How to pay a plant in China: prepayment, in stages, letter of credit
Payment is usually made in two stages: an advance to start production and the balance before shipment. What matters to the buyer is not the split but the event the balance is tied to: an inspection report, documents, or just the plant's "ready" message. A letter of credit protects more, but the bank checks documents, not goods.
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A Chinese plant is most often paid in two stages: an advance so the plant can buy material and start production, and the balance before shipment. Sometimes it is full prepayment, and sometimes a letter of credit through banks. For the buyer the main question is not "what percentage up front" but "what has to happen for me to pay the balance". If the balance is tied to the lot inspection report, you have leverage before shipment. If it is tied to the plant's message "the goods are ready", you have none. The payment procedure is written into the contract before the order is placed.
Four usual schemes
| Scheme | How it works | What it gives the buyer | Where the risk is |
|---|---|---|---|
| Full prepayment | you pay everything before production | simplest for the plant; sometimes a condition for small orders | all the money is with the plant before you have seen anything |
| Advance and balance before shipment | part to start production, the rest when the lot is ready | the plant has invested in material; until shipment the money is still yours | if the balance is paid "on a message", without inspection, the leverage is gone |
| Advance and balance after inspection | the balance is paid after the inspection report on the lot at the plant | you pay for what you have seen: part number, dimensions, quantity, packaging | inspection is needed, and the contract must say what counts as a discrepancy |
| Letter of credit | the buyer's bank undertakes to pay the plant when it presents the agreed documents | money goes out only against documents | the bank checks documents, not goods; errors in documents delay payment |
Tie payment to an event
A payment "before shipment" proves nothing. A payment "after an event" does. The event can be:
- An inspection report before shipment. The lot has been examined at the plant, and there are no discrepancies or they have been corrected. This is the strongest tie for the balance.
- Sample approval. For consumables and parts made to a drawing: an advance for the sample, then the lot goes into production after your "yes".
- Documents. Invoice, packing list, transport document. This confirms shipment, but not quality.
- Acceptance at your warehouse. The least convenient tie for the plant: money arrives after a long journey. If it is agreed, write down who signs the report and how.
Write into the contract who prepares the event, within what time, and what happens if it reveals a discrepancy: correction before shipment, replacement, postponing the payment.
A letter of credit in plain words
A letter of credit is a bank's undertaking to pay the seller if the seller presents, on time, documents that strictly comply with the terms of the credit. For international letters of credit, banks usually apply the ICC rules, UCP 600.
The main things to understand:
- The bank works with documents, not with goods. The letter of credit is separate from the sales contract. If the documents appear to comply, the bank pays even if there is a dispute about the goods themselves. And the other way round: an error in a document is grounds for refusal even if the goods are good.
- Protection depends on which documents you required. If among the conditions is an inspection report or certificate issued by someone you trust, the goods enter the check through a document. If there is only an invoice and a transport document, the letter of credit confirms shipment, not quality.
- A letter of credit demands precision. A discrepancy in the name, quantity or date delays payment. The terms of the credit and of the contract must match.
- Banks charge fees for a letter of credit, and the plant may include its own costs in the price. The benefit of the protection is worth comparing with these costs for your lot.
What to check before any payment
- The payee is the same company as in the contract and on the plant's business license. A payment to a personal account or to another firm's account is a reason to stop.
- Bank details have not suddenly "changed". A message "we have a new account" is a classic fraud scheme. Confirm the change through another channel, for example by calling a manager you know.
- Amount and currency are as in the contract and the proforma invoice.
- The payment reference refers to the contract and the invoice.
The bank and currency control
A payment abroad from Uzbekistan goes through your bank. It checks the foreign trade contract and documents under the currency regulation rules. The requirements for the contract and how it is registered change. Ask your bank for them before signing the contract, so you do not have to redo the contract afterwards.
How we do it
- We fix the payment terms in the contract: the procedure, currency and payment dates are agreed for the specific lot before the order is placed with the plant.
- First you receive a calculation for your lot, what is included in the price up to your warehouse, and you decide based on it.
- We inspect the lot at the plant before shipment. The report and photographs come to you.
What this article relies on
Below are the documents and materials we refer to, so that you can check what is said for yourself.
Standards and documents
- ICC Academy. UCP 600text ↗
Reference materials
- Handybulk. Bills of lading and banks' duties under documentary credits: compliance, fraud, rejection and payment (analysis of Art. 4, 5, 14 of UCP 600)handybulk.com ↗
Checked as of 11.10.2026. Currency regulation and bank requirements change: confirm the payment procedure and the registration of the contract with your own bank. This article does not replace advice from a lawyer or a bank.