Paying an overseas factory: wire transfer or letter of credit?

The factory visit went well. The sample cabinet looked right. Now the store is about to send the deposit for the first container. Say the purchase is $60,000 and the deposit is 30%: an illustrative $18,000 payment before the furniture is ready to travel.

Choose the payment method by the conditions it gives the store, not by familiarity alone. A wire is straightforward to arrange but can put money at risk before delivery. A letter of credit adds bank-controlled document conditions and more administration. Neither proves that the cabinet inside the carton matches the sample.

General information, not legal or financial advice.

Separate the wire from the payment schedule

A wire transfer, often described as T/T in factory terms, is a way to move money. “30/70” is a payment schedule. The two are often discussed together, but the agreement must still state when each part becomes due and which documents or events support it.

One factory's published terms require a 30% deposit before production and the balance after shipment against document copies. That is a supplier example, not a universal import rule. Published factory payment terms.

From the store's position as importer, advance payment exposes cash before the goods arrive. The International Trade Administration describes that buyer-side concern in its methods-of-payment guide. Verify payment instructions through a trusted contact and resolve changed bank details before authorizing a transfer.

Understand what a letter of credit checks

A letter of credit is a bank commitment to pay when the specified conditions are met through the required documents. An at-sight arrangement concerns payment following compliant presentation; it does not mean the bank waits for your showroom to inspect the goods after arrival.

The ITA describes letters of credit as useful for new or higher-risk trading relationships, while noting the work, bank fees, and document discrepancies involved. The bank examines the documents required by the credit, not each piece of furniture. ITA: letter of credit.

Ask the bank for a written quote covering the instrument and possible amendments or discrepancies, and establish which party pays each charge. There is no useful universal fee for this article to promise. Check with your attorney on the purchase agreement while the bank explains the credit's documentary conditions.

Use documents and inspection for different jobs

A bill of lading is a transport document associated with the shipment; a copy can be a payment milestone in the factory agreement. It is not a photograph of every cabinet, nor proof that your team has received acceptable goods. Review it alongside the commercial invoice, packing list, and other documents the transaction requires.

Arrange the inspection standard before production starts. Specify the configuration, finish, dimensions, packaging, and the evidence expected before the balance is released. A third-party inspection can help check the agreed standard, but the contract must explain how findings affect the next step.

Make the inspection practical. Drawers should operate, hardware should match, and the finish should be compared with the approved sample. A cabinet can look exceptionally composed in a photograph while declining to open its middle drawer.

The ocean-freight guide and customs-brokerage guide cover the transport and entry work that accompanies the purchase.

Plan for damage after payment

Payment protection, inspection, and cargo insurance address different risks. If goods arrive damaged after payment, document the arrival, preserve supporting evidence and packaging where needed, and notify the parties required by the shipment terms and insurance policy. Paying by a letter of credit does not automatically produce a refund for physical damage.

Use the freight-damage guide for the receiving record and the insurance guide to frame the coverage discussion. Establish who arranges insurance and who handles a claim before dispatch.

Compare the routes for the actual purchase

Credit cards are possible only where the factory accepts them; their protections are not interchangeable with an LC. The ITA identifies cards as one advance-payment method, not a guarantee for every importing dispute. Better payment terms can be requested after reliable trading, but a move from 30/70 to an example 20/80 schedule must be negotiated, not assumed.

Keep the cash calendar and payment record together

The vendor-terms guide follows the deposit, balance, freight, and customer collection through one purchase. Use that calendar before choosing the instrument. A balance due against shipping documents can leave the store funding transit and entry before the customer pays the rest.

OrderPilot records each vendor payment against its PO, including the payment method and reference; recording it does not move the money. With QuickBooks Online connected and payment sync configured, mapped bank/card accounts support the accounting entry, and early payments can remain vendor deposits until receipt bills use them. The purchasing guide connects that record to the furniture being bought.

Sources

1. Letter of credit — International Trade Administration, U.S. Department of Commerce.
2. Methods of payment — International Trade Administration, U.S. Department of Commerce.
3. Trade and export payment terms — SolidTeak; one factory's published arrangement.