Should you pay the factory before or after the goods are made?

Deposits

Some factories will ask for a deposit (down payment) after a contract is signed as collateral to make sure that the customer is serious and to help finance the purchase of raw materials.

Photo by Adam Kring on Unsplash
Photo by amin khorsand on Unsplash

The rest of the money

You should determine with the factory the schedule for the final payment before signing the contract.

Photo by rupixen.com on Unsplash

Short-term credit

Some factories provide short term credit to their customers when they write “net-30” on the contracts, which means the payment is due 30 days after the invoice was issued.

Incoterms

When a factory quotes you the cost to manufacture goods, they usually give the quote together with an “incoterm”.

  • EXW (Ex Works): The cost of the goods don’t include shipping.You are expected to pick up the goods yourself and need to pay when you pick up your goods at the factory.
  • FCA (Free Carrier): The cost of the goods include trucking to the freight forwarder and covering export paperwork for the goods to leave the origin country. You pay when the goods arrive at the forwarder or are loaded on the boat.
  • CIF (Cost, Insurance & Freight): The cost of the goods include shipping the goods to your destination country up to the arrival at the designated port in your country. It does not cover the import paperwork. You pay when goods arrive in your country.
  • DDP (Delivered & Duty Paid): The cost of the goods includes shipping and delivering right to your door, but not the unloading cost at your door. It includes the import costs to your country. You pay when goods arrive at your door.

DDP vs. FOB

Sometimes your factory will ask you whether you want to use DDP or FOB, both being the 2 most common options.

Photo by Vidar Nordli-Mathisen on Unsplash

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Uncle Ming

Uncle Ming

A first generation immigrant with a background in manufacturing in Asia for big and small companies. Always on the go, but currently living in Saigon, Vietnam.