Supplier Payment Terms Explained: T/T, L/C, and What to Use When

Payment terms are where the money risk in importing actually lives. Between the day you place an order and the day usable goods reach your warehouse, someone is exposed — either you've paid for goods you don't have yet, or the factory has made goods it hasn't been paid for. Payment terms decide who carries that gap. Getting them wrong is how importers lose deposits, and, less often, how factories get burned and stop working with you.

Here's what the common terms mean, in plain English, and how to choose the right one for the order in front of you.

The Terms You'll Actually See

T/T (Telegraphic Transfer) — a bank wire. This is the workhorse of China sourcing; the large majority of orders settle by T/T. It's fast and cheap, but a wire is gone once sent — there's no built-in reversal and no third party enforcing the deal. That's why the structure around a T/T (the deposit split, below) matters far more than the method itself.

L/C (Letter of Credit) — your bank guarantees payment to the supplier, but only once the supplier presents documents proving they shipped exactly what was agreed: bill of lading, packing list, inspection certificate, and so on. It's the most protective instrument for larger orders because a bank sits between the parties and enforces the terms to the letter. The cost: bank fees (often $200–500+ per L/C), real paperwork, and rigidity — a typo in the documents can hold up payment. That overhead makes L/Cs impractical below roughly $30,000–50,000 in order value.

D/P (Documents against Payment) — the shipping documents the buyer needs to claim the goods at the destination port are released by the bank only when the buyer pays. It sits between a bare wire and a full L/C: more protection than T/T, less cost and formality than an L/C. Less common with Chinese suppliers, but useful in the middle range.

D/A (Documents against Acceptance) — like D/P, but documents release when the buyer accepts (formally agrees to pay later) rather than paying now. This extends credit to the buyer and is rare for a new relationship.

O/A (Open Account) — the supplier ships and you pay later (net 30/60/90). This is pure trust, extended only after a long track record. You will not get open-account terms on your first order, and you shouldn't expect to — it's a reward for a proven relationship, not a starting position.

Alibaba Trade Assurance — not a term but an escrow layer worth knowing: for orders placed through it, Alibaba holds your payment and releases it to the supplier only when you confirm the order was met (or mediates if it wasn't). For first orders with a new supplier on the platform, it's a meaningful safety net on top of your T/T.

The Number That Matters Most: The Deposit Split

For the T/T orders that make up most China sourcing, the real negotiation isn't the method — it's how the payment is staged. The standard, and the one to anchor to:

30% deposit, 70% balance before shipment. You pay 30% to start production and the remaining 70% once the goods are made and — critically — after they pass inspection, but before they leave the port. This split keeps meaningful money as leverage until you've confirmed the order is right.

Variations and what they signal:

30/70 against a passed inspection — the ideal. Tie the balance to an independent pre-shipment inspection and your money becomes the incentive for the factory to get it right. They don't get the 70% until an independent party confirms the goods meet your spec.
50/50 — common and usually fine for an established relationship; slightly more of your cash exposed before you've seen the finished goods.
100% upfront — a serious red flag on a first order. A legitimate factory doesn't need full prepayment from a new buyer, and it leaves you zero leverage if the goods come back wrong. Refuse it, or treat the entire supplier as unvetted and walk.
T/T balance after B/L copy — you pay once you see the bill of lading proving shipment. A reasonable middle ground when you can't arrange a formal inspection.

A Worked Example

You're placing a $20,000 first order with a supplier you've verified but never used. Structure it as 30/70 against inspection:

Deposit: $6,000 (30%) to start production.
Goods produced, then an independent inspector checks them against your written spec — cost ~$400.
Inspection passes → you wire the $14,000 balance and the goods ship.
If it fails → you've risked $6,000, not $20,000, and you have a documented report to force a rework before any more money moves.

Your total exposure at the riskiest moment is the deposit, and the balance — the bulk of the money — never leaves your account until an independent party confirms the factory delivered. That's the whole game: keep the larger payment conditional on proof. Notice how much the structure does that the instrument doesn't — a plain T/T becomes safe not because of the wire, but because of when the money moves.

How to Choose

Match the instrument to the order size and the relationship:

First order, small-to-mid value: T/T, 30% deposit / 70% against a passed inspection. Cheap, standard, and the inspection tie-in gives you most of the protection an L/C would, without the fees. Use Trade Assurance too if the order runs through Alibaba.
Large order (roughly $30K+), newer supplier: consider an L/C. The bank fees are worth it when the dollar exposure is high and trust isn't yet established.
Established supplier, repeat orders: you can relax toward 50/50 T/T, or negotiate short credit terms as the relationship earns it. Loosening terms is a reward you extend over time, not a starting point.

The single rule that cuts across all of them: pay the registered company, never a personal account. A supplier asking you to wire a personal account — or a company name that doesn't match the business license — is the biggest payment red flag in overseas sourcing, regardless of how good the terms look on paper. No legitimate factory needs you to do this.

Currency, Fees, and the Small Print

A few practicalities that quietly affect the real cost of a payment:

Currency. Most China trade is quoted and paid in USD. If a supplier quotes in RMB, understand who carries the exchange risk and whether the rate moves the price.
Wire fees. International wires carry sending and intermediary-bank fees ($15–50+ each). On staged payments that's multiple fees per order — small, but real, and worth knowing.
Who pays what. Confirm the supplier receives the full invoice amount net of fees, or you'll get a "short payment" query that delays production over $30.
Get it in writing. The deposit split, the inspection condition, and the banking details belong in the PI (proforma invoice) or agreement, not just a chat message.

The Bottom Line

Don't overthink the acronyms. For most orders you'll use T/T, and the thing that actually protects you is the deposit structure — 30% down, 70% conditional on a passed inspection — plus paying the verified company entity. Save L/Cs for large orders with newer suppliers where the exposure justifies the cost and paperwork, and lean on Trade Assurance when you're on Alibaba.

Payment terms are one line in the quote, but they carry a large share of the risk. When you compare offers, read the terms alongside price, MOQ, and lead time — see how to read a supplier quote and spot red flags, and the complete guide to product sourcing for where terms fit in the full process.