Placing your first bulk clothing order is exciting, but the payment process can feel like a black box. Sending large sums to a factory overseas involves trust and clear structure. Understanding the standard and alternative payment stages is crucial for managing your cash flow, maintaining leverage, and ensuring a smooth production journey from deposit to delivery.
The typical stages of payment in bulk clothing orders follow a milestone-based structure: an initial deposit (often 30%), a possible progress payment, and a balance payment before or upon shipment. Each stage should be tied to a clear, verifiable production milestone to protect both buyer and supplier.
This guide will walk you through the standard payment schedule, explain the purpose of each stage, and explore advanced structures for larger or more complex orders. You'll learn how to align payments with production progress for optimal security and cash flow.
What is the Standard 30/70 Payment Schedule?
The most common payment term in the garment industry is the 30/70 split. It's a straightforward model that balances the supplier's need for upfront capital with the buyer's need to retain some leverage. Understanding what triggers each payment is key to executing it fairly.
The standard 30/70 payment schedule involves a 30% deposit to confirm the order and secure materials, with the 70% balance due before shipment. This structure provides the factory with working capital while keeping the bulk of payment contingent on order completion.
Let's break down what happens at each point in this common schedule.
What Does the 30% Deposit Actually Cover?
The initial 30% deposit is not pure profit for the factory; it's primarily used to finance the start of your order. Its main purposes are:
- Securing Raw Materials: This is the largest cost. The factory uses these funds to purchase the fabric, thread, zippers, labels, and other trims specified in your tech pack.
- Covering Initial Labor & Setup: It covers the cost of pattern making, sample adjustment, and setting up the production line (cutting markers and lay planning).
A clear contract should state, "The 30% deposit is payable upon order confirmation and is for the procurement of materials and pre-production work." Last year, a client asked us for a breakdown; we provided the fabric mill's proforma invoice to show how their deposit was being allocated, which built significant trust.
When is the 70% Balance Typically Due?
The 70% balance is most commonly due "before shipment" or "against copy of shipping documents." This means the factory will require this payment to be received and cleared in their bank account before they release the goods to the freight forwarder or provide the original Bill of Lading. From the buyer's perspective, this is the point of highest risk—paying the majority just before losing physical control of the goods. Therefore, this stage should be preceded by your approval of pre-production samples and potentially a final inspection report.
Are There Safer Multi-Stage Payment Alternatives?
For larger orders or new partnerships, the 30/70 model can feel unbalanced. Multi-stage payments, which break the financial commitment into smaller chunks tied to specific progress points, offer greater security and cash flow management for the buyer.
Yes, safer multi-stage payment alternatives exist, such as a 30/40/30 or 30/30/40 split. These tie payments to verified production milestones like fabric procurement, production completion, or shipment, giving the buyer more control and visibility throughout the process.
Implementing a milestone-based schedule requires clear definitions and cooperation.
How Does a 30/40/30 Schedule Work?
This is a common and effective three-stage model:
- 30% Initial Deposit: Paid upon order confirmation to start the order.
- 40% Progress Payment: Triggered by a pre-defined, verifiable milestone. This is often "upon completion of production and successful pre-shipment inspection." You receive photos/videos of the finished goods and the inspection report before paying.
- 30% Final Balance: Paid "against copy of Bill of Lading" or before shipment.
This structure is significantly safer. It ensures the factory has the funds to pay workers during production (via the 40%), but you haven't paid the bulk until you know the goods are made and have passed quality checks. We often propose this structure for orders over $50,000 at Shanghai Fumao as it aligns our cash flow with our workflow and gives clients peace of mind.
Can Payments Be Linked to Material Procurement?
Absolutely, especially for orders with unique or expensive fabrics. A schedule could be:
- 30% to confirm order and begin pattern making.
- 40% upon factory's provision of fabric mill invoices and photos of the bulk fabric arriving at their warehouse.
- 30% after production completion, before shipment.
This ensures your money is directly funding your materials and provides proof they have been sourced. It prevents a scenario where a factory uses your deposit for another order's cash flow.
What is the Role of a Letter of Credit (L/C)?
For very large orders or trade with certain high-risk regions, a Letter of Credit (L/C) is a bank-guaranteed payment instrument that offers a high level of security for both buyer and supplier, though it comes with added cost and complexity.
A Letter of Credit (L/C) is a bank's promise to pay the supplier once they present documents proving they have fulfilled the contract terms (like shipping the goods). It protects the buyer by ensuring payment only occurs upon evidence of performance, and protects the supplier by guaranteeing payment from a bank.
An L/C is more of a financial instrument than a simple payment stage, but it governs the entire payment process.
How Does an L/C Transaction Flow?
The typical process is:
- Buyer applies for an L/C at their bank (the Issuing Bank), specifying exact terms (documents required, shipment date, etc.).
- Issuing Bank sends the L/C to the supplier's bank (the Advising Bank).
- Supplier ships the goods once they receive the L/C.
- Supplier submits required documents (Bill of Lading, commercial invoice, packing list, inspection certificate) to their bank.
- Banks check documents against L/C terms. If they match perfectly, the supplier gets paid.
- Buyer's bank releases documents to the buyer, who can then claim the goods.
The key is the documentary compliance. Any discrepancy (a misspelled name, an incorrect date) can allow the bank to refuse payment.
When is an L/C Worth the Extra Cost and Effort?
Consider an L/C for:
- First-time orders with a new supplier where the value is very high ($100,000+).
- When the buyer's country has high import/export restrictions or political risk.
- When required by the supplier due to their own risk assessment.
The downsides are bank fees (1-2% of the order value), administrative complexity, and the strict documentary requirements. For ongoing, trust-based relationships, simpler T/T (Telegraphic Transfer) terms are usually more efficient and cost-effective.
How Do You Align Payments with Quality Checkpoints?
The most strategic payment schedules are those integrated with your quality assurance process. This ensures that funds are released not just based on time, but on confirmed quality milestones, giving you direct financial leverage to ensure standards are met.
You align payments with quality checkpoints by defining specific inspection stages in your contract and releasing subsequent payments only upon successful completion and your written approval of those checkpoints.
This approach turns your payment schedule into a quality management tool.
What are Key Inspection-Linked Milestones?
Build your payment schedule around these standard quality control stages:
- Fabric & Trim Approval: Withhold the deposit or a portion of it until you approve lab dips, bulk fabric swatches, and trim submissions.
- Pre-Production (PP) Sample Approval: A critical checkpoint. A progress payment can be contingent on your approval of the PP sample, which is made from bulk materials on the production line.
- During Production (DUPRO) Inspection: For long-running orders, an inspector can check initial output from the line. A payment can be scheduled after a positive DUPRO report.
- Final Random Inspection (FRI): The final balance payment should be contingent on a passed AQL inspection conducted by you or a third-party inspector.
A sportswear brand we work with uses a strict 40/60 split: 40% deposit, 60% payable only after they receive and approve the final inspection report from an independent third-party agency. This gives them tremendous quality assurance.
How to Handle Payments if Quality Issues Are Found?
Your contract must have a clause for this. It should state that if a defined quality checkpoint is not met, the factory must rectify the issue within an agreed timeframe at their own cost. The corresponding payment is then delayed until the issue is resolved and re-inspected. This prevents you from paying for non-conforming goods and incentivizes the factory to get it right the first time. Clear communication and documented approvals at each stage are essential to make this work smoothly.
Conclusion
The stages of payment in a bulk clothing order are far more than just financial transactions; they are the rhythm section of your production timeline. A well-structured payment schedule, whether standard 30/70, multi-stage, or L/C-based, aligns financial incentives with production progress and quality outcomes. By tying payments to verifiable milestones—material procurement, sample approval, production completion, and quality inspection—you protect your investment, manage cash flow, and build a foundation of accountability with your supplier.
Ultimately, the goal is a schedule that feels fair and secure for both parties, fostering a partnership rather than a transaction. At Shanghai Fumao, we are flexible and transparent in designing payment terms that match the scale and risk profile of each order, because we believe clarity in finance is as important as clarity in design. To discuss a secure payment structure for your next bulk order, contact our Business Director, Elaine, at elaine@fumaoclothing.com.
