The two things to agree before any money moves are the Incoterm, which decides who pays for freight and who carries the risk, and the payment structure, which decides how much of your money is exposed at each stage. For a first order with a new supplier, the safest structure is a deposit before production and the balance against a passed pre-shipment inspection, with the Incoterm chosen to match how much logistics control you want.

This guide explains the options in plain terms so you can negotiate without surprises.

China Sourcing Payment Terms and Incoterms: What to Agree Before Paying

Incoterms: what changes between them

Incoterms define where the seller’s responsibility ends and yours begins. The ones that matter in China sourcing:

EXW (Ex Works) – you collect from the factory gate. Cheapest unit price, but you handle export clearance, inland transport, export declaration and everything after. Only sensible if you have a freight forwarder in China.
FOB (Free On Board) – the supplier delivers the goods on board the vessel at the named port and handles export clearance. You control the ocean freight and onward leg. The most common choice for experienced importers.
CIF (Cost, Insurance and Freight) – the supplier pays freight and insurance to your destination port, you handle import clearance and duties. Convenient, but you have less visibility on freight cost.
DAP (Delivered At Place) – delivered to a named place in your country, you handle import clearance and duties.
DDP (Delivered Duty Paid) – the supplier handles everything including duties. Simplest for you, highest price, and you need to trust the supplier’s customs declarations.

Practical guidance: first-time importers often choose CIF or DAP for simplicity; once you have a forwarder you trust, FOB usually gives better cost control and transparency.

Payment structures and how much risk each carries

30% deposit, 70% before shipment – the industry norm. Your exposure is the deposit until inspection, then the balance.
Deposit lower for first orders – negotiate a smaller deposit for a pilot run and a larger proportion paid after inspection.
Balance against inspection – pay the remainder only after a pre-shipment inspection report you have seen. This is the single most useful protection available to a buyer.
Letter of credit – used for large orders; bank-mediated and document-heavy. Worth it above a certain order value, rarely for a pilot run.
Open account – paying after delivery. Only after a long track record with the supplier.

Warning signs: pressure to pay 100% upfront, especially into a personal account or an account in a different name from the contracted entity, is a serious red flag regardless of what other terms look like.

Payment methods

T/T bank transfer – standard. Confirm the beneficiary name matches the contracting entity.
PayPal – convenient for samples and very small orders; fees are high and buyer protection for custom-manufactured goods is limited.
Credit card – usually only for samples or platform orders.
Platform escrow – available on some B2B marketplaces; useful for a first transaction, less relevant once you have a direct relationship.

Samples, tooling and who owns what

Three money questions to settle in writing before the deposit:

Sample and tooling charges – are they credited against the first bulk order? Get the answer in writing.
Tooling ownership – if you pay for moulds, they should be yours, marked as such, and transferable.
Price validity – how long is the quoted unit price valid, and what happens if component costs move?

Currency and cost movement

Quotes are usually in USD. Agree how long the price holds and whether a significant exchange rate or component cost movement triggers a re-quote. For long programmes, an agreed review mechanism is better than a fixed price that quietly becomes unprofitable for one side.

A negotiation sequence that works

Confirm specification and target market first — every price discussion before that is speculation.
Ask for the unit price at three quantity tiers so you can see the real volume breakpoints.
Agree the Incoterm before comparing prices, because an EXW price and a CIF price are not comparable.
Negotiate the deposit and balance split, tied to inspection.
Get everything — specification, price, MOQ, lead time, warranty, defect threshold, Incoterm, payment terms — into one written proforma invoice.

Working with Xingliao

Xingliao Technology supplies smart switches, video doorbells, pet feeders, sensors and gateways on an OEM and ODM basis, with prototyping in 7–15 days and tooling in 25–40 days. Standard models start from 500 pcs per colour. Send your specification, target market and quantity and we will quote at your actual volume tiers with the Incoterm and inspection terms stated clearly.

Request a quotation with full terms

Related sourcing guides

Frequently Asked Questions

What is the safest payment structure for a first order?

A modest deposit before production, with the balance paid only after a pre-shipment inspection report you have reviewed. Avoid paying 100% upfront, and make sure the beneficiary account name matches the company you contracted with.

Should I choose FOB or CIF?

FOB gives you control of the freight and visibility of its cost, which is better once you have a forwarder. CIF is simpler if you are new to importing, but you see less of the cost breakdown. Choose FOB when you can; CIF when convenience matters more.

Is DDP a good idea?

It is the simplest option for the buyer because the supplier handles duties and delivery. It is also the most expensive and relies on the supplier’s customs declarations being accurate. Consider it for small or urgent shipments rather than for a long-term programme.

Who pays for tooling?

Usually the buyer, because the tooling is specific to your product. Make sure the agreement states that you own the moulds, that they are marked as yours, and whether the tooling charge is credited against future orders.

How long should a quoted price stay valid?

Ask for an explicit validity period, typically 30 to 90 days. Component prices and exchange rates move, so for long-running programmes agree a review mechanism in advance instead of discovering a price change at reorder time.

📌 This article is part of our Complete What Hub — more guides and buying tips inside.

szxl

Tech writer at XingLiao, testing and reviewing smart devices so you can buy with confidence.

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