During my years working in Dandong Foundry in China, I did meet many different payment terms during we exporting iron castings to overseas. Herein, I just shared my opinion about the best payment terms.
Telegraphic Transfer (T/T), 30% prepayment with order, 50% after shipping with copy of bill of lading, final 20% payment within 30 days after acceptance.
Why did I say this payment terms are the best?
Firstly, T/T is more simple than L/C (Letter of Credit), although L/C is also credible and widely using worldwide, but the suppliers and buyers have to study the specific terms on their L/C and the suppliers have to pay more attention to the clauses of discrepancy. Otherwise, they will have to pay for them, or even can not get the payment at all. I am not saying that L/C is not good, but just say that it is a little complex than T/T. Moreover, L/C has more service charges and the banks should be credible. In my opinion, as for the continuous large orders, the L/C should be a good choice, but as for the small orders, the L/C will cause more time and charges.
Why is the prepayment necessary?
It is obvious, if the clients cancel the orders, the suppliers will have to bear all of the loss, including the manpower costs, materials costs, electricity costs and sometimes, the delivery costs. Please remember, the materials are not just pig irons, but also alloy and other additional materials. And, this is not fair for the suppliers.
Why does the 50% payment need the copy of bill of lading?
When the suppliers send you the copy of bill of lading, it means the castings have been delivered with ship, in other words, your iron castings have been on the sea. So, as purchasers, you do not need to worry about the suppliers will delay the delivery, and you could know the pieces, total weights, packages from the B/L, then you could arrange the payment. As for the suppliers, since what you sent to the buyers are just copies, so the clients could not pick up the castings by those documents. If you could not get the payment, you still own the castings and could draw them back, although I never met this situation.
Why is the final 20% payment necessary?
Many of our clients just pay us all payment after shipping. I have to say that we like these clients, and willing to offer lower prices to them. The payment is important for all companies. But, as for the new clients, they usually did not trust the new suppliers, and this is very reasonable. So, the 20% quality deposit will be necessary. Normally, the defective rate will not exceed 20%, so if you find many defective castings after your receipt the castings, of during your further machining process, then you could deduct the loss from the final payment. This is important if you just buy the rough castings from China.
Of course, if the quality has no big problem, or the suppliers are willing to add the extra castings free of charge in the next order, you should pay the final payment timely. This is not just a legal issue, but also the morality issue. Any enterprise without credit will be punished in the end.
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