Should You Pay a Deposit to a Chinese Supplier? What Australian Businesses Need to Know

What Is Standard Practice

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. It reflects the reality of international manufacturing: raw material costs are real, tooling investments are real, and factories cannot absorb the loss of a full order that is cancelled mid-production.

What a Red Flag Looks Like

Some deposit requests are not standard. Here is what should concern you:

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 license. 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.

Real Example: The AUD 8,000 That Was Never Recovered

I was contacted by a Melbourne business owner in 2023. She had 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.

How to Negotiate Better Terms

If a supplier's initial deposit request is higher than you are comfortable with, here is how to negotiate:

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 will accept this. A factory that cannot accept it is usually a sign of a business under financial pressure.

For the 70% balance:

This is the more important number. 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:

If the order requires tooling or mould setup, 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

Here is what a well-structured payment plan looks like for a first order:

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

Note: I have seen 60% at production complete work for larger orders where the supplier needs more cash flow. The key is retaining enough balance that the supplier has an incentive to deliver correctly.

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:

1. 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).

2. 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.

3. 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.

How We Help

Before you pay any deposit to a Chinese supplier, talk to us. We review the supplier's background, verify their registration, and advise on appropriate payment terms for your specific order. This costs nothing and typically takes one conversation.

If the supplier's deposit request does not make sense, we can help you negotiate — or tell you when to walk away.

Related Articles

• What Happens When Verification Is Skipped — Why deposits get lost and how verification prevents it
• Factory vs Trading Company — The signs that reveal whether you are dealing with a factory or intermediary
• How to Negotiate with Chinese Factories — How payment terms fit into the broader negotiation

FAQ

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.