Packaging Payment Terms with Chinese Factories: T/T, LC and Trade Assurance

Payment terms in packaging procurement from China balance the buyer's need for protection against the factory's need for working capital. Standard arrangements vary by order size, buyer credibility and the duration of the relationship. Understanding the options and their trade-offs helps buyers structure deals that protect their interests while being commercially workable for the factory.

T/T (Telegraphic Transfer) — Bank Wire

T/T is the most common payment method for direct factory orders. The standard terms vary by order size and relationship stage:

Letter of Credit (L/C)

A Letter of Credit is a bank instrument that pays the seller when specified documents are presented — typically: bill of lading, commercial invoice, packing list, certificate of origin, and any inspection certificate required. The buyer's bank guarantees payment to the seller's bank once the documents comply with the LC terms. This protects both parties: the seller knows payment is bank-guaranteed; the buyer knows payment is only released when shipping documents confirm goods were shipped as specified.

L/Cs are typically used for orders above USD 20,000–30,000 or for buyers without established relationships. The LC typically costs 0.15–0.25% of the LC value in bank fees. Lead time to open an LC: 5–10 banking days. Allow for this in your production scheduling.

Alibaba Trade Assurance

For buyers sourcing through Alibaba, Trade Assurance is a platform escrow that holds payment until the buyer confirms order requirements are met. If the factory fails to ship on time or the goods do not meet specification, Alibaba mediates a dispute and can refund the buyer from the held funds. Trade Assurance is practical for smaller orders (under USD 5,000) and for new supplier relationships where neither party wants to incur L/C bank fees. The limitation is that disputes require Alibaba mediation, which takes 1–3 weeks and is not always resolved in the buyer's favour.

Sample Fees and Tooling Payments

Sample fees (USD 80–400) and tooling costs (USD 80–500) are typically paid 100% upfront by bank transfer before the factory begins work. This is standard and appropriate — the factory will not invest labour and materials in a one-off sample without confirmed payment. Sample fees are typically credited against the first production order at the same factory.

Protecting Your Payment: Practical Steps

• Verify the factory's business registration before paying — request the 营业执照 (business licence) and verify the bank account name matches the registered company name
• Never pay to a personal account — payment should go to the factory's corporate bank account
• For first orders, use Trade Assurance on Alibaba, or pay 30% deposit and inspect goods before releasing the balance
• Confirm the factory's bank account details via an alternative communication channel (phone call or video call) before transferring — bank detail fraud is a real risk in B2B wire transfers
• Obtain a written proforma invoice before payment, confirming order details, agreed price, payment terms and delivery date