeaways
- A deposit usually funds the factory's fabric and trims purchase, which happens before sewing starts.
- Paying the balance against a B/L copy lets the buyer pay after the goods have shipped, while the original B/L stays with the seller until paid.
- An L/C pays only when documents comply exactly with its terms, so small discrepancies can delay payment.
- Tie the balance to a passed final inspection so quality is checked before money moves.
Reference information, not legal advice. Regulations change; always confirm current requirements with the official source linked below or a compliance professional before shipping.
Payment terms decide who carries the risk at each step of an order. In apparel the factory spends first, on fabric, dyeing and trims, while the buyer wants proof the garments are right before paying in full. Good terms keep both worries manageable.
This guide describes common commercial practice. It is not legal or financial advice, so check terms with your bank and advisers.
1. Why apparel orders need a deposit
Before the first garment is sewn, the factory typically has to buy yarn or greige fabric and pay for knitting, pay the dye house for each colour, order custom labels, zips, cords and packaging, and buy decoration inputs such as screens or embroidery threads. These costs are specific to your order and can’t easily be resold. A deposit covers that commitment.
2. Common payment terms compared
| Term | How it works | Buyer risk | Seller risk | Cost & paperwork |
|---|---|---|---|---|
| T/T deposit + balance before shipment | Deposit at order; balance after final inspection, before goods leave | Medium, pays before shipping | Low | Low |
| T/T deposit + balance against B/L copy | Balance paid when the seller sends a copy of the bill of lading; originals released after payment | Lower, goods are on board | Medium | Low |
| L/C at sight | Buyer’s bank pays when compliant documents are presented | Low, pays on documents | Low, if documents comply | Higher: bank fees, strict documents |
| D/P (documents against payment) | Bank releases shipping documents when buyer pays | Low | Higher, buyer may not pay | Medium |
| Open account | Buyer pays an agreed number of days after shipment | Lowest | Highest | Low |
Open account is usually reserved for long relationships, often with credit insurance.
3. T/T in practice
T/T (telegraphic transfer) is a bank wire. It is fast and cheap, which is why it dominates small and mid-size apparel orders. A typical sequence:
- Pro forma invoice issued with bank details, quantities, prices and Incoterm.
- Deposit paid; fabric and trims ordered.
- PP sample approved; bulk production.
- Final inspection.
- Balance paid, before shipment or against B/L copy.
- Original documents or telex release sent.
The Incoterm in the contract decides who books the freight and where risk passes. See Incoterms 2020 for apparel.
4. Letters of credit (L/C)
An L/C is a promise from the buyer’s bank to pay when the seller presents documents that comply with the credit’s terms: commercial invoice, packing list, bill of lading, certificate of origin, inspection certificate and so on.
Before one is opened, agree the exact document list and wording, because a misspelled name or a different quantity format can delay payment. Set the latest shipment date and the expiry date with room for production delays. Say whether partial shipments and transhipment are allowed. If you require an inspection certificate, name the inspection body. Knit orders can vary slightly from the ordered quantity, so state whether a quantity tolerance is allowed.
Matching the L/C to the actual export documents matters; see export documents and certificate of origin.
5. Link payment to quality, not just dates
Whatever the term, tie the balance to evidence. The PP sample should be approved and signed before bulk. The final inspection should pass at the agreed AQL (see knitwear quality control). The packing list should match carton count and quantities, and the shipping documents should be checked before the balance is released.
6. Protecting both sides
| Risk | Practical safeguard |
|---|---|
| Bank detail fraud (fake email) | Pay only to the account on the signed contract, in the supplier’s company name; verify any change by phone |
| Wrong goods shipped | Final inspection before balance |
| Unpaid balance after shipping | Seller keeps original B/L until payment |
| Currency movement | Agree the currency and who bears bank charges |
| Disputes after arrival | Written defect and claims procedure; see receiving shipments and claims |
7. Our approach
We confirm payment terms with each quotation, along with the Incoterm and inspection arrangements. Buyers are welcome to appoint their own inspector before the balance is paid. Our quality control and OEM/ODM pages show how orders are run.
Final thoughts
No payment term is simply “safe”. Each one is a different split of risk, and the job is to pick the split that suits the order and the relationship. For most apparel orders, a deposit to fund materials plus a balance tied to a passed inspection and shipping documents works for both sides. Put everything in writing, check bank details independently, and loosen the terms as trust builds.