Sending money to a Chinese CNC shop: what can go wrong
I have seen payment problems ranging from the annoying (supplier demands full payment before shipping despite 30/70 terms) to the catastrophic (buyer wires a 50 percent deposit and the supplier disappears). Payment risk is real in international CNC sourcing, but it is manageable if you understand standard terms, recognize red flags, and structure payments to maintain leverage.
Standard payment terms in international CNC machining
These payment terms are the most common:
- 30 percent deposit, 70 percent before shipment: the most common arrangement for production orders. Deposit covers material and tooling; balance is paid after inspection reports are provided but before goods leave the factory.
- 30 percent deposit, 70 percent against copy of bill of lading: slightly more buyer-friendly because goods are shipped before final payment, giving you leverage if something is wrong.
- 100 percent upfront: high risk. Standard only for very small prototype orders where the total amount is small.
- Letter of credit (L/C): payment is released by a bank against specified documents (bill of lading, inspection certificate, packing list). Most secure for the buyer but involves bank fees and paperwork, practical only for larger orders (typically above 50,000 USD).
- Net 30 after delivery: rare with new Chinese suppliers; established after a track record of successful orders.
Red flags in payment requests
These red flags warrant caution:
- Verify the company registration in the Chinese public enterprise registry
- Cross-check company name, address, and legal representative against the business license
- Request a live video call or factory tour to confirm the facility exists
- Search the company name on supplier review platforms for negative reports
- Ask for trade references from other Western customers and follow up
Structuring payments to protect yourself
The principle is simple: never pay more than you can afford to lose, and always keep enough leverage that the supplier has incentive to complete the order properly:
- For prototype orders under 5,000 USD, full prepayment is standard with vetted suppliers
- For production orders, negotiate 30 percent deposit, balance against inspection report or B/L copy
- Never pay 100 percent upfront for production orders except via letter of credit
- Pay to the corporate bank account on the stamped proforma invoice, verified against registration
- Start with a small pilot order with new suppliers before committing larger sums
Third-party escrow and trade assurance options
Several mechanisms reduce payment risk when working with a new supplier:
- Alibaba Trade Assurance: offers dispute resolution and refund options for orders placed through the platform, but has limitations on coverage amounts and requires adherence to the platform process.
- Letter of credit: bank-to-bank payment mechanism that releases funds only when specified documents are presented (bill of lading, inspection certificate, etc.). Strong protection but adds cost and complexity.
- Third-party inspection before final payment: even if not using escrow, make final payment conditional on a passing inspection report from an independent inspection company.
- Split shipments: for large orders, arrange to ship and pay in batches rather than paying for a full production run up front.
Due diligence before sending any money
Before any deposit, complete basic due diligence:
- Verify the company registration in the Chinese public enterprise registry
- Cross-check company name, address, and legal representative against the business license
- Request a live video call or factory tour to confirm the facility exists
- Search the company name on supplier review platforms for negative reports
- Ask for trade references from other Western customers and follow up
For the first order, prefer methods that give you some recourse: a letter of credit works for larger amounts, while escrow-style platforms protect smaller transactions. T/T with 30% deposit is common in this industry and acceptable once the supplier is proven, but wire the deposit to the company account named in the contract, never to a personal account. If the supplier pushes you toward an unusual payment route, that alone is a reason to slow down.
- L/C or escrow for the first order
- Company account matching the contract
- No personal accounts, no last-minute payment route changes
Frequently Asked Questions
What deposit percentage is normal for CNC machining from China?
Thirty percent is the industry standard for most production orders. Higher deposits (50 percent) may be requested for orders requiring expensive custom tooling or specialized material purchases, but anything above 50 percent for a standard order is a red flag.
Is it safe to pay by bank wire transfer?
Bank wire to a verified corporate bank account is the standard payment method and is traceable. The risk is not the transfer method itself; it is whether the company receiving the funds is legitimate and will deliver as agreed. Wires to personal accounts or via non-traceable methods are the concern.
Can I get money back if a supplier takes the deposit and disappears?
Recovery is difficult and expensive. Cross-border legal action is rarely cost-effective for amounts under 100,000 USD. Prevention through due diligence and appropriate payment structure is far more practical than trying to recover funds after fraud.
How long should I expect to be ordering from a supplier before they offer net terms?
Net terms (Net 30) are rare with Chinese suppliers for export orders. Some extend them after a year or more of consistent, on-time-payment history, but many never do. Do not expect open account terms early in the relationship.
What about using PayPal for CNC orders?
PayPal offers buyer protection for a limited window and limited amount, but it is not commonly accepted for larger production orders due to high fees and chargeback risk for suppliers. It can be an option for small prototype payments.