Direct answer: T/T (telegraphic transfer) is the fastest and cheapest way to pay Chinese suppliers and the standard for orders under $50,000, usually structured as a 30% deposit and 70% balance against shipping documents. A letter of credit (L/C) protects large orders — typically above $50,000-$100,000 — because the bank releases payment only against compliant documents, but it costs more and needs more paperwork. Most importers use T/T with milestone payments plus third-party inspection; L/C suits six-figure orders or first deals with unverified factories.
Choosing the wrong payment terms is one of the most expensive mistakes importers make. This guide compares T/T and L/C — costs, risk, and a decision framework — so you can negotiate terms that protect your cash without killing the deal.
Table of Contents
- What Is T/T Payment?
- What Is a Letter of Credit (L/C)?
- T/T vs L/C: Side-by-Side Comparison
- Cost Comparison on a $60,000 Order
- Other Payment Methods to Know
- How to Structure Safe T/T Payment Terms (Step by Step)
- Decision Framework: Which Should You Use?
- Practical Examples
- Common Mistakes
- Expert Recommendations
- FAQ
What Is T/T Payment?
Definition: T/T (telegraphic transfer) is an international bank wire transfer, usually processed through the SWIFT network. In China trade, “T/T payment terms” almost always means a split payment: a deposit before production starts and the balance at an agreed milestone.
The most common T/T structures in China sourcing are:
- 30/70 before shipment: 70% paid before goods leave the factory — riskier, since you pay in full before independent proof of shipment.
- 30/70 against B/L copy: 70% after the supplier sends the bill of lading copy. The market standard.
- 30/70 after inspection: 70% released only after a passed pre-shipment inspection. The safest realistic structure for most buyers.
Advantages and Disadvantages of T/T
- Pros: Low fees ($25-$50 per wire), fast (1-3 days), accepted by virtually every factory, simple paperwork, any order size.
- Cons: Sent money is nearly impossible to recover; deposit at risk if the supplier fails; no bank document verification; wire fraud via hacked email is a real threat.
What Is a Letter of Credit (L/C)?
Definition: A letter of credit is a bank guarantee: your bank commits to pay the supplier’s bank once the supplier presents documents that exactly match the L/C terms — typically the bill of lading, commercial invoice, packing list, and often an inspection certificate. The most common type in China trade is the irrevocable L/C at sight.
The process in brief: your bank issues the L/C to the supplier’s bank, the supplier ships and presents documents, and payment is released only if the documents comply exactly. Discrepancies delay or block payment until resolved.
Advantages and Disadvantages of L/C
- Pros: No deposit — cash stays put until shipment; bank-verified documents; leverage to enforce quality certificates; supplier gets a bankable guarantee.
- Cons: 0.75%-1.5% of order value plus fees; 3-10 days to open; heavy paperwork; small factories refuse L/C below $50,000; discrepancies delay payment; banks check documents, not product quality.
T/T vs L/C: Side-by-Side Comparison
| Factor | T/T (30/70) | Letter of Credit (at sight) |
|---|---|---|
| Typical cost | $25-$50 per wire (2 wires) | 0.75%-1.5% of order value + fees |
| Buyer cash outlay before shipment | 30% deposit | 0% (bank credit line used) |
| Buyer risk | Deposit at risk; balance risk depends on structure | Low — pay only against compliant documents |
| Supplier acceptance | Universal, including small factories | Larger factories; often refused under $50k |
| Speed to set up | Same day | 3-10 business days to open |
| Paperwork | Minimal | Extensive; discrepancies delay payment |
| Quality protection | Only if balance tied to inspection | Can require inspection certificate as L/C document |
| Best for | Orders under $50k, repeat suppliers | Orders over $50k-$100k, new/unverified suppliers |
Cost Comparison on a $60,000 Order
| Cost item | T/T (30/70 after inspection) | Irrevocable L/C at sight |
|---|---|---|
| Bank wire / issuance fees | $80 (2 wires @ $40) | $600 (1.0% issuance) |
| Advising / negotiation fees | $0 | $250 |
| Document handling | $0 | $150 |
| Third-party inspection (recommended) | $300 | $300 (as L/C document) |
| Amendment fee (if terms change) | $0 | $75-$150 per amendment |
| Total payment cost | $380 (0.63%) | $1,300-$1,450 (2.2%+) |
| Cash tied up during production | $18,000 deposit | $0 (credit line margin may apply) |
Key takeaway: T/T is roughly 3x cheaper in direct fees, but the L/C keeps $18,000 of working capital free and eliminates deposit risk. On a $300,000 order the L/C’s protection usually outweighs its cost; on a $15,000 order it rarely does.
Other Payment Methods to Know
| Method | Best for | Buyer protection |
|---|---|---|
| Alibaba Trade Assurance | Orders placed on Alibaba, typically under $30k | Medium — platform-mediated refunds tied to contract terms |
| PayPal | Samples and orders under $2,000 | Medium — dispute process, but 4%+ fees; most factories refuse for bulk |
| D/P (documents against payment) | Established relationships, mid-size orders | Medium — pay at your bank to receive shipping documents |
| Open account (net 30/60) | Long-term partners after years of history | High for buyer — pay after delivery; rare for new buyers |
| Western Union / crypto | Never for bulk orders | None — unrecoverable; a common scam red flag |
How to Structure Safe T/T Payment Terms (Step by Step)
- Verify the supplier first. Check the business license, audit the factory, and confirm the beneficiary account is a corporate account matching the contracted company name — never personal.
- Negotiate 30/70 with inspection. Propose 30% deposit, 70% after a passed pre-shipment inspection. Most factories accept this from serious buyers.
- Put payment terms in the contract. Specify amounts, currency, milestones, bank details, and what happens if inspection fails.
- Confirm bank details by phone or video. Email accounts get hacked; re-confirm if details “change” mid-order.
- Book a third-party inspection. A $300 AQL inspection before releasing 70% of a $60,000 order is the cheapest insurance in the industry.
- Wire the balance only after documents and inspection align. Match the inspection report, packing list, and B/L draft before final payment.
Decision Framework: Which Should You Use?
- Under $20,000, verified supplier: T/T 30/70 against B/L copy — L/C fees are disproportionate here.
- $20,000-$50,000: T/T 30/70 with balance after passed inspection; consider Trade Assurance on Alibaba.
- $50,000-$100,000, repeat supplier: T/T with inspection; negotiate a lower deposit (20%) as trust builds.
- Over $100,000 or new unverified factory: Irrevocable L/C at sight with an inspection certificate as a required document.
- Supplier demands 100% upfront or a personal account: Walk away — classic fraud patterns.
Practical Examples
Example 1: $12,000 First Order — T/T with Inspection
A US Shopify seller ordered $12,000 of silicone kitchenware from a verified Guangdong factory on 30/70-after-inspection terms. The inspection caught packaging defects; the factory reworked cartons, re-inspection passed, and the balance was wired. Total payment cost: $80 in wires plus $300 inspection — and the defect never reached customers.
Example 2: $150,000 Seasonal Order — L/C at Sight
A European retailer placed a $150,000 outdoor-furniture order with a new factory using an irrevocable L/C at sight requiring a clean on-board B/L and an SGS inspection certificate. The L/C cost about $1,900 (1.3%), but the retailer kept $45,000 of would-be deposit in its cash flow and the factory financed production against the L/C — both sides won.
Example 3: The $28,000 Wire-Fraud Near Miss
A Canadian importer received an email “from the supplier” changing bank details days before the balance payment. Because their contract required verbal confirmation of any bank change, a phone call exposed the hacked mailbox and the correct account was confirmed by video call. Skipping that habit would have cost $28,000 — wires to fraudster accounts are rarely recovered.
Common Mistakes
- Paying 100% upfront for a small discount — you surrender all leverage over quality and delivery.
- Wiring to a personal or third-party account that does not match the contracted company name.
- Releasing the balance before inspection because the supplier “needs it to book the vessel.”
- Ignoring L/C document discipline — a misspelled name can hold up a six-figure payment for weeks.
- Treating Trade Assurance as full insurance — refunds only cover written contract terms.
- Never re-verifying bank details after an emailed change request.
Expert Recommendations
“Payment terms are a risk dial, not a formality. Every percentage point you pay before independent proof of quality is leverage you have given away. Tie the largest possible slice of payment to a passed inspection, and put that logic in writing before the deposit leaves your account.” — Woosourcing Editorial Team
- Standardize on 30/70-after-inspection as your default ask; concede to 30/70-against-B/L-copy only for verified repeat suppliers.
- For L/Cs, keep required documents minimal and precise — every extra document is another discrepancy opportunity.
- Budget payment costs into your landed cost model: ~0.5% for T/T, ~2% for L/C.
- Use a sourcing partner to verify the factory and attend inspections; payment protection is only as good as the verification behind it. Woosourcing’s product sourcing service includes supplier bank-account verification, and our quality control inspections give you the evidence to release payments confidently.
- Review official trade-finance guidance from the International Trade Administration when structuring terms for larger contracts.
FAQ
What does 30/70 T/T mean?
It means paying 30% of the order value as a deposit before production and the remaining 70% at an agreed milestone — before shipment, against the bill of lading copy, or (safest) after a passed pre-shipment inspection.
Is T/T payment safe when buying from China?
Yes — when combined with supplier verification, a corporate account matching the contract name, milestone payments, and inspection before the balance. It is unsafe when paying 100% upfront to an unverified supplier or personal account.
When is a letter of credit worth the cost?
Generally for orders above $50,000-$100,000, first orders with unverified factories, or markets where deposit fraud is a concern. Below that, L/C fees (roughly 2% all-in) usually outweigh the protection compared with T/T plus inspection.
Why do small Chinese factories refuse letters of credit?
Small factories often lack the export documentation staff, dislike waiting for bank processing after shipment, and face bank charges on their side. Many also cannot finance production without a cash deposit, which an L/C does not provide.
Can I get better payment terms over time?
Yes. After 3-5 smooth orders, suppliers commonly accept lower deposits (20% or even 10%), balance against B/L copy, or in mature relationships open-account terms like net 30 after delivery.
What is the safest payment method for a first sample order?
For samples under $2,000, PayPal or Alibaba Trade Assurance is fine — the fee premium is small and dispute mechanisms exist. Switch to structured T/T once you move to bulk orders.
What should I do if a supplier changes bank details by email?
Treat every bank-detail change as fraud until verbally confirmed on a known phone number or video call. Hacked-email wire fraud is one of the most common losses in China trade, and wired funds are rarely recoverable.
Conclusion
T/T with a 30/70 split and inspection-gated balance is the cost-efficient standard for most small and mid-size importers. A letter of credit earns its fees on large orders and new factory relationships, where bank-verified documents and zero deposit exposure matter more than speed. Either way: verify the supplier, verify the bank account, tie payment to inspection evidence, and put every term in the contract.
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