- \n
- Fabric and trims<\/li>\n
- Dyeing, washing, or printing<\/li>\n
- Labor and overhead<\/li>\n
- Logistics and export paperwork<\/li>\n<\/ul>\n
Most of these costs happen weeks before<\/strong> a brand ever sees finished goods. Payment terms decide who funds this gap. If terms are too loose, factories absorb dangerous risk. If terms are too strict, brands lose flexibility and leverage. Good terms don\u2019t favor one side. They share risk in time<\/strong>.<\/p>\n
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<\/p>\nStandard Payment Terms for Clothing Manufacturers<\/h2>\n
Standard payment terms exist for a reason, and it\u2019s not to make brands uncomfortable. Clothing manufacturers<\/a> must pay for fabric, trims, labor, and overhead long before a finished garment is shipped. That\u2019s why the industry has settled on milestone-based payments instead of pay-after-delivery promises. The most common structure is a deposit followed by a balance payment tied to shipment, not trust alone. If a brand expects<\/a> flexible terms on a first order, it\u2019s often ignoring how real production cash flow actually works.<\/p>\n
=> Related Article:\u00a0 <\/strong>What Is T\/T (Telegraphic Transfer)?<\/a><\/p>\n
![\"\"](\"http:\/\/mekonggarment.com\/wp-content\/uploads\/2025\/12\/understanding-t-t-telegraphic-transfer-payment-mekong-garment-czl.webp\")
<\/p>\nThe Industry Baseline: 30% Deposit, 70% Before Shipment (T\/T)<\/h3>\n
The most common payment model worldwide is the 30\/70 split, especially for first or mid-sized orders. Under this structure, brands pay a 30% deposit when the purchase order is confirmed, and the remaining 70% before goods leave the factory. This approach ensures factories can start production without carrying all the costs<\/a> themselves, while brands still hold leverage until products are ready. It\u2019s a practical compromise that reflects how cash moves through the apparel<\/a> supply chain. For many startups or brands with smaller orders, this becomes the default starting point.<\/p>\n
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<\/p>\nHow It Works<\/h4>\n
- \n
- 30% deposit<\/strong> is paid when the Purchase Order (PO) is confirmed.<\/li>\n
- The factory uses this money to buy fabric and trims.<\/li>\n
- 70% balance<\/strong> is paid after production is finished, before shipment.<\/li>\n<\/ul>\n
Why It Exists<\/h4>\n
- \n
- The deposit usually covers most raw material costs.<\/li>\n
- The factory does not fully finance the order<\/a>.<\/li>\n
- The brand keeps leverage until goods are ready.<\/li>\n<\/ul>\n
Risk Balance<\/h4>\n
- \n
- Factory risk: production execution<\/li>\n
- Brand risk: deposit prepayment<\/li>\n<\/ul>\n
This structure is standard for:<\/strong><\/h4>\n
- \n
- First orders<\/li>\n
- New relationships<\/li>\n
- Orders under roughly $50,000<\/li>\n
- Startups or smaller brands<\/li>\n<\/ul>\n
If a factory refuses 30\/70 for a first order, that is normal. If a brand refuses it, that is a warning sign.<\/p>\n
More Conservative Terms: 50% Deposit, 50% Before Shipment<\/h3>\n
Sometimes factories will ask for a 50\/50 split instead of the typical 30\/70. This happens when orders are small but setup costs are high, or when expensive fabrics make up a large portion of the overall cost<\/a>. From the factory\u2019s viewpoint, this term ensures they\u2019re not financing too much of the order on their own. For brands, it means giving more cash up front, but often it\u2019s the trade-off needed to secure production capacity. These \u201cconservative\u201d terms aren\u2019t about mistrust \u2014 they\u2019re about math and real financial exposure.<\/p>\n
![\"\"](\"http:\/\/mekonggarment.com\/wp-content\/uploads\/2025\/12\/reviewing-a-tech-pack-with-your-manufacturer-ecr.webp\")
<\/p>\nWhen Factories Ask for 50\/50<\/h4>\n
- \n
- Small orders<\/a> where setup costs are high<\/li>\n
- Orders with expensive or custom fabric<\/li>\n
- Styles where material cost exceeds 50% of FOB<\/a><\/li>\n
- High-risk buyers or new markets<\/li>\n<\/ul>\n
This is not greed. It is math. If fabric and trims already consume half the order value, a 30% deposit leaves the factory underfunded. In these cases, 50\/50 is a risk correction<\/strong>, not a power move.<\/p>\n
Preferential Terms: 30% Deposit, 70% Against Copy of Bill of Lading (BL)<\/h3>\n
An upgrade from the baseline occurs when the remaining balance is paid after the factory provides a Bill of Lading copy. In this setup, brands still pay a 30% deposit to begin production, but the final 70% comes only after proof that the goods have shipped. This term helps brands improve cash flow and gives them confidence that their order is on the move. Factories only offer it to buyers<\/a> with a strong payment history and clear communication. It\u2019s a sign of trust earned over repeated successful orders.<\/p>\n
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<\/p>\nHow It Works<\/h4>\n
- \n
- 30% deposit before production<\/li>\n
- Goods are shipped<\/li>\n
- Factory sends a copy of the Bill of Lading<\/li>\n
- Brand pays remaining 70% after shipment proof<\/li>\n<\/ul>\n
Why Brands Like It<\/h4>\n
- \n
- Improves cash flow<\/li>\n
- Payment happens later<\/li>\n
- Confirms goods actually shipped<\/li>\n<\/ul>\n
Why Factories Allow It (Sometimes)<\/h4>\n
- \n
- Buyer has a proven payment history<\/li>\n
- Multiple successful orders<\/li>\n
- Clear communication and reliability<\/li>\n<\/ul>\n
Factories still hold the original BL or shipping control, but make no mistake: this term increases factory risk. That is why it is earned<\/strong>, not negotiated upfront.<\/p>\n
Letter of Credit (L\/C)<\/h3>\n
A Letter of Credit<\/a> adds a layer of security by involving a bank to guarantee payment as long as specified documents are presented. For larger or riskier orders, L\/Cs can protect both buyers and manufacturers by reducing direct financial exposure. The bank essentially steps in as a trusted third party, which is especially useful when working across borders or with unfamiliar partners. While safer in principle, L\/Cs involve more paperwork and bank fees, so they\u2019re less common for small brands or orders. Still, for big value production, they\u2019re a powerful tool.<\/p>\n
=> Related Article: <\/strong>What Is a Letter of Credit (L\/C)?<\/a><\/p>\n
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<\/p>\nHow It Works<\/h4>\n
- \n
- Buyer\u2019s bank guarantees payment<\/li>\n
- Factory is paid when documents meet L\/C terms<\/li>\n
- Common documents include invoice, packing list, BL, inspection report<\/li>\n<\/ul>\n
Pros<\/h4>\n
- \n
- Reduces credit risk<\/a><\/li>\n
- Useful for very large orders<\/li>\n
- Common in certain countries and industries<\/a><\/li>\n<\/ul>\n
Cons<\/h4>\n
- \n
- High bank fees<\/li>\n
- Heavy paperwork<\/li>\n
- Risk of document discrepancies<\/li>\n
- Slower shipments<\/li>\n<\/ul>\n
Many small and mid-sized factories prefer T\/T over L\/C, even though L\/C looks \u201csafer\u201d on paper.<\/p>\n
How Payment Terms Match the Production Timeline<\/h2>\n
Apparel production is a step-by-step journey where cash has to align with milestones. Early on, fabrics and trims must be sourced<\/a>, which requires money right away. Later, the bulk of labor and overhead costs stack up before garments go into final inspection<\/a> and export. Good payment terms are designed around these needs so factories stay funded and brands keep leverage until the right moments. When payment schedules reflect real production timelines<\/a>, both sides can manage cash flow more predictably.<\/p>\n
=> Related Artilce:<\/strong> What Is the Difference Between T\/T and L\/C for Importers?<\/a><\/p>\n
![\"\"](\"http:\/\/mekonggarment.com\/wp-content\/uploads\/2025\/12\/vietnam-garment-trade-show-guide-afg.webp\")
<\/p>\nPayment milestones align with factory costs. Factory Cost Flow:<\/strong><\/p>\n
- \n
- Weeks 1\u20134:<\/strong> Fabric and trims purchased<\/li>\n
- Weeks 4\u20138:<\/strong> Labor and production overhead<\/li>\n
- Week 8\u20139:<\/strong> Export, trucking, port fees<\/li>\n<\/ol>\n
The deposit funds materials. The balance funds shipment and cash recovery. Without the deposit, production stalls. Without the balance, goods sit in the factory.<\/p>\n
How Brands Protect Themselves<\/h2>\n
- Weeks 4\u20138:<\/strong> Labor and production overhead<\/li>\n
- Weeks 1\u20134:<\/strong> Fabric and trims purchased<\/li>\n
- Reduces credit risk<\/a><\/li>\n
- Small orders<\/a> where setup costs are high<\/li>\n
- The brand keeps leverage until goods are ready.<\/li>\n<\/ul>\n
- 30% deposit<\/strong> is paid when the Purchase Order (PO) is confirmed.<\/li>\n
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