What are common payment terms in B2B trade?
Payment terms in B2B trade are negotiated between buyer and supplier, and the right choice depends on order size, relationship maturity, and risk tolerance. Unlike consumer e-commerce where you pay upfront and receive your goods, B2B transactions involve significant sums and extended timelines, making payment structure a critical element of every deal.
| Payment Method | How It Works | Risk to Buyer | Best For |
|---|---|---|---|
| T/T (Telegraphic Transfer) | Direct bank wire; usually 30% deposit + 70% before shipment | Medium — funds go directly to supplier | Most common method; established relationships |
| L/C (Letter of Credit) | Bank guarantees payment upon presentation of compliant documents | Low — bank acts as intermediary | Large orders; new supplier relationships |
| D/P (Documents Against Payment) | Buyer pays to receive shipping documents from the bank | Medium | Moderate-value orders with some trust established |
| Western Union / PayPal | Online payment platforms | Higher — limited protection for large amounts | Sample payments; very small orders |
T/T is by far the most commonly used payment method in China-based B2B trade. It's fast, straightforward, and accepted by virtually every supplier. The standard structure — 30% deposit to start production, 70% balance paid after production is completed and before goods are loaded for shipment — protects both parties reasonably well. The supplier gets working capital to begin manufacturing, and the buyer retains leverage to ensure quality before releasing final payment.
Letters of Credit (L/C) provide stronger protection for large orders because a bank intermediates the transaction. The buyer's bank issues the L/C, and the supplier's bank releases payment only when the supplier presents shipping documents that comply with the L/C terms. This system virtually eliminates the risk of non-delivery, though it comes with bank fees (typically $200-$500+) and administrative complexity that makes it impractical for smaller orders.
Pro Tip: For your first few orders with a new supplier, negotiate to pay the 70% balance after a third-party inspection confirms product quality — not just before shipment. This ensures you have quality verification before releasing full payment. Many suppliers accept this when asked.