Why Payment Terms Matter So Much
For a new clothing brand, the production order is usually the largest single cash outlay of the year. Factories need money upfront to buy fabric and trims, and brands want to be sure they receive what they paid for. Payment terms are the compromise between those two positions: they decide who carries the risk at each stage. Poorly structured terms put nearly all the risk on one side, and in clothing manufacturing that is most often the brand, because a deposit has been paid before a pre-production sample has been approved or before the goods have been inspected.
This guide is general information, not financial or legal advice. Terms vary by factory and country, so always agree them in writing, and consider professional advice for large or complex orders. It builds on our guides to importing clothing from Bangladesh and the full cost of manufacturing clothing.
Common Payment Structures
Most orders from a small or growing brand to an overseas factory follow one of these patterns:
- Deposit and balance: a percentage, often around 30%, is paid when the order is confirmed to start fabric purchase and production, and the remaining balance is paid before shipment or on presentation of shipping documents.
- Three-stage payment: for example, a deposit on order, a second payment at a production milestone such as cutting complete, and the balance after inspection and before shipping.
- Payment against documents: the balance is paid after the factory sends a copy of the bill of lading or air waybill, showing that the goods have been handed to the carrier.
- Credit terms (open account): payment 30, 60 or 90 days after shipment or delivery. These are usually offered only to established buyers with a trading history.
Treat the percentages above as common market practice, not a rule. Factories sometimes ask for a larger deposit on custom fabric or small orders, and may ask for less from long-standing customers.
T/T (Telegraphic Transfer)
T/T is a bank-to-bank wire transfer, and it is the most common way small and mid-sized brands pay overseas factories. It is quick and relatively cheap, but it offers little protection once the money has left your account, because it is hard to recover. That means the protection has to come from how you structure the payments, the quality of your supplier checks and your inspection process rather than from the payment method itself. Always send funds to the factory's company account in the company's name and check the bank details by an independent route, such as a phone call to a number you have verified, before the first payment.
Letters of Credit (L/C)
A letter of credit is a bank guarantee: the buyer's bank promises to pay the seller once the seller presents documents that comply with the terms of the credit, such as an invoice, packing list and bill of lading. It protects both sides, because the factory knows it will be paid if it ships correctly, and the buyer knows payment is only released against the agreed documents. L/Cs are common in large-volume garment trade, and in Bangladesh they are closely tied to how exporters finance imported fabric. They are also costlier and more administrative than T/T, with bank fees and strict document requirements, so they are usually used for larger orders rather than first runs of a few hundred pieces. A letter of credit protects against non-shipment and document discrepancies, but not against poor quality, so you still need inspection.
T/T vs L/C vs Open Account
| Method | Speed and cost | Protection for buyer | Best for |
|---|---|---|---|
| T/T deposit and balance | Fast, low bank charges | Depends on staging and inspection | Startups and small to mid-sized orders |
| Letter of credit | Slower, bank fees and paperwork | High on documents, none on quality | Large orders and new, high-value relationships |
| Open account (credit terms) | Simple | Strong for buyer, riskier for factory | Established buyers with a proven record |
How to Structure Payments to Reduce Your Risk
- Do not pay a deposit until the specification is locked. The tech pack, price, quantity, Incoterm, delivery date and quality standard should be in a written purchase order or contract first.
- Tie payments to milestones, not dates. For example, pay the deposit on the approved order, a second instalment when the approved pre-production sample is signed off and materials are in house, and the balance after a passed final inspection.
- Hold the balance until after inspection. A third-party AQL inspection before the balance is paid gives you leverage if the goods are not right.
- Avoid paying 100% upfront. Even for small orders, a staged payment gives both sides an incentive to finish properly.
- Agree what happens if the order fails inspection, including who pays for rework and re-inspection, and any change to the ship date.
- Match payment to the Incoterm. Under FOB, for example, you take over freight and risk at the port, so check that your payment timing lines up with the shipping documents.
Currency, Bank Charges and Hidden Costs
International orders are usually priced in US dollars, so exchange rate movements between your order and your final payment can change the cost in pounds. Ask your bank or a foreign exchange provider about fixed-rate contracts if you want certainty. Allow for bank transfer fees on both sides and for the correspondent bank charges that sometimes reduce the amount received. Agree in writing who bears those charges, so that the factory is paid the full invoice and no shortfall delays shipment. Add all of these to your landed cost, as in our pricing guide.
Avoiding Payment Fraud
International supplier fraud is a real risk, and it is usually simple: a fake supplier, a hijacked email asking you to pay a different account, or a trading company that takes a deposit and disappears. Reduce the risk with these habits:
- Verify the factory's existence and ownership before any payment, using a video tour, trade licence and references. Our guide to finding and vetting clothing manufacturers in Bangladesh explains how.
- Pay only to an account in the registered company's name, and treat any last-minute change of bank details as suspicious until you have confirmed it by phone using a number you already trust.
- Be wary of unusually low prices, pressure to pay quickly and refusals to allow inspection.
- Keep all agreements, invoices and communications in writing.
- Consider the protections offered by recognised platforms or payment methods where available, understanding exactly what they cover.
An Example Payment Schedule
To show how staging works in practice, imagine a £20,000 order of 1,500 hoodies. One reasonable structure, which is illustrative rather than a standard, would be a 30% deposit (£6,000) when the purchase order and the approved pre-production sample are signed, a further 30% (£6,000) once cutting is complete and an inline inspection report confirms production is on schedule, and the final 40% (£8,000) after a passed final inspection, before the goods are released to the freight forwarder. At each stage the factory has the cash it needs to buy fabric, run the lines and finish the order, while you hold back enough money to give you real leverage if something goes wrong.
A smaller first order of 500 pieces might use a simpler two-step schedule, with a larger deposit because the factory's fixed costs are a bigger share of the order. The principle is the same: link money to evidence. If a factory refuses any staging at all, or insists on full payment before samples are approved, treat that as a reason to look more closely at who you are dealing with, and review our guide to vetting Bangladesh clothing manufacturers.
What Happens If the Order Is Late or Wrong?
Payment terms work best alongside clear remedies. Agree in advance what happens if production runs late: a revised delivery date, a discount for delay, air freight at the factory's cost or the right to cancel after a long delay. Agree what happens if the goods fail inspection: rework or replacement at the factory's cost, re-inspection and a corrected ship date, and what happens to any remaining balance. Define quality by reference to the signed pre-production sample and your AQL standard, as set out in our inspection guide, so there is no argument about what counts as defective. Remedies written down before the order are far easier to enforce than ones negotiated in the middle of a dispute.
Put It in Writing
A purchase order or short manufacturing agreement should state the product specification, quantities, unit price and currency, payment schedule, delivery date and Incoterm, the quality standard and inspection process, remedies for late delivery or defects, ownership of patterns and artwork, and confidentiality. It need not be long, but it must be signed or clearly accepted by both sides. Clear documents also help if you later need to resolve a dispute or claim on insurance.
How Ruhrose Handles Payment
Ruhrose works with clear, staged terms tied to approvals and inspection, set out in the quotation and order confirmation before any deposit is requested, on low minimums from 500 pieces per style and colour. We are happy to explain the schedule and work with your own inspector. Start a product enquiry and we will outline the terms for your first order.