Payment is where trust becomes a number. The factory wants money before it commits materials; you want goods before you part with cash. Every payment structure in international trade is a way of splitting that gap, and every fraud pattern is a way of exploiting a buyer who has not thought about it. This guide covers the structures worth using, and the handful of scams that account for most real losses.
The default structure, and what it actually means
The common arrangement for China purchases is a telegraphic transfer (T/T) split: a deposit against order placement, and the balance against shipping documents or against a passed inspection.
The deposit exists for a real reason — the factory buys materials for your specification, which it may not be able to resell. A supplier asking for a deposit is behaving normally. A supplier asking for full payment before production is asking you to finance the entire order and carry all of the risk, and unless you have a long relationship, that is not a normal commercial term.
The important question is not the split percentage. It is what event releases the balance:
- Balance against copy of bill of lading — the goods have shipped. You are trusting quantity and quality entirely.
- Balance against passed pre-shipment inspection — this is the one to negotiate for. It gives your inspection commercial force. Without it, a failed inspection produces an argument; with it, it produces rework. See Pre-shipment QC: a one-page protocol.
- Balance after arrival or on credit terms — normal in mature relationships, rare on a first order, and factories price this risk in.
Write the release event into the purchase order in one sentence: the balance is payable within N days of a passed pre-shipment inspection report issued by [inspector], against presentation of [documents].
The instruments, and when each earns its cost
T/T (bank wire). Fast, cheap, universal, irreversible. Once sent, recovery depends on the receiving bank’s cooperation and speed — usually measured in hours, not days. Suitable for most transactions with a verified supplier.
Letter of credit (L/C). The bank pays against documents, not against goods. Well suited to large orders with a supplier you do not yet know well, because it forces a documented process. Costs bank fees on both sides, requires precise document drafting, and any discrepancy in the presented documents can hold up payment — which is exactly the discipline you are paying for. Note the limit: an L/C protects against non-shipment, not against poor quality, unless you make an inspection certificate one of the required documents.
Escrow and platform trade assurance. Marketplace-operated escrow services hold funds until the buyer confirms receipt. Useful for smaller orders; read what the protection actually covers and what evidence a claim requires. Its most important property is that it only works if the transaction stays on the platform — which is precisely why fraudulent sellers push you off it.
Credit card and PayPal. Chargeback rights make these attractive to buyers and expensive for sellers, so most factories decline them or add a fee. Reasonable for samples and small amounts.
Documentary collection (D/P, D/A). Bank-handled document exchange without the bank’s payment guarantee. Cheaper than an L/C, weaker protection.
For a first order: escrow or platform protection for small values; T/T with an inspection-linked balance for medium values; L/C with an inspection certificate among the required documents for large ones.
The fraud patterns that matter
Most losses do not come from exotic schemes. They come from four repeating patterns.
1. Payment redirection (the most expensive one)
You receive an email or a chat message, apparently from your supplier, saying their usual account is under audit / frozen / changed, with new bank details. You pay. The account belongs to a criminal, and the real supplier is still waiting for the money.
The message may come from a genuinely compromised supplier mailbox, or from a near-identical domain (one letter changed, or .co instead of .com). It often arrives at exactly the right moment in the transaction, because the attacker has been reading the thread.
The control: verify every bank-detail change by calling a phone number you already had, not one from the new message. Treat the beneficiary name as the anchor — payment to a personal account or to a company whose name does not match your contract party is the loudest available warning. Agree at the start of the relationship, in writing, that bank details will never change by email.
2. The beneficiary mismatch
The contract is with Company A; the invoice asks you to pay Company B, or an individual, or an account in a third jurisdiction. Sometimes there is a plausible explanation involving an export agent. Sometimes it is theft, and sometimes it is a supplier moving money in ways that will leave you with no recourse and no clean paper trail for customs valuation.
The control: the beneficiary must match the contracting entity’s legal name. If a genuine export agent is involved, get that documented as part of the contract before the first payment, not as an exception on invoice day.
3. The vanishing supplier
A deposit is paid, production “starts”, the updates get vaguer, then contact stops. Frequently the counterparty was never the factory it claimed to be — see How to vet a Chinese factory for the verification steps that prevent this.
The controls: verify the business licence and the entity before the first payment; keep the first order small enough that its loss is survivable; use escrow where available; and treat a supplier who resists any verification step as having answered your question.
4. Quality substitution and the short shipment
The samples were excellent; the production run uses cheaper material, thinner wall sections, a different component, or is simply short on quantity. This is not always fraud — sometimes it is a factory absorbing a cost increase without telling you — but the effect on your business is identical.
The controls: an approved reference sample retained by both sides; an inspection with the balance payment attached to it; and unit counts verified at inspection rather than at the destination.
Also worth knowing
- The “urgent extra fee”. After the deposit, a new charge appears — material surcharge, inspection fee, export fee, port fee — with pressure to pay immediately or lose the shipment. Legitimate additional costs exist, but they come with an explanation and an amended invoice, not with urgency and a new account.
- Documents against a bill of lading you cannot use. If the original bill of lading is consigned in a way that prevents you taking delivery, paying the balance does not get you the goods. Check consignee and release terms before paying.
- The too-good quote. A price far below every other quote for the same specification usually means a different specification, a different material, or a party with no intention of shipping.
Practical controls that cost nothing
- Written contract with the Chinese legal entity name, matching the beneficiary account exactly.
- First order sized to survive total loss. Treat it as tuition, not as inventory strategy.
- Bank-detail changes verified by voice, on a previously known number, every single time.
- Inspection-linked balance payment, written into the purchase order.
- One communication channel of record, with decisions restated in email even when the conversation happens in chat.
- Domain hygiene — check the sender domain character by character when money is discussed. Attackers register lookalikes precisely because nobody reads them twice.
- No under-declaration, ever. A supplier offering to help you avoid duty by falsifying the invoice value is proposing fraud in your name; the importer of record signs for that. See Landed cost math.
If it happens anyway
Move immediately — recovery odds decay in hours.
- Contact your bank and request a recall or SWIFT investigation. State that the payment was induced by fraud.
- Contact the receiving bank in writing with the transaction reference.
- Report the incident to law enforcement in your own jurisdiction. In the United States, internet-enabled fraud is reported to the FBI’s Internet Crime Complaint Center at ic3.gov, and consumer and business fraud can also be reported to the Federal Trade Commission at reportfraud.ftc.gov.
- If the transaction ran through a marketplace or escrow service, open a dispute inside the platform’s window, which is usually short.
- Preserve everything: full email headers, chat logs, invoices, the payment instruction, the contract.
Then fix the process that allowed it, because payment fraud is a systems failure, not a personal one.
This guide describes commercial practice and risk controls. It is not legal or financial advice; for contract drafting, trade finance structures and dispute recovery, consult qualified counsel in the relevant jurisdiction.
