What is the best payment terms for purchasing iron castings from
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
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
Why does the 50% payment need the copy of bill of
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.