Payment Term 
in Export Contract

Payment Term - The following terms of payment using on import and export contract were adopted from Practical International Trade Written by Liyu Zhang. These terms of payment are still widely in practice by most Chinese foreign trade companies today ......

15 Common Used Terms OF Payment
In China Export Contract

1. Payments shall be made by net cash against sight draft with bill of lading attached showing the shipment of the goods. Such payment shall be made through Bank of China. The bill of lading shall not be delivered to the Buyer until such draft is paid - Payment Term

2. Within 15 days from the date of this Agreement,the Buyer shall establish an irrevocable L/C with a first-class bank in compliance with the terms and conditions set forth in this contract.

3. Payments for the goods specified herein shall not mean an acceptance thereof by the Buyer with regard to its quality. All goods shall be accepted only after the Buyer's inspection - Payment Term

4. All the payments shall be made in the US currency by the Buyer to the Seller by M/T to the Seller's designated accounts with the bank in United States.

5. Payments shall be made by net cash against sight draft with bill of lading attached showing the shipment of the goods. U.S.Department of Commerce Career

6. The Buyer, on receipt from the Seller's shipping advice, shall open an irrevocable Letter of Credit with the Bank of China, in favor of the Seller for the total value of shipment 25-30 days prior to the date of delivery. The L/C shall be available against the Seller's draft at sight on the issuing bank for 100% invoice value accompanied by the shipping documents specified in payment clause mentioned in sales contract. Payment shall be effected by the issuing bank by T/T against presentation of the aforesaid draft and documents. The L/C shall be valid until the 20th day after the shipment is effected - Payment Term

7. The Seller may present the sight draft together with the shipping documents through the Seller's Bank to the Buyer for collection after shipment. Since D/P (documents against payment) is agreed on, the collecting bank will deliver the documents against receipt of payment.

8. Payment shall be effected by the Buyer, by M/T(Mail Transfer), within 7 days after receipt from the Seller of the shipping documents.

9. The Buyer shall open a 100% confirmed, irrevocable, divisible and negotiable letter of credit in favor of the Seller within 5 calendar days from date of the agreement through the issuing bank. The letter of credit shall be drawn against draft at sight upon presentation of the following documents:

  • Full set of the Seller's commercial invoice.
  • Full set of clean, blank, endorsed bill of lading.
  • Inspection certificate of quality and quantity.

10. The Buyer shall send a confirmed, irrevocable, and transferable letter of credit to be drawn by sight draft to the Seller before Nov 20th, 2005. The letter of credit remains valid until 15 days after the above mentioned delivery and will expire on Dec 30th, 2005. Meanwhile, a deposit of 10% of the total price should be paid by the Buyer immediately after signing the contract - Payment Term

11. Payment is effected by confirmed, irrevocable, transferable, and bank's acceptance L/C at sight with partial shipment, remaining valid for negotiation in China until 15th day after the date of delivery. In the meantime, the L/C should be opened in favor of the Seller within 15 days after the signing of the contract.

12. The Buyer shall open an irrevocable sight L/C through a bank acceptable to the Seller. The L/C must reach to Seller 45 days before the date of delivery, valid for negotiation in China until the 15th day after the latest shipment date Payment Term Import and Export Basics

13. The payment is effected by irrevocable L/C available by Seller's documentary draft at sight to be valid for negotiation in China until 21 days after date of shipment. The L/C must reach the Seller 30 days before the date of shipment.

14. The payment is made by D/P after 60 days sight. The Buyer shall duly accept the documentary draft drawn by the Seller at 60 days sight upon first presentation and make payment on its maturity. The shipping documents are to be delivered against payment only Payment Term

15. The Buyer shall pay 100% of the sales proceeds in advance by M/T(Mail Transfer) to reach the Seller not later than July 15,2005.

Tips on Payment Terms in China

by Mike Bellamy of China Sourcing Information Center

QUESTION: Is it normal to pay 50% with purchase order and the balance prior to dispatch?

ANSWER: This is very normal for a first order with a new supplier. But everything is a negotiation and there is no fixed payment format that is applicable nationwide or industry wide. Sometimes buyers get better terms (for example, 30 up front and 70 upon delivery) but I suspect the unit price would reflect this. In other words, if you are paying one supplier a bit more upfront and another supplier less upfront, all other things (quality, lead-time, service…) being equal, you can expect to pay a bit more per unit for better payment terms.

Couple of tips.

1. If you don’t ask for better terms they will not be offered to you. So go ahead and ask for something better, it can’t hurt. If this is your first order, then the supplier may also be concerned about you defaulting on payment, just like you are concerned they will mess up your order. Build trust over time and with each order ask for better and better terms. For example, on this order you may say something like “I’ll accept your 50-50 terms for this initial order, but I plan to pay on time and I plan to order regularly. So on the next order I want 30-70 and the order after that I would like 30-70 net 15.”

2. Far more important than worrying about 50-50 vs. 30-70 on the first order is to make sure you have a plan for linking payment to performance. If you catch quality problems after the final payment has been made, it really doesn’t matter what the payment terms were as it is too late to fix things. It is essential that you or a trusted 3rd party (called an “inspection agent” or “3rd party QC”) visit the production line to inspection the goods BEFORE you make that final payment. If you have not done business with this supplier before, then it is a good idea that you or a trusted 3rd party conduct an audit on the supplier to ensure they can produce what they have promised.

                                                  Payment Term 
                               Quality Definition of Commodity Terms

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