01 · Why terms differ by order stage
Clothing manufacturer payment terms track trust, not a rulebook.
There is no universal payment term for garment manufacturing. Official export guidance in every market frames payment terms the same way: as a risk allocation that depends on how well the parties know each other, whether it is a first order, and how the goods and documents move.[1] The same logic runs in reverse for a factory in China deciding how much of an order it finances out of its own pocket.
- First order
- Neither side has a history. The structure protects both sides from the worst outcome of that gap.
- Repeat orders
- A track record lets both sides loosen the structure — usually in exchange for volume or better pricing elsewhere.
- Order size
- Larger orders justify more formal instruments, because the cost of a formal structure is small against the value it protects.
- Input exposure
- The factory pays for fabric and trims before sewing starts. That cash outflow is why deposits exist.
Understanding why a structure exists is the fastest way to review one: every element of a payment term is answering the question "who would lose money if this went wrong, and when?"
02 · The deposit and what it buys
A deposit is not a factory being difficult. It is the material bill.
Before a garment line runs, the factory has usually already paid for fabric, trims, labels and packaging — often against its own supplier terms, which are frequently stricter than the ones it offers buyers. The deposit exists so the buyer finances the inputs for its own order, rather than the factory financing them on the buyer's credit.
- What a deposit typically covers. Material purchases and dedicated setup work — the costs that cannot be resold if the order stops.
- What it is not. It is not profit taken in advance. On a stopped order, a deposit that has been spent on materials is rarely recoverable in full, which is exactly why factories require it.
- What moves the percentage. Order size, how customised the inputs are, and the relationship history. Stock materials and repeat programmes generally soften the structure; fully custom inputs harden it.
HACOLD publishes no deposit rate on this page. Where an order's deposit sits is a commercial term confirmed against the written quotation for that project — see the closing section for why that boundary protects the buyer too.
03 · The balance and what it follows
The balance is tied to an event. Agree on which event.
Most structures release the balance against one of three trigger points, and disputes come from the two sides assuming different ones:
- Before shipment
- The factory is fully paid when goods are ready to leave. It is the factory's preference, and the buyer's protection is a completed inspection before paying.
- Against shipping documents
- Payment releases when documents proving shipment are presented. The middle ground that most mature trade runs on.
- On arrival or after
- The buyer holds funds until goods land. Maximum buyer protection, maximum factory exposure — normally a relationship term, not a first-order one.
Whichever trigger applies, the inspection path matters more than the trigger itself: the balance is the buyer's last moment of leverage, so the pre-payment inspection is where quality disputes get resolved — or get expensive.
04 · Payment methods and their costs
The method moves money. The structure decides when.
These are different questions, and confusing them is a common first-order mistake:
- Telegraphic transfer (T/T). The international bank transfer — the most common method in business-to-business trade, relatively fast and secure, with bank fees on both ends.[1]
- Letter of credit (L/C). The buyer's bank promises payment against strict documents. Secure for both sides on large values, but it must be drafted carefully, takes time, and payment can be delayed by documentation discrepancies.[2]
- Documentary collection (D/C). Banks exchange shipping documents against payment or acceptance of a bill of exchange. Cheaper than an L/C, used mainly for sea shipments where a trading history exists.[2]
- Card and online services. Quick and familiar, but with per-transaction limits and fees that make them a small-payment tool, not an order-financing one.
For a first order of ordinary size, the realistic menu is usually T/T against a deposit-and-balance structure. Formal instruments earn their cost when order value, newness of relationship or market risk increase.
05 · The four payment structures
Official guidance recognises four structures. Know where each leaves you.
Export-payment guidance groups business-to-business terms into four families, from most supplier-secure to most buyer-secure:[1]
- Payment in advance
- Full payment before shipment. Maximum protection for the paying side's counterpart — minimum protection for the payer. In garment terms: a 100% prepayment request deserves scrutiny of why the deposit-and-balance norm does not apply.
- Deposit and balance
- The working norm in apparel: a share upfront to fund inputs, the balance at an agreed trigger. Its fairness lives in the inspection rights attached to the balance.
- Documentary structures
- L/C and D/C. Payment moves against documents rather than trust. Costly to set up, strong on value protection, weak on flexibility for changes mid-order.
- Open account
- Goods ship before payment is due. Maximum buyer security, maximum supplier exposure — a repeat-relationship structure built on history, not a starting point.
Where a proposed term sits in this list tells you what the other side is worried about. That is useful information, not an insult: a factory asking for a deposit is telling you it cannot finance your inputs, which is a fact about the order, not a character judgement.
06 · What protects the buyer
The buyer's protection is process, not the payment method.
A payment structure cannot make a bad factory good. What actually protects the buyer's money:
- A written quotation before any payment. The deposit, the balance trigger, the trade term and the included-and-excluded list, all confirmed in writing before funds move.
- Pre-payment inspection rights. The right to inspect — or have inspected — finished goods before the balance releases. This single clause carries most of the protection a buyer will ever need.
- Sealed counter-samples. The approved sample, sealed and referenced in the order, so quality has a defined benchmark rather than an opinion.
- Paying the correct entity. The account name should match the counterparty on the quotation. Mismatches are the oldest red flag in overseas trade.
- Not overpaying early. Money paid is leverage lost. The structure should keep a meaningful share of the value in the buyer's hands until the goods are verifiably ready.
07 · First order vs repeat orders
Terms should evolve with the relationship — deliberately.
A sensible pattern, used by buyers and factories alike:
- First order: standard deposit-and-balance by transfer, inspection before balance, everything in writing. Resist both extremes — full prepayment and open credit.
- Early repeats: soften the deposit slightly as history builds; keep inspection rights.
- Established relationship: documentary structures or partial open terms become rational for large stable orders, and can unlock better pricing — the factory's financing cost drops and that saving has somewhere to go.
Formal guidance for exporters makes the same point in reverse: payment terms are one of the levers a relationship adjusts as trust accumulates.[1] The error is starting at the end of that path — on either side.
08 · Currency, fees and timing
Three small terms that generate most of the friction.
- Currency
- Which currency the invoice is in, and whether the price moves if exchange rates move materially before the balance date.
- Fees
- International transfers carry charges on both ends. Agree in writing who bears which — undefined fees are how balances arrive short.
- Validity
- How long the quoted price stands. Material and freight inputs move, so a validity window is a real commercial term, not boilerplate.
None of these are complicated. All three cause disputes when left unwritten, because each side fills the silence with its own assumption.
09 · Payment red flags
Five signals that the structure is wrong, not just unfamiliar.
- Personal or third-party accounts. Payment to an account whose name does not match the contracting company.
- 100% prepayment on a first order from a counterparty you have not verified — this exceeds even the most input-heavy order's needs.
- Refusal to confirm terms in writing, or a quotation that will not state the balance trigger.
- Price changes tied to payment. "Better price if you pay all upfront" is sometimes genuine cash-flow logic and sometimes a way to move the deal outside reviewable channels. Verify before rewarding it.
- Pressure to skip inspection to hit a payment date. The inspection protects both sides; a factory that waves it off is asking you to finance trust you have not earned yet.
10 · Confirm the terms in writing
A payment term that is not written down is a dispute on a delay.
Before any funds move, the written quotation or order confirmation should state: the deposit share and its due date, the balance share and its trigger event, the payment method and who carries fees, the currency and validity window, the inspection rights attached to the balance, and the account name funds go to. Official trade documentation guidance makes the same point from the documents side: a clear written contract stating amount, currency and timing is the baseline, whoever the counterparties are.[2]
HACOLD confirms every order's commercial terms — deposits, trade term, milestones — against the written quotation for that project rather than publishing fixed terms, because the honest structure depends on the inputs, the quantity and the relationship stage. See sourcing and commercial terms for how that confirmation works, and the cost guide for how the number those terms attach to is built.