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What are typical payment terms I can negotiate with my China supplier?

Posted: 2011-02-14

Full Question

After doing business with some manufacturers for more than 4 years now and buying from them more than US700K a year, I am about to ask them for terms. Right now we do T/T 30% order and 70% 15 to 20 days after sailing. Is it logical and common to ask for the following terms: 25% T/T with order, 25% shipping, 25% 30 days after sailing and the final 25% 90 days after sailing? Something like that is just an example. But is this common or used with Chinese factories?

Answer

Assuming that USD 700K is an important order in the eyes of your supplier, then it is very reasonable that you aim for better terms than you were originally getting. But keep in mind that everything is up for negotiation in China and every cent counts, so don't be surprised if your supplier is willing to give the better terms but also requests a price hike in exchange. As a buyer myself, I succeeded in achieving better terms without the price hike by taking baby steps. For example, I laid out a road map where both parties agreed that over the next 4 orders we will move from 50-50 to 30-70 to 30-40-30 net and eventually to 30-70 net. I even know some buyers who pay 100% 90 days after delivery, but no two cases are the same and it all comes down to the specific situation between you and your supplier. So be ready to negotiate and lay out some long term plans.

On a side note, if your supplier really drags their feet and fights giving terms, it may be because they simply don't have the cash flow to support such terms. Luckily there are 3rd parties that can provide finance to the suppliers at reasonable rates. Many of these 3rd parties are based in Hong Kong and you can find them online, but off the top of my head www.OCTETtrading.com comes to mind.

Assuming that USD 700K is an important order in the eyes of your supplier, then it is very reasonable that you aim for better terms than you were originally getting. But keep in mind that everything is up for negotiation in China and every cent counts, so don't be surprised if your supplier is willing to give the better terms but also requests a price hike in exchange. As a buyer myself, I succeeded in achieving better terms without the price hike by taking baby steps. For example, I laid out a road map where both parties agreed that over the next 4 orders we will move from 50-50 to 30-70 to 30-40-30 net and eventually to 30-70 net. I even know some buyers who pay 100% 90 days after delivery, but no two cases are the same and it all comes down to the specific situation between you and your supplier. So be ready to negotiate and lay out some long term plans.

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