2026-10-19 Payment and documents Seller's notes

Why More Suppliers Want the Money Before They Ship

Peter Yang's own column. He sells chemicals from China, and he has sat on the buying side of the same trade - the judgement here came from buying, and gets used on the selling side. The view is his. SUNWARD INDUSTRY sets the commercial terms, and a price comes as a written quotation.

The normal arrangement in this trade is 30 per cent on order and the balance of 70 per cent against a copy of the bill of lading, and it rests on a site visit rather than on paper. Payment terms do not reduce risk. They decide who is holding it. A supplier asking for the money before loading is reporting on the year they have had, not on their character, and the request moves the risk onto you rather than removing it. The thing that is actually yours to decide is the size of the first transaction: if the money and the container are both exposed before anything moves, the first container has to be one whose loss would not stop you.

Payment terms do not reduce risk. They decide who is holding it. More and more suppliers now want all of the money before anything ships, and buyers tend to read that as a sign that the supplier is weak. I think it is much closer to the opposite — it is a sign of what has happened to the market this particular supplier is standing in.

Why do Chinese suppliers now ask for payment before shipping?

Because the market around them changed, not because the supplier in front of you has got weaker. A growing share of the people you would extend credit to are not going to ship anything, and the suppliers carrying that loss have all noticed it at the same time: everyone has been frightened by fraud. The request moves the risk onto you rather than removing it — if you are funding the whole exposure before a container has moved, then the goods, the freight, the documents and the arrival are all yours to carry, and a supplier who ships first is carrying exactly the same exposure in reverse, against a buyer who may not pay. What is yours to decide is the size of the first transaction, not the character of the supplier.

What the normal rule actually is

It is worth saying what the ordinary arrangement looks like, because the request gets read as an exception and it is not. The conventional terms in this trade are an advance payment of thirty per cent and the balance of seventy per cent against a copy of the bill of lading. That is the shape most transactions take, and it is worth being precise about what it rests on: it rests on a normal site visit. A buyer who has been to the plant, watched the production and met the people is buying from somebody they know, and an advance of thirty per cent is less a payment in advance than the first instalment on a transaction both sides have already looked at.

What has changed is the assumption underneath it. Problems kept arriving from both directions — a supplier who took the money and did not ship, a buyer who took the goods and did not pay — and each one made the old assumption less safe to rely on. So more instruments appeared. Every one of them is a way of moving part of the trust out of the relationship and into something that can be checked, and the less a relationship can be assumed, the more machinery a trade needs to run on.

Letters of credit are the old answer to exactly this question, and they are still among the safest of the instruments. They are also, in practice, a burden: the paperwork is heavy, the cost of arranging and handling them is high, and they take a long time for a smaller transaction to justify. As the other instruments got cheaper to use, letters of credit were used less and less. That is not a judgement about their safety. It is a judgement about their cost, and a request for the money before loading is largely the same judgement reached by a shorter route.

What the demand is a response to

The straightforward explanation for the shift is not about individual balance sheets. It is about the market they are all standing in, and it is market-wide rather than company-wide.

Credit is an invitation. In a market where a fraction of the people you invite are going to take the goods-money and disappear, the party who extended the credit is the party carrying the loss — and the effect lands hardest on exactly the suppliers who had been living on the assumption that the buyers in front of them were real companies. Nobody decided to become cautious. The environment changed and the caution followed.

Which is why reading the request as a fact about the supplier in front of you gets the direction of causation backwards. A supplier asking for the money before loading is telling you something about the year they have had. They are not necessarily weaker than the supplier quietly offering credit — and in a market where a share of buyers are not who they appear to be, offering credit may be the more expensive position rather than the stronger one.

So the supplier making the request in front of you is doing something ordinary. They have watched the market tighten and adjusted, and the adjustment lands on you because you happen to be the next buyer. It is a statement about the weather everyone is trading in, and the mistake is to receive a weather report as a personal judgement.

What the demand still does to the risk

I am not going to pretend the request is costless to you, because it is not, and this is where most of the conversation gets skipped.

If you are funding the whole exposure before a container has moved, then the goods, the freight, the documents and the arrival are all yours to carry. Payment terms do not reduce risk. They decide who is holding it. That is the honest version of this, and once you see it, the argument stops being about which side is being difficult and starts being about who is currently able to absorb a loss.

The cost that is real is commercial rather than financial: the buyers who cannot pay in advance simply go elsewhere, and a market that has moved entirely to prepayment has priced out a part of itself. That is worth being aware of, and it is not fraud.

Why payment terms are where the probing shows

Strip out the posturing and a negotiation is two people trying to find out whether the other one is real. Almost all of it — the price, the packaging, the documentation, the tone — is the visible part. Payment terms are the part underneath it, because they are the one thing where both sides have to state a real position about whether they will be trusted with the other's money.

From the buyer's chair the question is: will you pay for goods you have not seen? From the supplier's chair it is: will you ship goods you have not been paid for? Those are not two different demands. They are the same sentence said by two people who each expect the other to think it unreasonable. I have been on the selling side of that conversation and I did not feel more reassured by the buyer who waved the payment terms through than by the one who negotiated them. I would have trusted the negotiation more.

And this is where it meets the bank account. The cases where a supplier has been fraudulent are not cases where somebody was charming in a video call. They are cases where the structure did not hold — a company somewhere, an account somewhere else, a name that did not quite match. A seller who has been burned learns to look at the account. A buyer who has been burned learns to insist on the money first. Both of them are reacting to the same market, and neither of them is telling you much about the person you are actually talking to.

Which is also why I have stopped treating a request for the money up front as something to be tested. There is no reading of it that distinguishes the supplier who wants it because the last three customers did not pay from the one who wants it because they have never been able to afford not to. Both of those are the same sentence, and the difference between them is in a part of their business I cannot see from the outside. The only thing I can see is what it costs me, and that is a real thing to see.

Why a fair arrangement has to run both ways

There is a version of this that only runs one way, and it is the version I see most often. The supplier protects itself, the buyer protects himself, and neither has to give anything up for the other. It is a legitimate way to operate. It is also the reason a trading company would have no reason to exist at all: if the only thing in the middle is risk reduction, a direct purchase from the factory is better for the buyer and better for the factory, and the company in between adds nothing but a fee.

So take a trading company as a category and it has two obligations, and only one of them gets talked about. The first is its own survival. It has to protect its margin so that it is still trading in ten years, and it has to protect its own cash so that a broken funding chain does not become the buyer's problem - because the buyer's money is inside that company whether the buyer likes it or not. That much is agreed, and it is not the interesting half.

The other half is this. A supplier and a buyer are two strangers who have been talking to each other for a very short time, and it is not a responsible thing for either of them to want the other to hand over money on nothing. A buyer who wires a full payment to a supplier they have never met, on the strength of a document and a phone call, is being asked to trust somebody they cannot reach. A supplier who ships against no money, on the strength of a company name and a scanned document, is being asked to trust a company they have never seen. Each of those is somebody else's risk handed over because it is convenient, and neither of them is what a fair arrangement looks like.

Fairness here runs both ways, and I do not think there is a version of this trade that works without it. The company protects itself - its margin, its cash, its ability to keep trading - because that is what keeps it standing behind the order. And the arrangement has to let the buyer be safe as well, because a buyer who is not safe comes back once and then stops coming back. Making the customer able to trust the arrangement is not a concession. It is the part of the job that decides whether there is a second order.

Which is the answer I would give to a supplier asking for the money before loading, and it is not a yes. It is that the request is fair, and that the answer to a fair request is a structure where the buyer is not carrying everything on their own either. A request for payment up front that comes with nothing on the other side of it is the one-sided version, and it is the version that ends the relationship rather than securing it.

What I can tell you is the principle, and I am not going to dress it up as more than that. There is more than one way to structure a trade so that both sides carry a fair share of the risk, and which of them a company can actually offer depends on its own situation and on what it has been authorised to offer. I am not in a position to commit to a particular structure on the company's behalf, and a page like this would be a poor place to pretend otherwise. If the company I work for were mine, I could tell you exactly what I would put in place. It is not mine, and the terms that come with an order are set by the company and written into a quotation.

What I actually take from it

Not a verdict on the supplier. A number on the first transaction. If the entire exposure sits with me before a container has moved, then the first container has to be one whose loss would not stop me — because the first transaction is often the only real information either of us ever gets, and after it both sides are dealing in assumptions instead.

That is the same conclusion I reached about the account, from the other direction. Payment terms are not a character test. They are a statement about who is carrying the risk, and the only useful thing to do with a statement like that is to decide honestly whether you are in a position to carry it.

Questions this note answers

Why do Chinese suppliers now ask for payment before shipping?

Because the market around them has changed, not because the supplier in front of you has got weaker. A growing share of the people you would extend credit to are not going to ship anything, and the suppliers carrying that loss have all noticed it at the same time: everyone has been frightened by fraud. A supplier asking for the money before loading is telling you something about the year they have had, and reading that as a verdict on their character is receiving a weather report as a personal judgement. What the request really does is decide who is holding the risk, and that is the part worth sizing for.

Is asking for the money before shipping a warning sign about that supplier?

It is a sign that the supplier has been affected by something, which is not the same thing as a sign about that supplier. A supplier with a strong balance sheet and a customer base that pays has less reason to demand it than one that has been burned, and in a market where a share of buyers are not who they appear to be, offering credit may be the more expensive position rather than the stronger one. The question worth asking is not why they want the money first, but what the payment structure would look like if you were buying from someone with a worse balance sheet than them.

If I have to pay before shipping and cannot get credit, should I walk away?

No, but it means you are carrying the whole risk yourself, and you should size the first order accordingly rather than treating it as a formality. If the entire exposure sits with you before a container has moved, then the first container has to be one whose loss would not stop you. Payment terms do not reduce risk — they decide who is holding it, and the only useful thing to do with a statement like that is to decide honestly whether you are in a position to carry it.

Is it fair for a supplier to ask for full payment before shipping?

The request is fair, and the answer to a fair request is a structure where the buyer is not carrying everything alone either. A supplier and a buyer are two strangers who have been talking for a very short time, and it is not responsible for either of them to want the other to hand over money on nothing: a buyer wiring a full payment to a supplier they have never met is trusting somebody they cannot reach, and a supplier shipping against no money is trusting a company they have never seen. Fairness here runs both ways. The company protects its own margin and its own cash, because that is what keeps it standing behind the order, and the arrangement has to let the buyer be safe as well, because a buyer who is not safe comes back once and then stops coming back. Which structure actually does that is a commercial term of the order rather than a general promise, and it needs the company to agree it. The principle is the part I am certain about; the shape belongs in a written quotation.

What are the normal payment terms when buying from a supplier in China?

The conventional terms are 30% on order and the remaining 70% against a copy of the bill of lading, and they rest on a normal site visit rather than on paper alone. A buyer who has been to the plant, watched the production and met the people is buying from somebody they know, so the first 30% is an instalment on a transaction both sides have already looked at. What has changed is the assumption underneath it: problems kept arriving from both directions, and as the old assumption became less safe to rely on, more instruments appeared to move the trust out of the relationship and into something that can be checked. Letters of credit are still among the safest of those instruments, and they are also the most cumbersome and the most expensive to arrange, so they are used less and less. A request for the money before loading is largely the same judgement reached by a shorter route.