How to Read a Chinese Factory Proforma Invoice (PI)
Decoding Hidden Costs and Trap Clauses
Hi, this is GreenFrog Seoul.
In EP.04, we walked through the 9 essential items every PI (Proforma Invoice) must contain, and in EP.05 we covered the customs clearance and shipping process.
Today, we go one level deeper: "How do you actually read a PI to figure out the real price?"
There's a moment every first-time importer has when they receive a PI:
"Wow, the unit price is only $2! That's cheap!"
Then, after placing the order, messages like these start rolling in:
"Please remit $500 for the mold fee."
"Inspection fee of $300 must be paid before shipment."
"Packaging change — additional $120."
The total ends up 30-40% higher than the original quote. This is not a rare story — it happens all the time.
Today, we break down how to extract the true cost from a single PI using 5 critical checkpoints.
1. Unit Price Structure — "Unit Price" Does Not Mean "Total Cost Per Item"
Seeing "Unit Price: USD 2.00" at the top of a PI is just the beginning. You must always check the following items alongside it:
| Cost Item | Common Label on PI | What to Check |
|---|---|---|
| Mold Fee | Mold fee / Tooling | One-time charge, typically $200-$5,000. Only for first production run |
| Sample Fee | Sample fee | Usually 3-10x the unit price. Check if it's deducted from the final order |
| Packaging | Packaging cost | Billed separately or included in unit price? |
| Labeling / Printing | Label / Printing | Color logos and barcodes are often charged extra |
| Certification | Certification fee | KC, CE, FDA — if the factory handles certification, expect a separate charge |
| Inspection | Inspection fee | Third-party inspection costs extra (factory self-inspection is typically free) |
| Freight | Freight | Charged separately unless the Incoterm is CIF or DDP |
True unit cost = (Unit price x Qty + Mold fee + Sample fee + Packaging + Certification + Freight + Duties) / QtyA PI that says "USD 2.00" can easily become USD 3.20 per unit once you add up all the hidden charges. This is extremely common.
2. Incoterms — Understanding "How Far" the Price Covers
We touched on this in EP.04 and EP.05, but Incoterms remain the single most confusing element when reading a PI.
A typical PI will show something like:
"Unit Price: USD 2.00 FOB Shenzhen"
"Unit Price: USD 2.50 CIF Incheon"
Same factory, same product — but a $0.50 difference. Confusing, right? The gap comes down to who is responsible for what portion of the shipping.
| Incoterm | What's Included | Additional Cost to Buyer |
|---|---|---|
| EXW | Factory gate only | Inland transport in China + export customs + ocean freight + import customs + duties |
| FOB | Loaded onto vessel at Chinese port | Ocean freight + import customs + duties |
| CIF | Delivered to destination port | Import customs + duties |
| DDP | Delivered to your warehouse, duties included | Virtually none |
Always compare on equal terms. When getting quotes from multiple factories, request all prices on the same basis — for example, "FOB Shenzhen" across the board.
3. Payment Terms — What "T/T 30/70" Really Means
Somewhere near the bottom of the PI, you'll find a line like this:
"Payment Terms: 30% T/T deposit, 70% balance before shipment"
Here's what each part means:
- T/T = Telegraphic Transfer (bank wire transfer)
- 30/70 = 30% upfront when ordering, 70% before goods are shipped
- Before shipment = The remaining balance must be paid in full before the factory loads the container
This is the industry standard and the most common arrangement. But there are variations:
| Terms | What It Means | Buyer's Risk Level |
|---|---|---|
| 100% T/T in advance | Full payment upfront before production | High risk — factory may ghost you after receiving payment |
| 50/50 T/T | 50% deposit + 50% before shipment | Common, generally acceptable |
| 30/70 T/T | 30% deposit + 70% before shipment | Most common, relatively safe |
| T/T at B/L copy | Balance paid after receiving Bill of Lading | Favorable to buyer |
| L/C at sight | Letter of Credit (bank-guaranteed payment) | Best for large orders; 1-2% bank fees apply |
| O/A 30 days | Payment 30 days after delivery | Only for established, long-term relationships |
- "Full payment in advance" — Never agree to this. If the factory disappears, your money is gone.
- "Payment within 3 days after PI" — A pressure tactic. There is always room to negotiate.
- "Non-refundable deposit" — A clause that prevents you from recovering your deposit. Dangerous.
4. Delivery Time — The Many Meanings of "30 Days"
When the PI says "Delivery Time: 30 days," it's easy to assume you'll have the goods in hand within a month. In reality, the starting point varies significantly:
| Wording on PI | When Does the Clock Start? |
|---|---|
| 30 days from PO | 30 days after the purchase order is confirmed |
| 30 days after deposit received | 30 days after the factory confirms receipt of your deposit |
| 30 days from sample approval | 30 days after you approve the final sample |
| 30 days lead time | Production time only — shipping is not included |
| 30 working days | Excludes weekends and Chinese holidays — actual calendar time is 45-50 days |
- "30 days from order" — but if you delay the deposit, the countdown doesn't start either
- "30 working days" — don't count using your own calendar. If Chinese New Year (January-February) falls within the period, add at least 2 weeks of downtime
- "Production time: 30 days, delivery time: additional 7-15 days" — total is actually 45-55 days
This single question cuts through all ambiguity. If the factory hesitates, the timeline is probably tight."We need the products in our warehouse by [date]. Is this confirmed?"
5. Quality Clauses — 5 Things You Cannot Take at Face Value
At the bottom of the PI or in a separate agreement, you may find a Quality Clause. Most factories write something like "Quality guaranteed 100%" — but when a real problem arises, only specific, measurable terms will hold up.
5 Clauses You Must Verify
1) Quality Standard
- Bad: "Good quality" or "High quality"
- Good: "As per approved golden sample dated 2026-04-20"
2) Acceptable Quality Level (AQL)
- Bad: "Minimum defect rate"
- Good: "AQL 1.5 for critical, AQL 2.5 for major, AQL 4.0 for minor (per ISO 2859-1)"
3) Defective Goods Handling
- Bad: "We will handle appropriately"
- Good: "Defective items will be replaced within 30 days, shipping cost borne by seller"
4) Right of Inspection
- Must be stated: "Buyer reserves the right to third-party inspection before shipment"
5) Claim Period
- Bad: "Claim should be made promptly"
- Good: "Claim must be filed within 15 days after receipt"
Checklist — Review Any PI in 15 Minutes
Print out the PI and run through these checks:
- Mold fee, sample fee, packaging, and printing costs — are they listed separately?
- Incoterms (EXW / FOB / CIF / DDP) — clearly specified?
- Payment terms — not 100% upfront?
- Delivery time — stated as "from deposit received" or another clear starting point?
- Quality standard — tied to a specific "approved sample"?
- AQL level — stated numerically?
- Validity period — is one specified (typically 30 days)?
- Bank details — recipient is the factory's company name, not a personal account
- Freight and duties — separate or included?
- Signature and stamp at the bottom — original scanned copy?
With this checklist, you can compare PIs from 5 different factories in 15 minutes. Those 15 minutes can save you thousands of dollars.
Wrapping Up
A PI is not just a "price sheet" — it is a pre-agreement that defines the terms of any future dispute.
Whether you're placing a $3,000 order or a $300,000 order, the PI structure is the same. The three things first-time importers miss most often are hidden costs, delivery time definitions, and quality clauses.
Learn to read a PI properly once, and it pays dividends for the rest of your sourcing career.
Free PI Analysis Consultation
Send us a scanned copy of the PI you received from a factory.
We'll identify hidden costs, trap clauses, and negotiation opportunities — within 24 hours.
On average, we find 10-25% in cost savings for our clients.