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?
- It varies by factory, order size and relationship history — new buyers typically pay a higher percentage upfront than established, repeat clients. Always confirm the exact split in writing before production starts.
- Is TT or LC safer for paying a garment factory?
- An LC provides more built-in protection because a bank verifies shipping documents before releasing payment, but it costs more and takes longer to set up. TT is faster and cheaper but relies entirely on the strength of your factory vetting, since the payment itself carries no built-in verification.
- What documents does a Letter of Credit require?
- Typically a commercial invoice, packing list, and bill of lading, though the exact list is specified within each individual LC and must be matched precisely for the bank to release payment.
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.
Free 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 sister company, Collective Studio, free to use.