When dealing with manufacturers, particularly those in China, you're likely to come across frequently used payment terms such as: "30% deposit, 70% before shipment or 30% deposit, 70% against B/L"
These seemingly simple phrases carry significant implications for your business operations, inventory management, and cash flow.
In this post, we'll dissect these commonly used payment terms, offering insights into what they entail, how you can benefit from them and how they influence your dealings with Chinese manufacturers and suppliers.
"30% deposit, 70% before shipment" is a standard payment term in international trade and manufacturing, especially within China.
It refers to the common practice where the buyer pays an initial deposit of 30% of the total order value upon signing the contract, while the remaining 70% is paid before the products are shipped out.
This arrangement has become an industry standard due to its benefits for both buyers and suppliers.
From the buyer's standpoint, this payment term helps to mitigate risk. The initial 30% deposit demonstrates a commitment to the transaction, but by withholding the remaining 70% until shipment, the buyer ensures they have a form of leverage should there be delays or quality issues.
However, the flip side to this is that the buyer must be financially prepared to make the final payment of 70% before the supplier ships the goods.
On the supplier's end, the 30% upfront deposit shows that the buyer is committed to the order and covers initial costs, such as raw materials and labor, while the 70% balance before shipping guarantees that the supplier won't be left uncompensated for their work.
This payment term offers a measure of security for suppliers and helps protect themselves against non-payment from international buyers.
Given the implications of the 30/70 payment term, it's crucial for businesses to protect their investment by navigating these waters effectively. Here are a few tips to help:
Engage a third-party inspection company to inspect your goods before you make the final 70% balance payment. This practice is universally recommended as it significantly mitigates the risk of receiving subpar or incorrect products.
Skipping this step might seem like a cost-saving move initially, but the potential fallout from accepting and paying for defective or unsuitable goods far outweighs the modest investment of an independent quality check.
If you're a large brand or a business that suppliers are eager to collaborate with, you possess considerable leverage in negotiating payment terms. In this situation, start by outlining your preferred payment terms assertively yet respectfully.
Highlight the mutual benefits of doing business together, including the potential for long-term collaboration and growth. If suppliers are truly interested in building a long-term business relationship with you, they're likely to be more accommodating to your terms.
Over time, as confidence in a buyer's reliability grows and strong relationships are established, a supplier will often agree to ship goods prior to receiving the full balance payment.
This change in terms, such as shifting from "30% deposit, 70% before shipment" to "30% deposit, 70% after receipt of goods," can greatly enhance a buyer's cash flow and streamline operations.
In contrast to the "30% deposit, 70% before shipment" term, another common payment term in international trade and manufacturing is "30% deposit, 70% against B/L (Bill of Lading)."
This arrangement shifts the payment dynamics slightly and has its unique implications for both international buyers and suppliers.
A Bill of Lading (B/L) is a critical document in international trade that acts as a receipt for the cargo and evidence of a contract of carriage. It also serves as a document of title to the goods, meaning that it proves ownership of the goods in transit.
When the term "against B/L" is used, it means that the remainder of the payment (in this case, 70%) is due upon receipt of the B/L by the buyer.
Essentially, the supplier will send the B/L to the buyer once the goods have been shipped, and upon receipt of this document, the buyer then pays the remaining balance.
From the buyer's point of view, the "30% deposit, 70% against B/L" term offers more assurance compared to "before shipment" arrangements.
They can confirm that the goods have indeed been shipped before completing their payment. However, the buyer should always ensure prompt payment upon receipt of the B/L to avoid storage fees and demurrage charges at the port.
For the supplier, this term may carry slightly more risk. Once the goods have left their control, they are dependent on the buyer making timely payment upon receipt of the B/L.
Nonetheless, as the B/L is a document of title, the buyer cannot claim the goods from the port without having paid the remaining 70%, ensuring an added level of security for the supplier.
Just as with the "30% deposit, 70% before shipment" term, there are a few key considerations when dealing with "30% deposit, 70% against B/L" agreements:
Ensure that you have the systems in place to make the final balance payment promptly upon receipt of the B/L to avoid incurring additional port charges.
Use the B/L to verify shipment details like the shipped quantity and shipping date. The information here should match the terms of your sales contract.
Even though the payment term has changed, don't overlook the importance of product quality. It's recommended to always conduct a pre-shipment inspection to ensure your goods meet your standards before they're shipped or paid for.
This is a common payment term in international trade where the buyer pays 30% of the total order value upfront as a deposit. The remaining 70% is paid before the goods are shipped out from the supplier's location.
This is a common payment term in international trade where the buyer pays 30% of the total order value upfront as a deposit. The remaining 70% is paid after the goods are shipped out from the supplier's location and the supplier has provided a copy of the B/L (Bill of lading).
The 30% deposit serves to cover initial costs incurred by the supplier, such as raw materials and labor. It also acts as a commitment from the buyer to show that they would like to move forward with the transaction.
No, it's not recommended to pay more than a 30% deposit to a Chinese supplier. Paying more upfront may expose the buyer to a greater risk, particularly if there are issues with the order or the supplier.
Yes, it's highly recommended to engage a third-party inspection company or a sourcing company in China to inspect goods before making the final payment. This mitigates the risk of receiving subpar or incorrect products.
In conclusion, understanding and navigating payment terms such as the "30% deposit 70% before shipment" and the "30% deposit 70% against B/L" are integral to successful international trade, particularly when dealing with Chinese manufacturers.
These terms serve as effective risk management strategies, balancing the interests of both international buyers and suppliers. By adhering to these guidelines, you can foster successful collaborations with Chinese manufacturers and ensure the smooth execution of your international business transactions.