Articles
Payment Terms and Risk When Buying Tea from China
Buyers spend a lot of energy negotiating the payment instrument and very little on the thing that actually determines whether they get what they paid for: who inspects the goods, and when.
Updated 2026-08-03 · 10 min read
Payment terms allocate risk between buyer and seller across the gap between paying and receiving. In the China tea trade three structures cover almost everything: telegraphic transfer with a deposit, a letter of credit, and open account for established relationships. Each protects against a different failure, and none of them protects against the most common one — goods that arrive on time, with correct documents, and are not what you expected.
The three structures
| T/T with deposit | Letter of credit | Open account | |
|---|---|---|---|
| Typical shape | 30% deposit, 70% against B/L copy | Irrevocable, at sight | Payment 30–90 days after shipment |
| Protects the buyer against | Total loss — you hold 70% | Documents not matching the contract | Nothing; you have already received the goods |
| Protects the seller against | Cancellation after production starts | Non-payment | Nothing |
| Bank cost | Low — wire fees | Meaningful; both sides pay | None |
| Practical friction | Low | High — discrepancies are common | None |
| Suits | Most orders | Large first orders, unfamiliar counterparty | Proven relationships |
T/T at 30/70 is the working standard, and for good reason: it splits exposure. The deposit covers the supplier's raw material commitment; the balance stays with you until the goods are on the water and you hold evidence of shipment.
What a letter of credit actually does
This is the most misunderstood instrument in the trade. A letter of credit is a bank's undertaking to pay against documents that comply with its terms. Banks deal in documents, not goods. If the paperwork complies, the bank pays — whether or not the tea in the container matches what you agreed.
An L/C is therefore protection against documentary failure and against a supplier disappearing with your money. It is not a quality guarantee. It also carries real friction: a large share of first presentations contain discrepancies, and each one costs a fee and a delay.
The controls that matter more than the instrument
In practice, disputes in tea are almost never about non-payment or non-shipment. They are about quality — a lot that is not the sample, moisture that drifted, a residue result that fails at the border. No payment structure addresses that. These do:
- Retained reference samples held by both parties, sealed and signed, before production.
- Pre-shipment inspection by a third party, against your written specification, with the report as a payment condition.
- Lot-level testing to the destination standard, with the report issued before the container sails rather than after.
- A written failure procedure agreed in advance: replacement, discount, return or destruction, and who pays freight in each case.
- Staged first orders — a smaller trial shipment before committing to a full container.
Point two is the highest-value line item in the whole arrangement and the one most often skipped to save a few hundred dollars. An inspection before the container sails costs a fraction of what it costs to discover the same problem at your own port, where you additionally own the freight, the duty and the disposal.
Currency and timing
Most Chinese tea exporters quote in US dollars. If your revenue is in another currency, a long production lead time is also an unhedged currency position — a 45-day lead plus 35 days of transit is nearly three months of exposure between agreeing a price and selling the product.
For small orders this is noise. Once orders reach a scale where a few percent matters to your margin, either hedge it or agree the price in your own currency and let the supplier carry it — expect the quote to rise, because they will price the risk in.
Who you are actually paying
One structural point specific to Chinese agricultural exports: the entity that grows and processes the tea often does not hold import-export rights, so invoices and shipping documents are issued by a trading company. Your payment goes to that trading company, and it is that name which appears in your customs and food-safety records.
This is normal. What is not acceptable is being told about it for the first time on the proforma invoice. Ask early who the exporter of record is, confirm the bank account is in that same legal name, and treat any request to pay a third party or a personal account as a reason to stop.