Last updated: 26 September 2026.
Quick answer. International trade has five primary methods of payment: cash in advance, letters of credit, documentary collections, open account and consignment. The ICC's Incoterms 2020 rules are eleven three-letter trade terms allocating cost, risk and tasks between buyer and seller, but they do not decide who owes customs duty.
How to pay a Chinese supplier: the five primary methods of payment, what the Incoterms 2020 rules decide, and the payment milestones to write into a purchase order.
The payment-method descriptions on this page are the International Trade Administration's own published descriptions, and the trade-term statements are the International Chamber of Commerce's own. Both were retrieved on 26 September 2026 and are listed at the end.
Paying a supplier abroad is two separate decisions that buyers often merge into one: which payment method to use, and which trade term to write next to it in the contract. This page covers both, using the two bodies that publish the reference material — the International Trade Administration (ITA), part of the United States Department of Commerce, for payment methods, and the International Chamber of Commerce (ICC) for the trade terms.
It does not cover the duty and landed-cost arithmetic of a shipment, which belongs on our tariffs and landed cost page, nor the commercial steps of finding and vetting a factory, which are covered by how to find a manufacturer in China and factory audits in China.
One framing point from the ITA is worth carrying through everything below. The ITA describes the negotiation as a spectrum of risk: for the exporter, "any sale is a gift until payment is received", and for the importer, "any payment is a donation until the goods are received". The importer wants to pay as late as possible; the supplier wants to be paid as early as possible. Every method below is a different point on that line.
The ITA states that there are five primary methods of payment for international transactions, and that the choice should be made during or before contract negotiations. Its descriptions, condensed:
| Method | What it is, in the ITA's description | Whose risk it reduces |
|---|---|---|
| Cash in advance | Payment is received before ownership of the goods is transferred. For international sales the ITA names wire transfers and credit cards as the most commonly used forms, and notes that escrow services are becoming another option for small export transactions. | Removes credit risk for the seller; the ITA calls it the least attractive option for the buyer because it creates unfavourable cash flow |
| Letters of credit | A commitment by a bank on behalf of the buyer that payment will be made to the seller, provided the terms and conditions stated in the letter of credit have been met, as verified through the presentation of all required documents. The buyer establishes credit and pays its bank for the service. | The ITA calls letters of credit one of the most secure instruments available. They suit cases where reliable credit information about the buyer is hard to obtain; they also protect the buyer, because no payment obligation arises until the goods have been shipped as promised |
| Documentary collections | The seller entrusts collection of the payment to its bank (the remitting bank), which sends the documents the buyer needs to the importer's bank (the collecting bank), with instructions to release the documents against payment. A draft requires the importer to pay the face amount either at sight (documents against payment) or on a specified date (documents against acceptance). | Cheaper than a letter of credit, but the ITA states that documentary collections offer no verification process and limited recourse in the event of non-payment |
| Open account | Goods are shipped and delivered before payment is due — typically in 30, 60 or 90 days in international sales. | The ITA calls this one of the most advantageous options for the importer and consequently one of the highest-risk options for the seller, who can seek extra protection through export credit insurance |
| Consignment | A variation of open account in which payment reaches the seller only after the goods have been sold by the foreign distributor to the end customer. The distributor receives, manages and sells the goods while the seller retains title until they are sold. | The ITA describes consignment as very risky for the seller, since no payment is guaranteed while the goods sit in another country, and stresses partnering with a reputable distributor and insuring the goods |
Read as a ladder, cash in advance sits at one end and consignment at the other, with letters of credit, documentary collections and open account in between — roughly in that order of security for the seller.
The trade term in a contract is a separate instrument from the payment method. The ICC publishes it, and the ICC's own pages give the following baselines:
| Point | The ICC's own statement |
|---|---|
| What the rules are | "Incoterms rules are a set of eleven three-letter trade terms, reflecting business-to-business practice in contracts for the sale and purchase of goods" |
| How old the system is | First published by the ICC in 1936 |
| Which edition is current | Incoterms 2020, described as the most recent version, entered into force on 1 January 2020, and available in over 30 languages |
| Where the costs sit | All costs associated with a given rule now appear at article A9/B9 of that rule, so the full list of expected costs can be read at a glance; the costs also remain in the individual articles |
| What changed for FCA | Free Carrier was revised to handle sales for carriage by sea where the buyer, the seller or either party's bank requests a bill of lading with an on-board notation. FCA article A6/B6 now provides for the parties to agree that the buyer instructs the carrier to issue an on-board bill of lading to the seller once the goods are loaded, and for the seller then to tender that document to the buyer, often through the banks |
| Insurance: CIF versus CIP | CIF, reserved for maritime trade and often used in commodity trading, keeps the Institute Cargo Clauses (C) as the default level of cover, with the option to agree a higher level. CIP now requires a higher level of cover, compliant with the Institute Cargo Clauses (A) or similar clauses |
| Why DPU replaced DAT | The former Delivered at Terminal was renamed Delivered at Place Unloaded to make clear that the destination can be any place, not only a terminal. The sole difference from DAP is unloading: under DAP the seller does not unload the goods, under DPU the seller does. Because delivery under DAP happens before unloading, the 2020 rules place DPU after DAP |
What the rules do not do is decide who owes customs duty. A trade term allocates tasks, costs and risk between the two contracting parties; liability to a customs authority is a matter of customs law, not of the contract between buyer and seller. That distinction is the subject of its own section on our tariffs and landed cost page, and it is the single most common confusion between the two instruments.
Neither the ICC nor the ITA publishes a suggested deposit percentage, and this page does not state one either. What the two sources support is a structure: choose the method by reference to the risk each side is carrying, then use the trade term to fix the point at which cost and risk pass, then write the trigger for the money.
| Stage of the order | Decision to record in writing | Which source frames it |
|---|---|---|
| Enquiry and quotation | The trade term, with the named place, and the payment method, both stated in the quotation rather than agreed later | ICC (trade term), ITA (method) |
| Sample or tooling stage | Whether the tooling and sample costs are paid on the same terms as production, or separately | ITA (cash-in-advance options, escrow for small transactions) |
| Before production starts | What the supplier must show before the first payment is released, and what happens if the order is cancelled at that point | ITA (cash in advance removes the seller's credit risk) |
| Production and pre-shipment | Whether an inspection or document set is a condition of payment, and who pays for it | Our quality control and inspection guide sets out the inspection side |
| Shipping and documents | Which documents are required, and whether they are released against payment or against acceptance | ITA (letters of credit and documentary collections both work by presentation of documents) |
| After arrival | Whether retention, warranty or spare-parts supply is tied to the final payment | ITA (open account and its risk position) |
Three practical consequences of the sources above are worth stating plainly, because they are where orders go wrong:
If a payment dispute does arise, the ITA publishes a separate set of guidance on preventing and addressing payment issues; the payment-methods page used for this guide links to it, and it is the right starting point rather than renegotiating on the phone.
| Your situation | The method the ITA's descriptions point to | What to pair it with |
|---|---|---|
| First order from a supplier you have not verified | Letters of credit | An audit or at least a documented factory verification — see factory audits in China |
| Small sample or tooling payment | Cash in advance, possibly through an escrow service | A written record of what the sample payment buys |
| Repeat order, established relationship, documents matter | Documentary collection | A document list agreed in advance |
| Repeat order, strong relationship, competitive market | Open account, with export credit insurance on the supplier's side | Clear retention terms if the goods are custom |
| Goods that must be sold before they are paid for | Consignment | A distribution agreement and insurance cover on the goods |
| You want the customs position to be unambiguous | Any of the above, with the Incoterms rule named and the place named | Our tariffs and landed cost page |
For the rest of the buying sequence, start from how to import from China, and use the quote form when you want a specification priced against these terms.
The International Trade Administration names five primary methods: cash in advance, letters of credit, documentary collections, open account and consignment. They sit at different points on a risk spectrum, from payment before the goods move to payment only after the goods have been resold.
A letter of credit is a bank commitment to pay the seller once the terms and conditions have been met, verified through the presentation of all required documents. A documentary collection routes the documents through the two banks with instructions to release them against payment or against acceptance, but the ITA states that collections offer no verification process and limited recourse if the buyer does not pay. Collections are generally less expensive than letters of credit.
No. The Incoterms rules allocate tasks, costs and risk between the buyer and the seller in the sale contract. Liability to pay duty is determined by customs law. The two are separate, and treating a trade term as a duty rule is a common and expensive mistake.
The current edition is Incoterms 2020, which the ICC describes as eleven three-letter trade terms and states entered into force on 1 January 2020. The system was first published by the ICC in 1936 and has been revised since. If a quotation uses a term that is not part of the current set, ask the seller which current rule is intended and where the named place is.
Open account shifts risk towards the seller, not the buyer, which is why the ITA describes it as one of the highest-risk options for the exporter. The buyer's exposure under open account is different: it is commercial rather than financial, because the goods are shipped and paid for later, so the relationship and the specification carry more weight than the payment mechanics.
All sources retrieved 26 September 2026. This page is an independent reading of the sources listed; the official pages themselves are the specification.
| Fact used on this page | Source |
|---|---|
| S1 — The five primary methods of payment and the ITA's description of each: cash in advance (including wire transfers, credit cards and escrow for small transactions, and the buyer-side cash-flow objection), letters of credit (bank commitment, presentation of documents, protection for both sides), documentary collections (remitting and collecting bank, documents against payment or acceptance, no verification and limited recourse, lower cost), open account (typical 30, 60 or 90 days, exporter risk, export credit insurance), and consignment (payment only after resale, retention of title, risk position); the risk-spectrum framing that a sale is a gift until payment is received and a payment is a donation until the goods are received; the link to the ITA's payment-issues guidance | International Trade Administration, U.S. Department of Commerce, Methods of Payment, retrieved 26 September 2026 https://www.trade.gov/methods-payment |
| S2 — Incoterms 2020 as the current edition, its entry into force on 1 January 2020, the eleven three-letter trade terms, the FCA revision and article A6/B6 on-board bill of lading provision, the aggregation of costs at article A9/B9, the CIF and CIP insurance levels, and the renaming of DAT to DPU with its placement after DAP | International Chamber of Commerce, Incoterms 2020, retrieved 26 September 2026 https://iccwbo.org/business-solutions/incoterms-rules/incoterms-2020/ |
| S3 — First publication of the Incoterms rules by the ICC in 1936, and their description as a set of eleven three-letter trade terms reflecting business-to-business practice in contracts for the sale and purchase of goods | International Chamber of Commerce, Incoterms rules hub, retrieved 26 September 2026 https://iccwbo.org/business-solutions/incoterms-rules/ |