Paying a Chinese furniture factory, and what protects you

The payment conversation happens at the end of a good day, when everyone is pleased and nobody wants to be difficult. That is exactly why it goes wrong. The terms you agree in that half hour decide whether a production problem is a negotiation or a loss.

None of what follows requires distrust. It requires writing down what you already assume.

The standard terms, and why they exist

Almost every Foshan furniture order runs on 30% deposit, 70% balance before shipment. The deposit buys materials and books production slots; the balance is paid once the goods exist and before the container leaves.

The deposit is not arbitrary. Furniture is made to order, in your fabric and your finish, and a factory that starts a hundred sofas on your word alone is exposed if you disappear. Expect to pay it. What you should not accept is a deposit above 40% for a first order, or 100% before production, which happens more often than it should with small showroom suppliers.

Where the money must go

Pay by bank transfer to the company account whose name matches the sales contract and the export documents. That single rule prevents most of the trouble that ever befalls a furniture buyer in China.

Refuse a payment to a personal account, to a Hong Kong company you have not verified, or to a name that differs from the one on the invoice — even when the explanation is plausible, and it usually is: tax, a group structure, an export agent. If a real export agent is involved, its name belongs on the contract as a party, not just on the bank details.

Verify the company on a business registry before the first payment. In China every legitimate company has a unified social credit code, an 18-character identifier that appears on its business licence. Ask for a photograph of the licence; it takes a minute and it tells you the registered name, the scope of business and whether the company is actually allowed to export.

What the balance should be released against

The single most useful change you can make to a furniture order is this: the balance is payable against a pre-shipment inspection report and copies of the packing list, not against a phone call saying the goods are ready.

Write it into the pro-forma: balance payable within 3 working days of buyer's acceptance of the pre-shipment inspection report. That one line converts your remaining 70% into the leverage that gets defects fixed while the goods are still in the factory, which is the only place they can be fixed cheaply.

Some buyers go further and hold the balance against a copy bill of lading, releasing payment once the goods are demonstrably on a vessel. Factories accept this less readily, but on a repeat relationship it is negotiable.

When a letter of credit makes sense

A letter of credit replaces the factory's trust in you, and your trust in the factory, with a bank's trust in documents. It is genuinely useful above roughly USD 80–100k, or when you are buying from a supplier you have never met, or when your own financing requires it.

Below that, it is usually not worth it. An LC costs money at both ends, takes days to issue and amend, and pays out on documents rather than on quality — a factory that ships rubbish with perfect paperwork still gets paid. Small furniture factories also frequently cannot handle LC documentation, and will price the hassle into your unit cost.

If you do use one, insist that an inspection certificate issued by your appointed inspector is a required document. Without that clause, the LC protects the seller far more than it protects you.

The paperwork that actually protects you

Money is protected by documents, not by goodwill. Before the deposit leaves, you want four things.

A signed pro-forma invoice naming the goods, quantities, unit prices, materials, finishes, packing, incoterm, port, lead time and payment terms. A signed specification per item — frame material, foam density, fabric code, timber species, hardware brand, dimensions with tolerances. Photographs of the approved sample, signed and dated by both sides. A written lead time with a stated consequence if it is missed, even a modest one, because a date with no consequence is a preference.

These are ordinary documents that any real factory produces without complaint. Reluctance to put the specification in writing is the most reliable warning sign in the entire process — more reliable than the state of the showroom, the size of the factory or the confidence of the salesperson.

Small practical rules

Keep the deposit as small as the factory will accept and the balance as large as possible; the balance is your only real leverage. Pay from a company account in your own name so the trail is clean. Keep the SWIFT confirmation. Never send a second deposit to fix a problem caused by the first order — solve it inside the existing order.

And if a supplier changes its bank details by email mid-order, stop and telephone a person you have met. That fraud is common, it is not specific to China, and it has cost furniture importers a great deal of money.