Most first orders from a Chinese factory are paid by telegraphic transfer with 30% up front and 70% against a copy of the bill of lading. This is fast and cheap but offers the buyer almost no recourse, because a wire is irreversible the moment it settles. A letter of credit gives real protection but costs roughly 0.75-1.5% plus bank fees and takes weeks to arrange, which makes it impractical below about $100,000. Funding once and paying out in tranches sits between the two: the order is funded once with a licensed third party and paid out in tranches against evidence such as an inspection report or bill of lading, giving the buyer recourse without the paperwork burden of an L/C.
If you are placing a first order with a factory you found at a trade show, the question is not really "how do I send the money". Sending money is easy. The question is what happens if the goods are wrong, late, or never ship at all.
Here is what each payment method actually protects.
Telegraphic transfer (T/T)
A bank wire. The overwhelming default for China trade, usually structured as 30% deposit on order and 70% balance against a scanned bill of lading.
What it protects: essentially nothing, for the buyer. A wire is irreversible once settled. There is no chargeback, no reversal, and no intermediary holding anything. The 30/70 split is not a protection mechanism. It is a cash-flow compromise — see what a 30/70 deposit actually costs you.
Where it is fine: repeat orders with a factory you have worked with for years, or orders small enough that losing the deposit would be annoying rather than damaging.
The specific trap: paying the 70% against a scanned bill of lading. A scan proves a document exists, not that the goods in the container match your purchase order. Buyers have paid the balance against a genuine bill of lading and received containers of scrap.
Letter of credit (L/C)
Your bank promises to pay the factory's bank when the factory presents documents that exactly match the terms you specified.
What it protects: a great deal, if the terms are drafted carefully. The factory cannot get paid without producing the documents you named, which can include a third-party inspection certificate.
What it costs: roughly 0.75-1.5% of order value in issuing fees, plus amendment fees, plus your time. Setting one up takes weeks, and your bank will likely want collateral or a credit line.
The specific trap: L/Cs pay against documents, not against goods. Banks check paperwork for discrepancies and nothing else. If the documents conform, the bank pays, even if the shipment is wrong. Discrepancy rates on first L/Cs are notoriously high, and every discrepancy is a fee and a delay.
Below about $100,000, the fees and the setup time usually make an L/C not worth it.
Funded once, paid out in tranches against evidence
The order is funded once with a licensed third party, whether an escrow agent or a payments platform, and paid out in tranches when agreed conditions are met.
What it protects: the gap that T/T leaves open. The factory can see the money is real and committed before starting production, which is what unblocks a first order with an unknown buyer. The buyer keeps recourse because unreleased tranches have not been paid out.
What it costs: typically 1-2% depending on provider and corridor.
What matters most: what gates each release. A tranche that releases on "buyer says so" just recreates the T/T problem with extra steps. One that releases on a third-party pre-shipment inspection report is doing real work, because the condition is verified by someone with no stake in the outcome.
Platform-managed payment
Alibaba Trade Assurance and similar. The marketplace holds funds and adjudicates disputes.
What it protects: meaningfully, within the platform's rules.
The constraint: it only covers orders placed through that platform, with suppliers found on it. If you sourced your factory at the Canton Fair or through an agent, you cannot use it. Many buyers also find the dispute process opaque, since the platform is adjudicating disputes about its own suppliers.
Comparison
| Method | Buyer recourse | Typical cost | Setup time | Practical floor |
|---|---|---|---|---|
| T/T | Almost none | $15-50 per wire | Immediate | Any size |
| L/C | Strong, document-based | 0.75-1.5% + fees | 2-4 weeks | ~$100,000 |
| Tranche payouts | Strong, evidence-based | 1-2% | Days | ~$5,000 |
| Platform | Moderate, rule-based | Bundled | Immediate | Platform orders only |
What to actually do
For a first order between roughly $20,000 and $200,000 with a factory you have not worked with before, the structure that resolves the most risk for the least friction is:
- Split payment into three or four tranches rather than two.
- Gate the largest tranche on a third-party pre-shipment inspection, not on your own judgement of photos the factory sent you.
- Hold 20-30% until dispatch or delivery is documented.
- Agree the tranche structure and the evidence for each before production starts, in writing, with the specific documents named.
Most people skip point 4. It is also the point that decides how a dispute goes. "Production is 50% complete" is not adjudicable. "SGS pre-shipment inspection report passing at AQL 2.5" is.
Common questions
What is the safest way to pay an overseas factory? Fund the order once and release it in tranches against evidence a neutral third party produces, not against the factory's own word. A wire pays everything up front with no recourse; an evidence-gated release keeps your money committed but unpaid until an agreed condition — an inspection report, a bill of lading — is actually met.
Is it safe to pay a 30% deposit before production? A deposit is normal and, on its own, not the risk. The risk is the balance: paying 70% against a scan that proves a document exists rather than that the goods are right. If you pay a deposit, gate the rest on third-party evidence. What 30/70 really costs you goes into the trade-off.
How do I avoid being scammed by a supplier? Three habits remove most of the risk: verify the company is the one on the invoice before you send anything; never pay a balance against a scanned document alone; and gate your largest payment on a third-party pre-shipment inspection, named in writing before production starts.
What is the smallest order worth protecting? Roughly from $5,000, tranche payouts are practical and cost about 1–2%. Below that, a wire is usually fine because the amount at risk is an annoyance rather than a real loss. A letter of credit only starts to make sense above about $100,000.
Where does Tranchio fit? It is the "funded once, paid out in tranches against evidence" option, built for orders sourced anywhere — not only on a marketplace. See pricing for the fee on an order your size.