Every supplier negotiation eventually reaches the same moment: the deposit question. Australian businesses tend to feel uncomfortable pushing back on this. They worry about offending the supplier, seeming untrustworthy, or damaging the relationship before it starts.
This guide explains standard international practice, what constitutes a red flag, and how to negotiate terms that work for both parties.
Standard International Payment Structure
The standard international payment structure for manufacturing orders from China is:
- 30% deposit — paid when the purchase order is confirmed and the contract is signed
- 70% balance — paid before shipment, after you have received an inspection report and are satisfied the goods meet specifications
This structure exists because it protects both parties. The factory receives enough to cover raw material costs and begin production with some confidence the order will not be abandoned. The buyer retains most of the payment until they have evidence the order is proceeding correctly.
This is not arbitrary. Raw material costs are real. Tooling investments are real. Factories cannot absorb the loss of a full order that is cancelled mid-production.
What a Red Flag Looks Like
Red Flag 1: 50% or more as deposit on a first order
Any supplier asking for 50% or more as a deposit on a first order is transferring risk disproportionately onto you. The standard is 30%. If they will not move from 50%, there is usually a reason—either they have been burned by cancelled orders before (which suggests a business instability problem) or they are protecting against a risk they have identified in you.
Red Flag 2: 100% payment before production begins
Never pay 100% upfront on a first order. This is not a negotiation point. If a supplier insists, walk away. There is no legitimate reason a factory needs full payment before production starts that does not also create an unacceptable risk for you.
Red Flag 3: Payment to a personal account
All payments for commercial orders should go to the supplier's company account—the legal entity named on the business licence. If a supplier asks you to pay to a personal bank account, this is a serious warning sign. It makes recovery nearly impossible if things go wrong.
Red Flag 4: Unusual payment methods
Western Union, cryptocurrency, or other non-standard payment methods for commercial orders are red flags. The standard for international commercial transactions is a bank transfer to a company account.
Case Study: The AUD 8,000 That Was Never Recovered
A Melbourne business owner was contacted in 2023. She found a supplier for commercial kitchen equipment through a trade show contact. The supplier quoted 40% deposit—AUD 8,000 on a AUD 20,000 order.
The supplier was professional, responsive, and had a good-looking website. The sample arrived and was acceptable.
She paid the deposit.
Production was delayed twice. Communication slowed. By the time she asked for a refund, the supplier said the deposit had been used for raw material procurement and could not be returned.
She never received the goods. She never recovered the deposit.
The lesson: the professionalism of the sales process is not the same as the reliability of the supplier.
In our verification work, we have found that suppliers who push for above-standard deposits are often in financial difficulty, operating as trading companies without production capacity, or running schemes that rely on accumulating deposits before disappearing.
How to Negotiate Better Terms
For the 30% deposit: Explain that 30% is your standard payment term for first orders with new suppliers, and this is non-negotiable. Be polite but clear. A legitimate factory accepts this. A factory that cannot accept it is usually a sign of a business under financial pressure.
For the 70% balance: The balance should be paid before shipment, not before production. The distinction matters: "before shipment" means after the goods have passed pre-shipment inspection. "Before production" means you pay regardless of what you receive. Specify in the contract: "Final payment of 70% is due after receipt of pre-shipment inspection report confirming goods meet agreed specifications."
For tooling or setup costs: These are typically paid as a separate line item, often 50-100% upfront. This is standard practice because tooling costs are real and the supplier incurs them before production begins. The protection on tooling costs is typically: tooling is owned by the buyer after payment, and the supplier cannot use it for other orders without permission.
Structuring Terms That Protect You
| Stage | Payment | Trigger |
|---|---|---|
| Order confirmed | 30% deposit | Contract signed |
| Sample approved | 0% | Pre-production sample meets spec |
| Production complete | 60% | PI cut-off inspection report |
| Balance | 10% | Goods received and inspected |
The key is retaining enough balance that the supplier has an incentive to deliver correctly. A supplier who has received 90% of payment before shipment has less motivation to resolve quality problems than a supplier who retains 40% until after you receive and inspect the goods.
What to Do If the Supplier Pushes Back
If a supplier cannot agree to 30/70 terms on a first order, you have three options:
Walk away. A supplier who cannot accept standard international terms is telling you something about their business. Either they have been burned before (suggesting instability) or they do not trust you (suggesting they may be uncertain about their own ability to deliver).
Accept a letter of credit. For larger orders, a letter of credit through your bank provides the supplier with financial security while protecting you. The cost is typically 0.5-1% of the order value. For orders above AUD 30,000, this is often worth it.
Use escrow service. Some international trade escrow services hold the deposit and release it to the supplier only when agreed milestones are met. This is less common for manufacturing orders but exists as an option.
Frequently Asked Questions
What percentage should I pay as a deposit to a Chinese supplier?
Standard practice is 30% deposit, 70% balance before shipment. Do not pay more than 30% on a first order.
Should I pay 100% upfront?
No. Never pay 100% upfront on a first order with any supplier you have not previously done business with. This is the most reliable way to lose your deposit.
What if a supplier insists on 50% deposit?
Negotiate to 30%. If they will not move, consider whether the supplier is in financial difficulty or has been burned by order cancellations. These are not risks you should take on for a first order.
Is a letter of credit worth the cost?
For orders above AUD 30,000, a letter of credit is often worth the 0.5-1% bank fee. It provides significant protection for both parties and is standard for international trade.
What if a supplier asks for payment to a personal account?
This is a serious red flag. All commercial payments should go to the company's official bank account. If a supplier refuses this, walk away.
How do I protect my deposit if the supplier disappears?
Verification before payment is the only reliable protection. If a supplier disappears after receiving a deposit, recovery is extremely difficult. Prevention through proper supplier verification is the only effective strategy.
What payment terms are standard for recurring orders with the same factory?
As the relationship matures, factories may offer better terms—lower deposit percentages, faster payment schedules, or credit arrangements. After two or three successful orders, you can renegotiate the standard 30/70 split.
Can I use escrow services for Chinese factory orders?
Yes. International trade escrow services exist for manufacturing orders. The deposit is held by the escrow service and released to the factory only when agreed milestones are met. This is less common than bank transfers but available as an option for higher-value orders.
Before you pay any deposit to a Chinese supplier, talk to WAG. They review the supplier's background, verify their registration, and advise on appropriate payment terms for your specific order.