T/T, L/C, or Escrow? Paying Chinese Suppliers Safely

How you pay matters as much as what you pay. Cross-border transfers to China are fast and cheap to send—and effectively irreversible. The payment structure you agree to in the proforma invoice is your only real leverage before goods ship, so it deserves the same attention as the price.

Option 1: T/T (Telegraphic Transfer) — the Default

The standard China trade structure is 30% deposit on order, 70% against shipping documents (typically a copy of the bill of lading), settled by bank wire. Chinese banks handle enormous volumes of trade settlement, and T/T is what virtually every factory expects.

Its weakness is asymmetry: after the 30% deposit, the buyer’s leverage is the 70% balance—so a failed production run costs you the deposit, and a supplier who ships nonconforming goods can pressure you with the balance. Mitigations buyers actually use:

• Tie the balance to inspection, not just documents. Write into the contract: 70% payable after passing a third-party pre-shipment inspection (AQL per ISO 2859-1), not merely upon B/L copy. Factories resist; strong suppliers accept.
• Stage large orders: 30/40/30 with a mid-production checkpoint.
• Never pay 100% in advance except for sample-level amounts.

Option 2: Letter of Credit (L/C) — Bank-Enforced Documentation

An L/C substitutes the banks’ obligation for the buyer’s: payment is released when documents comply—B/L, invoice, packing list, sometimes inspection certificate. It protects the seller against buyer default and the buyer against non-shipment.

The catch: L/Cs protect against non-delivery, not bad delivery. Documents can be perfectly compliant while the cargo is poor. Add a documentary requirement for a third-party inspection certificate (SGS, QIMA, Intertek) and the L/C becomes a real quality gate. L/Cs also cost real money—bank charges on both sides plus discrepancy fees—and only make sense above roughly $30,000–50,000 per transaction. For that size and above, especially with newer suppliers, an L/C at sight with an inspection certificate is the professional standard.

Option 3: Escrow and Platform Protection

Escrow holds funds with a neutral third party until delivery conditions are met. On Chinese B2B platforms, Alibaba’s Trade Assurance functions as a dispute-backed escrow layer—orders placed through it can be claimed against if shipment fails or grossly deviates. It is genuinely useful for first orders with unknown suppliers, and buyers should understand its limits: claims require documented evidence within defined windows, and coverage caps may be below large order values.

Independent escrow services exist but are rarely used in China manufacturing; the ecosystem runs on bank trust built over repeat orders.

Option 4: Payment-on-Arrival Structures

Some buyers negotiate T/T balance against arrival scan or consignment arrangements. These shift nearly all risk to the supplier and are correspondingly rare—expect price premiums or refusals unless you bring volume. They are a privilege of scale, not a starting structure.

The Fraud Vector: Account Hijacking

The most common real-world loss is not a bad supplier but a compromised email account. Attackers monitor negotiations and, just before payment, send “updated banking details” from a lookalike address—often to a Hong Kong personal account. Countermeasures:

1. Verify any bank-change request by phone to a known contact, never by reply email.
2. The payee name must match the business license name exactly (see our factory verification checklist).
3. First payments to a new account should be small and confirmed by the supplier through a second channel.

A Practical Decision Table

Ready to negotiate from a position of verified trust? Submit your RFQ and get introduced to manufacturers with documented export and payment histories—so the deposit you send is going to a counterparty worth the wire.