In short
Most overseas garment orders are paid by bank transfer (TT) in two parts: a deposit that confirms the order and funds the fabric, then the balance before shipment or against shipping documents. Larger orders and new relationships often use a letter of credit, where the buyer's bank pays only once the factory presents shipping documents that match its terms.
Every new buyer asks the same question eventually: how much do I pay, and when, before I've ever seen the goods? The honest answer is that payment structure is where risk gets split between buyer and factory — and understanding the three common structures tells you exactly how much of that risk you're carrying at each stage.
Deposit and balance — the standard structure for most orders
The most common arrangement for small-to-mid volume private-label orders is a split payment: a deposit paid to confirm the order and begin production, with the balance due at a later milestone — commonly before shipment, against shipping documents, or on a short credit term after delivery for an established relationship. The exact split varies by factory, order size and how established the relationship is; a first order with a new factory typically carries a higher deposit than a repeat order with a proven track record.
| Stage | What it's covering | Buyer's leverage |
|---|---|---|
| Deposit (on order confirmation) | Raw material purchase, production slot booking | Low — this is the factory's assurance you won't walk away after they've bought fabric |
| Balance (before shipment) | Finishing, packing and the shipment itself | Moderate — factory wants payment before releasing goods; buyer wants to see goods before final payment |
| Balance (against documents / short credit) | Reserved for proven, repeat relationships | Higher — reflects trust built over multiple completed orders |
Telegraphic Transfer (TT) — the common method for most private-label orders
A TT is simply an international wire transfer — fast, low-cost relative to a Letter of Credit, and the standard method for most small-to-mid volume orders precisely because of that lower cost and simplicity. Its downside is that it carries the least built-in protection: once a deposit is wired, recovering it if a factory fails to deliver requires the same commercial-dispute process as any other unsecured payment. This is why factory vetting (see our guide to questions to ask before you sign) matters more when paying by TT than by any other method — the payment mechanism itself does not protect you.
Letter of Credit (LC) — for larger orders and new relationships at scale
A Letter of Credit is a bank-issued guarantee: your bank commits to pay the factory once the factory proves — via specified shipping documents — that goods have actually shipped as agreed. This shifts real risk from a promise between two companies to an obligation between two banks, which is precisely why LCs are common for larger orders or new relationships where neither side has yet built trust.
- The buyer applies for the LC at their own bank, which may require a cash deposit or other collateral before issuing it.
- The LC specifies exact terms: price, shipping documents required, deadlines, and how discrepancies are handled.
- The factory manufactures and ships, confident payment is secured once shipping documents are correctly presented.
- The bank releases payment only once it has verified the required documents — commercial invoice, packing list, bill of lading — match the LC's terms exactly.
“An LC doesn't remove risk from the relationship — it moves the point of verification from "trust the other company" to "trust the documents," which is a meaningfully different and more defensible position for a first-time buyer at real volume.”
The tradeoff is cost and complexity: bank fees, a collateral requirement, and slower setup than a TT — reasonable for a large order, unnecessary overhead for a small first sample run.
Red flags in payment terms
- 100% payment upfront, with no milestone structure at all — removes any leverage if production runs into a problem.
- A deposit percentage that increases sharply with no clear justification between quotes.
- Reluctance to put payment terms in writing as part of the order confirmation, rather than only discussed verbally.
Frequently asked questions
What is a normal deposit for a clothing manufacturer?
There isn't one fixed number — it moves with the factory, the order size, and how much history you have together. A first order with a new factory almost always carries a higher deposit than a repeat order with a track record, because that deposit is what lets the factory commit to buying raw material and booking your production slot without worrying you'll disappear. As a relationship proves itself across completed orders, the split tends to shift in the buyer's favour — sometimes toward balance due against shipping documents, or even short credit terms. Because it's negotiated rather than standardised, get the exact percentage written into the order confirmation before production starts. A verbal understanding from the sales call is not something you want to be relitigating once fabric's already been cut.
Is TT or LC safer for paying a garment factory?
A Letter of Credit gives you more built-in protection, full stop — payment only releases once a bank has checked the factory's shipping documents against the LC's exact terms, so you're trusting a document trail instead of a relationship. That protection isn't free: bank fees, a collateral requirement, and a slower setup than a wire transfer, which makes sense for a large order but is overkill for a small first sample run. A TT is quicker and cheaper precisely because it skips all that verification — once the deposit's wired, getting it back from a factory that doesn't deliver means the same commercial-dispute grind as any other unsecured payment. That's the real tradeoff: pay by TT and your factory vetting has to do the protective work the LC would otherwise do for you.
What documents does a Letter of Credit require?
Typically a commercial invoice, packing list, and bill of lading — the standard trio a bank checks to confirm goods actually shipped as agreed. But the exact list isn't fixed across every transaction; it's spelled out inside each individual LC, so confirm precisely what yours requires before your factory ships anything. That precision isn't a formality — the bank releases payment only once the presented documents match the LC's stated terms exactly, and even a small mismatch can hold up payment while it gets sorted out. It's also why the LC has to specify price, required documents, deadlines and how discrepancies get handled right from the start. The bank isn't trusting the factory or trusting you — it's trusting the paperwork, which is the whole point of using one.
Sources
Ask us directly what payment structure applies to your specific order size and product — we'll set out the terms clearly before you commit to anything.
Where to next
- Choosing a clothing manufacturer in Bangladesh — the full guide
- Five ways to manufacture with us — FOB, CMT, private label, OEM, low-MOQ
- What we manufacture — knit, woven, sweater and leather
- Sourcing by destination market — duty, labelling and lead times
- Get costing, MOQ and a lead-time — usually the same business day
Homaira Jashim
Director, Belle Vouz Ltd
Homaira Jashim is a director of Belle Vouz Ltd and a co-founder of Collective Studio Ltd, its group company in Narayanganj. She works with brands from first enquiry to repeat orders.
More about the teamFree tools for clothing brands
MOQ, pricing and AQL calculators, a GSM ⇄ oz converter, a fillable tech pack template and a manufacturing glossary — built by our group company, Collective Studio, free to use.