Factory Payment Terms Explained: How to Pay Suppliers Without Losing Your Money

Every factory quote comes with two numbers you need to understand. The price. And the terms.

Miss the terms and you can lose thousands before a single unit ships.

Here is how factory payment terms actually work, and how to structure them so your money stays protected.

The Standard Structure: Deposit and Balance

Most factories work on a split payment. A deposit up front. A balance before shipment.

The common split is 30% deposit, 70% balance. Some factories ask for 50/50. Newer or smaller suppliers sometimes want more up front. Larger, established factories are often more flexible.

The deposit confirms your order and covers the factory's raw materials. The balance is paid once production is complete and, ideally, inspected.

Never pay 100% up front. No exceptions, regardless of how good the factory looks on paper or how much you like the team.

What The Deposit Actually Protects

A deposit is not a formality. It signals commitment on both sides.

For the factory, it covers material costs before they commit machine time and labour to your order.

For you, it should be tied to a confirmed specification, an agreed price, and a production timeline, all in writing.

Before you pay a deposit, confirm:

• the exact product specification: materials, dimensions, finish
• the agreed unit price and total order value
• the production and shipping timeline
• what happens if the factory misses the deadline

If any of this is vague, don't pay yet. Get it in writing first. A five-minute delay now saves weeks of chasing later.

TT vs LC: How The Money Actually Moves

Two payment methods dominate international manufacturing: TT and LC.

TT, telegraphic transfer, is a straightforward bank wire. It's fast, simple, and the most common method for small to mid-size orders. It relies on trust. Once the money moves, it belongs to the factory.

LC, letter of credit, routes payment through banks on both sides. The bank only releases funds once the factory proves shipment, usually with a bill of lading. It protects the buyer, but it adds cost, paperwork, and time.

For most founders, TT is the practical option. Split it into deposit and balance rather than paying the full amount up front, and you get most of the protection an LC offers without the overhead.

LC makes more sense for large orders, first-time suppliers with no track record, or higher-risk product categories.

Red Flags In Payment Requests

Not every payment request is standard. Some are warning signs.

Watch for:

• a factory asking for 100% payment before production starts
• pressure to pay into a personal account instead of a company account
• a bank account name that doesn't match the company on your contract
• reluctance to put payment terms in writing
• a sudden request to change payment details mid-order

Any one of these should slow you down. A legitimate factory has nothing to hide about how it gets paid.

How To Pay Safely

A few habits protect your money on every order.

Confirm the company name on the bank account matches your contract and business registration.

Put payment terms in writing before you pay anything, ideally inside your purchase order or contract.

Tie the balance payment to a pre-shipment inspection, not just a promise the goods are ready.

Keep records of every payment, confirmation, and communication tied to it.

Use a payment method you can trace and dispute if something goes wrong.

None of this is complicated. It just needs to happen in the right order, every time.

Why This Matters More The First Time

Payment terms feel abstract until the first time real money is on the line.

Founders who have run production before know the rhythm: confirm the spec, pay the deposit, track production, inspect, pay the balance. Founders doing it for the first time are the ones most likely to skip a step under pressure to get moving.

That's usually not a factory problem. It's a process problem. And it's fixable before you send a cent.

The Takeaway

Payment terms aren't paperwork. They're how you control risk on every order you place.

Get the split right. Confirm the details in writing. Tie the balance to an inspection. Do that consistently, and payment terms stop being a source of anxiety and become just another part of running production.

Source Haus has spent more than 25 years managing supplier payments and production across China and India, with on-ground teams in both. We've seen the standard structure work and we've seen it go wrong.

If you want a second set of eyes on a supplier's payment terms, or someone managing the whole process for you, that's exactly what we do.