Complete Guide to Payment Methods in China Sourcing
T/T, L/C, Alipay Comparison & Safe Transaction Strategies

Hi, this is GreenFrog Seoul.

You've found your supplier, negotiated the price, confirmed the samples, and even reviewed the Proforma Invoice. Everything looks good. Then comes the question that trips up more first-time importers than any other: "How do I actually pay them?"

Choosing the wrong payment method can cost you thousands in unnecessary fees, expose you to fraud, or freeze your money in a dispute with no recourse. On the other hand, the right payment structure protects both sides and keeps the deal moving smoothly.

"The supplier insists on 100% upfront via T/T. Is that normal?"
"Can I just pay with PayPal? It seems easiest."
"What is Trade Assurance, and should I trust it?"

We hear questions like these every week. Today, we break down every major payment method used in China sourcing — how each one works, what it costs, when to use it, and how to protect yourself.

1. T/T (Telegraphic Transfer) — The Industry Standard

T/T, or telegraphic transfer, is the most commonly used payment method in China trade. It's essentially an international bank wire transfer from your bank account to the supplier's bank account.

How It Typically Works: The 30/70 Structure

The standard arrangement is:

• 30% deposit before production begins
• 70% balance paid after production is complete, usually upon receiving photos of the finished goods or after pre-shipment inspection, and before the supplier releases the Bill of Lading

Some variations exist — 50/50 for first orders, or 20/80 once trust is established — but 30/70 is the global norm.

Pros

• Low fees — Typically $15-$50 per transfer on the sending side, depending on your bank
• Fast — Funds arrive in 1-3 business days
• Universally accepted — Every Chinese factory with an export license has a USD-receiving bank account
• No transaction limit — Suitable for any order size, from $500 to $500,000+

Cons

• No built-in buyer protection — Once the money is sent, it's sent. There's no "dispute" button.
• Intermediary bank fees — Your $10,000 transfer might arrive as $9,960 due to correspondent bank deductions
• Requires trust — The 30% deposit is at risk if the supplier disappears (extremely rare with verified factories, but it happens with unvetted ones)

2. L/C (Letter of Credit) — Bank-Guaranteed Security for Large Orders

A Letter of Credit is a payment guarantee issued by the buyer's bank to the seller's bank. The bank essentially promises: "We will pay the supplier, but only when they present documents proving the goods were shipped as agreed."

How It Works

1. Buyer and supplier agree on the terms and the required shipping documents
2. Buyer applies for an L/C at their bank, which issues it to the supplier's bank
3. Supplier manufactures and ships the goods
4. Supplier presents the required documents (Bill of Lading, packing list, commercial invoice, inspection certificate, etc.) to their bank
5. Banks verify the documents. If everything matches, payment is released.

Pros

• Maximum security for both sides — The buyer knows payment won't release until documents match; the seller knows the bank guarantees payment
• Reduces counterparty risk — Ideal when buyer and supplier don't have an established relationship
• Standard for large orders — Commonly used for transactions above $50,000-$100,000

Cons

• Expensive — Bank fees on both sides typically range from 1-3% of the order value, plus amendment fees if anything changes
• Slow and document-heavy — The process takes 1-3 weeks to set up, and even a minor typo in the documents can cause rejection and delays
• Overkill for small orders — The fixed costs make L/C impractical for orders under $30,000
• Many small factories refuse L/C — They don't have the banking relationships or the patience to deal with the paperwork

3. Alipay & WeChat Pay — Quick and Convenient for Small Transactions

China's domestic payment giants, Alipay and WeChat Pay, have made it possible to send money to Chinese suppliers instantly from your phone. Some suppliers, especially smaller ones and trading companies, accept international Alipay or direct RMB payments.

When It Makes Sense

• Sample orders under $500
• Small reorders from a supplier you already trust
• Paying for services — product photography, small prototype work, packaging design

Pros

• Instant transfer — Money arrives in seconds
• Extremely low or zero fees for domestic transfers
• Convenient — No bank visit required

Cons

• Transaction limits — International users face daily and monthly caps (often $5,000 or lower)
• No buyer protection — It's a personal transfer, not a trade transaction. No dispute resolution.
• Currency conversion risk — Exchange rates are set by the platform and may be less favorable than bank rates
• No paper trail for customs — You'll need a proper invoice for customs clearance regardless, and Alipay receipts won't substitute
• Not suitable for large orders — Both legally and practically

4. Western Union & PayPal — Convenient but Costly

Western Union

Western Union allows you to send money internationally, and the supplier can pick it up in cash at a local branch in China.

• Pros: Fast (often same-day), no bank account needed on the receiving end
• Cons: High fees (often 5-10% for small amounts), absolutely no buyer protection, commonly associated with scam transactions
• Best for: Emergency payments under $1,000 when no other option works

PayPal

PayPal offers buyer protection and dispute resolution, making it attractive in theory. In practice, the picture is more complicated.

• Pros: Buyer protection and dispute mechanism, fast transfers, familiar interface
• Cons: Fees of 3-5% (supplier usually passes this cost to you), many Chinese factories don't accept PayPal, transaction limits for business accounts, supplier can experience account freezes
• Best for: Sample orders and small purchases under $2,000, especially from suppliers who already have PayPal set up

5. Escrow Services — Trade Assurance & Third-Party Protection

Escrow services hold the buyer's payment in a neutral account and only release it to the supplier when agreed conditions are met. The most prominent example in China sourcing is Alibaba's Trade Assurance.

How Alibaba Trade Assurance Works

1. Buyer and supplier create a Trade Assurance order on Alibaba
2. Buyer pays into the Alibaba escrow account
3. Supplier manufactures and ships the goods
4. Buyer confirms receipt and quality, or Alibaba mediates any disputes
5. Payment is released to the supplier

Pros

• Built-in dispute resolution — Alibaba mediates if goods don't match the order
• Refund protection — If the supplier fails to ship or ships non-conforming goods, you can get your money back
• Good for first-time transactions — Reduces risk when working with a new supplier

Cons

• Fees — Credit card payments incur processing fees; T/T to the escrow account is cheaper but slower
• Coverage limitations — Trade Assurance covers shipping delays and quality issues, but the claims process can be slow and the definition of "quality issue" is sometimes disputed
• Supplier reluctance — Some established factories dislike Trade Assurance because it ties up their cash flow and adds bureaucracy
• Not available off-platform — Only works for suppliers found on Alibaba

6. Payment Method Comparison Table

7. Fraud Prevention Checklist

Payment fraud in China sourcing is less common than people fear, but more common than people expect. The vast majority of verified suppliers are legitimate. The problems arise when buyers skip basic due diligence.

• Verify the bank account name matches the company name on the Business License and PI
• Never pay 100% upfront to a supplier you haven't worked with before — insist on 30/70 at minimum
• Refuse personal bank accounts — Legitimate export companies have corporate USD accounts
• Cross-check the supplier's address on the Business License with their actual location (use Baidu Maps or visit in person)
• Watch for sudden bank account changes — Email compromise is real. If a supplier suddenly sends "new banking details," call them directly to confirm
• Avoid Western Union for any first-time or large transaction
• Use a third-party inspection before paying the 70% balance — companies like SGS, Intertek, or your sourcing agent can verify goods before you release funds
• Get a Proforma Invoice before every payment — it's your paper trail and proof of agreement
• Run a company background check — Your sourcing agent or services like Qichacha (企查查) can verify a company's registration, legal status, and litigation history
• Keep all communication in writing — WeChat messages and emails are evidence. Verbal agreements are not.

8. Recommended Payment Methods by Transaction Size

Here's a practical framework we recommend to our clients based on years of experience:

Under $500 (Samples & Prototypes)

• Recommended: PayPal (Goods & Services), Trade Assurance, Alipay
• Reasoning: The fees are worth the protection at this level. Sample payments are 100% upfront by nature, so use a method with dispute resolution.

$500 - $5,000 (Small Orders)

• Recommended: Trade Assurance or T/T (30/70)
• Reasoning: Trade Assurance is ideal for first-time orders in this range. Once you've established trust with 1-2 successful orders, switch to T/T for lower fees and faster processing.

$5,000 - $30,000 (Standard Orders)

• Recommended: T/T (30/70) with pre-shipment inspection
• Reasoning: This is the sweet spot for T/T. Combine it with a third-party inspection before paying the balance. The $200-$400 inspection fee is negligible insurance on an order this size.

$30,000 - $100,000 (Large Orders)

• Recommended: T/T (30/70) for established suppliers, or L/C for new relationships
• Reasoning: At this level, the cost of an L/C (1-3%) starts to make sense for new relationships. For trusted suppliers, T/T with inspection remains the most efficient choice.

$100,000+ (Enterprise-Level Orders)

• Recommended: L/C or T/T with milestone payments (20/30/50 or similar structure)
• Reasoning: Orders this large justify the overhead of L/C. Alternatively, negotiate milestone payments tied to production stages — 20% deposit, 30% after mid-production inspection, 50% before shipment.

Wrapping Up

Payment is where trust meets reality. You can negotiate the best price, select the best factory, and design the best product — but if you choose the wrong payment method or skip basic verification, everything falls apart at the last mile.

Here are the three rules we live by:

1. Match the payment method to the transaction size and risk level. Don't use PayPal for a $50,000 order. Don't use L/C for a $200 sample.
2. Never pay 100% upfront to a new supplier. If they won't accept 30/70, find a supplier who will.
3. Verify everything independently. Bank account names, company registration, shipping documents — trust but verify.

GreenFrog Seoul manages payment logistics for our clients every day. From verifying supplier bank accounts to structuring milestone payments for six-figure orders, we've seen every scenario and know how to keep your money safe.

If you're about to make your first payment to a Chinese supplier and want a second pair of eyes — or if you need help negotiating better payment terms — reach out. We're here to help.