The standard payment terms for a bag programme are T/T with a 30 per cent deposit on order and the 70 per cent balance before shipment. That structure balances risk in a simple way: the deposit funds the material procurement that cannot start without it, and the balance is released only once the goods exist and are ready to move. Where a brand needs more protection on a large or first order, a letter of credit replaces the balance stage with a bank undertaking.
This guide explains how payment terms allocate risk between a brand and its production partner, how the default T/T structure works in practice, when a letter of credit earns its cost, and how the available instruments differ. It considers cash flow, the documents that release each payment, and the way terms should be written so that neither party is exposed to a stage it cannot control.
The subject matters more than its dry reputation suggests. Terms that fit the order protect both sides and make the relationship easier to repeat; terms that do not fit create funding gaps, hold goods at port, or leave one party carrying a risk it was never meant to hold. Getting them right at the start is cheaper than renegotiating them mid-production.
Programme parameters at a glance
| Parameter | Commitment |
|---|---|
| Minimum order quantity | 500 pieces per style / colourway |
| Sampling lead time | 6–10 working days (12–15 days for complex constructions) |
| Bulk production lead time | 35–50 days after sample approval |
| Inspection standard | AQL 2.5 (ISO 2859-1), single sampling, general level II |
| Incoterms | FOB Xiamen — EXW, CIF and DDP available on request |
| Payment terms | T/T 30% deposit / 70% before shipment; L/C at sight for container loads |
| Verified production floor space | 4,950 m² (SGS-verified) |
| Team | 137 staff across 7 production lines |
| Equipment | 149 machines including computerised saddle-stitch and edge-painting units |
| Monthly capacity | 200,000 pieces |
| Entity | Founded 2014; principal has worked in bag development since 2004 |
Payment Terms Allocate Risk, Not Just Cash
Every payment term answers a single question: which party carries the risk at each stage of the order. Before materials are bought, the risk is that a brand cancels. After goods are made, the risk is that a buyer does not pay. Payment terms move that risk between the two parties, and the instrument chosen is a way of pricing and placing it.
The default 30/70 split places the first risk on the brand, which is fair because the deposit is what enables material procurement, and places the second risk on the partner, which commits to completing and inspecting the goods before the balance is due. The balance before shipment is what protects the partner from financing a finished order it cannot sell; the pre-shipment inspection is what protects the brand from paying for goods it has not verified.
The Default T/T Structure: 30 per cent Down, 70 per cent Before Shipment
T/T, or telegraphic transfer, is a direct bank transfer between the buyer's and the partner's accounts. It is the most common instrument in bag sourcing because it is simple, fast and inexpensive relative to documentary credit. The 30/70 structure is its standard application to a production order.
| Payment stage | Share of order value | What it triggers | What protects the buyer |
|---|---|---|---|
| Deposit on order | 30 per cent | Material procurement and line scheduling begin | A written specification and approved sample path |
| Balance before shipment | 70 per cent | Goods are released for loading at Xiamen | Final inspection at AQL 2.5 before the balance is released |
| Sampling fee, if applicable | Charged separately | Sample production begins | A defined sample scope and approval gate |
The sequencing is what matters. The deposit is not a fee; it is the capital that buys the leather, lining and hardware, and production cannot responsibly begin without it. The balance is not a reward for finishing; it is the release mechanism for goods that have already been made and inspected. Understanding both as triggers rather than as milestones keeps the terms coherent with the production calendar.
For sampling, where a fee applies, the payment is separate from the bulk order and usually smaller. Sampling for a standard construction takes 6 to 10 working days and 12 to 15 for a complex build, and a sample fee is typically charged for the material and labour consumed in producing it. Whether that fee is credited against a subsequent bulk order is a commercial point worth agreeing in writing at the outset.
What the Deposit Actually Funds
Brands new to sourcing sometimes view the deposit as a trust payment and push to reduce it. It is more useful to see it as the working capital that starts the order. A deposit that is too small does not delay production politely; it delays material procurement, which in turn delays the 35 to 50 day bulk window and the launch date that depends on it.
- Leather procurement, which often requires payment to the tannery before the hide is released.
- Lining, interlining, thread and edge-finish materials, each of which is bought against the order.
- Hardware and components, where specific part numbers and finishes may need to be sourced to specification.
- Packaging, including dust bags, tissue and cartons, which is prepared to the brand's requirement.
- The labour and line time reserved for the order, which competes with other programmes on the same capacity.
- Any tooling or bespoke component setup that must be completed before production can begin.
Because the deposit funds procurement, it also determines when the bulk window can start. A brand that delays the deposit by a week delays the start of the 35 to 50 day production window by at least that week, and if the material is not held in stock, the delay can be longer. In that sense the deposit is a scheduling instrument as much as a financial one.
Letters of Credit: When a Bank Undertaking Earns Its Cost
A letter of credit replaces the direct balance payment with a bank undertaking. The buyer's bank promises to pay on presentation of specified documents, which typically include the bill of lading, the commercial invoice, a packing list and an inspection certificate. The seller gains certainty of payment; the buyer gains assurance that payment only occurs against compliant documents.
| Instrument | How it works | Best suited to | Cost and speed |
|---|---|---|---|
| T/T balance before shipment | Direct transfer released against completed, inspected goods | Most routine orders and repeat programmes | Lowest cost and fastest; relies on the relationship |
| At-sight letter of credit | Bank pays on presentation of compliant documents | Large or first orders between new parties | Higher cost, more administration, bank-mediated |
| Usance letter of credit | Bank pays after a set period, giving the buyer time to sell | Established buyers needing working capital | Cost similar to at-sight; deferred settlement |
| Documentary collection (D/P) | Documents released against payment at the bank | Mid-sized orders where trust is developing | Cheaper than an L/C, less secure for the seller |
| Documentary collection (D/A) | Documents released against acceptance of a bill | Long-standing relationships only | Cheapest of the documentary routes, seller bears more risk |
A letter of credit earns its cost when the value at risk is high relative to the cost of the instrument. On a first order with a new partner, or a large multi-style order, the bank's undertaking buys real protection. On a routine repeat order of 500 pieces, the administration and cost of an L/C often exceed the risk it removes, and the standard T/T structure is both simpler and cheaper.
The discipline of an L/C is in the documents. Because payment depends on presenting documents that match the credit's terms exactly, a small discrepancy in wording can cause a delay or a refusal. Brands using documentary credit should treat the letter of credit as a specification to be built carefully, not as a formality to be signed once and forgotten.
Matching Payment Terms to the Order
There is no single correct payment structure, only one that suits the order. The right terms reflect the size of the order, the length of the relationship, the value at risk and the cash position of each party. Choosing deliberately, rather than defaulting, is what keeps terms from becoming a source of friction.
| Order situation | Sensible structure | Reasoning |
|---|---|---|
| First order, new partner | 30 per cent T/T deposit, balance via at-sight L/C | Protects both parties while trust is being established |
| Routine repeat order | 30/70 T/T as standard | The relationship substitutes for the bank's protection, at lower cost |
| Large multi-style order | 30 per cent deposit, balance by L/C or staged against inspection | The value at risk justifies a documentary instrument |
| Small-batch pilot | Payment on the pilot terms agreed for the format | The sums involved are modest and speed matters more than instrument cost |
| Reorder of a proven style | 30/70 T/T, possibly with a deposit based on a confirmed forecast | Predictability lets both parties plan cash more tightly |
A useful principle is that the instrument should be proportionate to the risk. Applying a heavyweight documentary credit to a small, proven reorder wastes money and slows the cycle; applying a casual transfer to a large first order exposes the brand unnecessarily. Matching the instrument to the situation is the whole art of the subject.
The Real Cost of Payment Terms
Payment terms carry a cost that is easy to miss because it does not appear on an invoice. Money held in a deposit or released early is money that is not available elsewhere, and the instrument chosen has its own fees. Treating terms as part of the total cost of a programme, rather than as a separate administrative matter, keeps the comparison honest.
- The deposit ties up working capital from the moment the order is placed until the goods are sold.
- A letter of credit carries bank charges, amendment fees and administrative time to prepare matching documents.
- Early balance payment reduces the buyer's leverage if a defect is found after payment has moved.
- Delayed balance payment can slow the release of goods and hold stock at the port at the buyer's cost.
- Instrument mismatches create rework: a credit that does not match the shipment documents delays payment for both sides.
The balance payment point deserves particular attention because it interacts with inspection. Because the balance is due before shipment, the pre-shipment inspection is the moment at which the brand's protection is at its strongest. A brand that pays the balance before inspection, in order to speed the shipment, gives up the very leverage the standard structure was designed to provide.
Documenting Terms So Neither Party Is Exposed
Whatever the instrument, the terms are only as good as their documentation. A payment structure written clearly in the purchase order and the proforma invoice, with each release point tied to a defined event, removes the ambiguity that causes most payment disputes. The documents that matter are not many, but each should be complete.
Written terms also make a programme easier to finance. A brand that can show an investor or a lender a clean set of documents, a deposit schedule and an inspection record is a brand whose cash needs are predictable. Payment terms that are documented well are therefore not only a protection but a planning tool, and they make the second and third orders easier to run than the first.
Agree payment terms that fit your order
Send your order outline and preferred structure to service@junyuanbags.com or message the programme team on WhatsApp at +86 177 5002 0688. We will set out a payment schedule tied to sampling, inspection and shipment, and document each release point so both sides know exactly when and why payment moves.
Frequently Asked Questions
What are the standard payment terms for a bag order?
The standard is T/T with a 30 per cent deposit on order and the 70 per cent balance before shipment. The deposit funds the material procurement that starts the order, and the balance is released against completed, inspected goods before they are loaded. Sampling fees, where they apply, are charged separately and are usually smaller than the bulk order.
What does a T/T deposit cover?
The deposit funds material procurement, including leather, lining, interlining, thread, edge finish, hardware, packaging and any tooling, plus the line time reserved for the order. Because production cannot responsibly begin before materials are bought, the deposit is working capital rather than a fee. A delay in paying it delays the start of the 35 to 50 day bulk window by at least the same amount.
When is a letter of credit worth using?
A letter of credit earns its cost when the value at risk is high relative to the cost of the instrument, such as a first order with a new partner or a large multi-style order. On a routine repeat order of 500 pieces the administration and bank charges often exceed the risk removed, so the standard T/T structure is simpler and cheaper.
How does a letter of credit protect both parties?
A letter of credit replaces the direct balance payment with a bank undertaking. The partner gains certainty of payment because the buyer's bank promises to pay on presentation of compliant documents, and the buyer gains assurance that payment only occurs against those documents, which typically include the bill of lading, invoice, packing list and inspection certificate.
Should the balance be paid before or after inspection?
Under the standard structure the balance is due before shipment, and the pre-shipment inspection at AQL 2.5 is what confirms the goods first. Keeping inspection ahead of payment is the buyer's main protection. Paying the balance early, to speed a shipment, gives up the leverage the structure was designed to provide and leaves defects undiscovered until after payment.
What is the difference between T/T and a documentary collection?
T/T is a direct bank transfer released against completed goods, and it relies on the relationship between the parties for its security. A documentary collection releases shipping documents through the banks, against payment (D/P) or against acceptance of a bill (D/A). Collections sit between T/T and a letter of credit: cheaper than a credit but offering the seller less security than a bank undertaking.
Why does a letter of credit cost more than a bank transfer?
A letter of credit involves the buyer's bank, often the seller's bank, and a set of documents that must match the credit's terms exactly. That adds bank charges, possible amendment fees and administrative time. Because payment depends on presenting matching documents, a small discrepancy can cause a delay or a refusal, so the instrument demands care as well as money.
Can payment terms be negotiated?
Yes, and they usually should be matched to the order rather than applied by default. A first order may suit a deposit plus a letter of credit, a repeat order may suit the standard 30/70 structure, and a large order may suit staged payments tied to inspection. The most constructive negotiation ties each release point to an event both parties can verify.
What is a usance letter of credit?
A usance letter of credit is one that pays a set period after the documents are presented rather than at sight. It gives the buyer time to receive and sell the goods before settlement, which helps working capital on larger orders. The cost is broadly similar to an at-sight credit, but the deferred settlement shifts the cash-flow burden toward the seller.
How should payment terms be documented?
Payment terms should be written into the proforma invoice and the purchase order, with each release point tied to a defined event. The documents that support them include the specification the price was built on, the sample approval record, the inspection certificate and the shipping documents. Clear documentation removes the ambiguity that causes most payment disputes.
Does the deposit affect the production timeline?
Yes. Because the deposit funds material procurement, it also determines when the bulk window can start. A delay in paying the deposit pushes back the start of the 35 to 50 day production window by at least the same period, and longer if the material is not held in stock. The deposit is therefore a scheduling instrument as much as a financial one.
What protects a brand before it has paid the balance?
The specification tied to the purchase order, the approved sample held as the reference, and the pre-shipment inspection at AQL 2.5 under ISO 2859-1, single sampling, general level II. Together these confirm that the goods about to ship match the agreed build. Releasing the balance only after that confirmation is what keeps the brand's protection intact.
Is a deposit refundable if the order is cancelled?
That depends on the point at which the order is cancelled and what has already been bought. Once materials have been procured, the deposit has largely been spent on goods that may not be resalable, so refundability narrows as the order progresses. The cancellation terms should be agreed in writing before the deposit is paid, with the position stated for each stage.
How do payment terms differ for a small-batch pilot?
A pilot is usually smaller and faster, so a lighter structure is common, agreed for the format rather than applied as the standard bulk terms. The sums involved are modest relative to a full order, so speed and simplicity usually matter more than the cost of a documentary instrument. Terms for any subsequent full order are then set on the normal basis.
What is the cost of getting payment terms wrong?
The costs are quiet but real: working capital tied up in an oversized deposit, bank and administrative fees on an unnecessary credit, goods held at port when a payment is late, or paid-for stock that fails inspection because the balance moved before verification. Each is avoidable by matching the instrument to the order and tying every release point to a verifiable event.
Do payment terms change as a relationship develops?
They often become simpler as trust grows. A first order between new parties may use a deposit plus a letter of credit; a routine repeat order usually settles into the standard 30/70 T/T structure, which is cheaper and faster. Predictable payment on a repeat programme also supports a keener price, because the partner can plan its own cash more tightly.