Ask a new Chinese distributor to pay before shipment, or to open a confirmed letter of credit, on the first orders. Offer open terms only after it has paid on time, and insure the receivable when you do. Distributors in China are short of cash this year, so settle payment terms in the same meeting as the price.

Surveys, bank tariffs and regulations checked September 24, 2026.

In our experience, brands leave payment terms for the lawyers at the end. By then the distributor has priced its offer around the credit it expects, and every day of that credit is your money sitting in China.

This is general information, not legal or financial advice. Have your lawyer and your bank read the contract before you sign.

Why Chinese distributors are short of cash

Liquor is the best proxy, whatever you sell, because its trade association surveys the channel every year. The 2026 mid-year survey, run with KPMG China, went to 1,350 companies, 450 of them distributors, and drew 1,115 usable answers.

44.1% of liquor distributors and retailers said cash-flow pressure rose in the first half of 2026, and 51.2% said the money they paid back to producers fell. Source: China Alcoholic Drinks Association (中国酒业协会) and KPMG China, 2026 Baijiu Market Mid-Year Report, June 2026. https://assets.kpmg.com/content/dam/kpmgsites/cn/pdf/zh/2026/06/2026-chinese-baijiu-market-mid-term-research-report.pdf

The year before was already bad.

More than 40% of liquor distributors and retailers said they faced cash-flow pressure in the first half of 2025. Source: China Alcoholic Drinks Association (中国酒业协会) and KPMG China, 2025 Baijiu Market Mid-Year Report, June 2025. https://assets.kpmg.com/content/dam/kpmgsites/cn/pdf/zh/2025/06/mid-term-research-report-on-the-chinese-baijiu-market-2025.pdf

Other trades look much the same.

Companies in mainland China offer customers 81 days of credit on average. 86% suffered late payment in the past year, and late payments ran 73 days past due on average. Source: Coface (科法斯), APAC Payment Survey 2026, August 2026. https://www.prnasia.com/story/543914-1.shtml

Your distributor pays you, then waits for retailers and platforms to pay it, and somebody has to fund the gap in between. If you give it credit, you’re the one funding it.

Kweichow Moutai, the Guizhou baijiu maker, makes its distributors pay first. This year even Moutai changed its prepayment policy.

Moutai sells on advance receipts, so its credit risk is small. Its advance receipts fell 60.31%, to 3.18 billion RMB, in the first half of 2026 after it changed its sales model and adjusted its prepayment policy. Source: Kweichow Moutai (贵州茅台), 2026 interim report, August 2026. https://www.moutaichina.com/mtgf/articleFileDir/2026-08/17/277c9b776bff4ae89dde75e987437760.pdf

A new foreign brand has a fraction of that pull, so decide what credit costs you before the meeting.

Five payment terms for a Chinese distributor, side by side

Term	Risk to the brand	Cost	When it fits
Prepayment, 100% before shipment	Lowest. The distributor carries it	Wire fees. The distributor reports long prepayments to SAFE	First orders, and any distributor you met at a trade fair
Deposit plus balance, say 30% with the order and 70% before documents are released	Low, if you hold the original bill of lading, which releases the goods, until the balance lands	Wire fees	Made-to-order goods, or a first order with an established importer
Letter of credit, confirmed, at sight	Low if your documents match the credit exactly	Distributor: 1.5 per thousand to open (minimum 300 RMB) at Bank of Ningbo. You: a confirmation fee at home, US$60 per discrepancy	Large first orders from a distributor with a bank credit line
Open account with credit insurance	Medium. You keep at least 10% of any loss	A premium the insurer quotes per buyer (get it before you promise terms), plus a credit report from 1,200 RMB at Sinosure	After several orders paid on time
Consignment	Highest. You own the stock in China until it sells	The stock itself. A bonded warehouse behind a Tmall Global store ties up 400,000 RMB before the first order in our calculator	Rarely. A test launch you run yourself

How a letter of credit works, and where it fails

A letter of credit swaps the distributor’s promise for a bank’s. The distributor’s bank undertakes to pay you when you present the documents the credit lists, usually the invoice, packing list, bill of lading and certificate of origin. Chinese courts hold the bank to it.

Once the issuing bank has undertaken to pay, it must pay within the credit’s term as long as the documents match the credit and each other on their face. The buyer can’t block payment by disputing the sale contract, fraud aside. Source: Supreme People’s Court (最高人民法院), provisions on letter of credit disputes, Art. 5, as amended December 2020. http://gongbao.court.gov.cn/Details/1873edbb83fb8247ac0a04da813050.html

Everything rides on “match.” A misspelled port or a shipment one day late is a discrepancy. The bank can then refuse the documents, and the buyer gets a second shot at renegotiating. Banks charge for it too.

Bank of Ningbo charges 1.5 per thousand of the amount to open an import letter of credit of up to 90 days (minimum 300 RMB), 2 per thousand from 90 to 360 days (minimum 500 RMB), and US$60 to the seller for each set of documents with a discrepancy. Source: Bank of Ningbo (宁波银行), corporate fee schedule, May 2026. https://www.nbcb.com.cn/home_page/jrxx/fwsfcx/sctjj/gjyw/202605/P020260527722678775361.pdf

Ask for the credit at sight, payable on presentation. Have a bank in your own country confirm it, so a bank you deal with owes you the money.

And before the credit is issued, read the draft line by line with your freight forwarder, who produces half the paperwork (most discrepancies start there).

Expect resistance. An LC eats into the distributor’s credit line at its bank, and if it can’t get one opened for a first order, that tells you something.

Credit insurance: Sinosure and private insurers

Where the sale happens decides who can insure it. Sell from your own Chinese company and it’s domestic trade, which Sinosure, China’s state-owned credit insurer, covers.

Sinosure’s domestic trade credit insurance covers receivables lost to a buyer’s insolvency or default, on credit periods generally within one year. It pays up to 90% of the loss. The insured must be a company registered in China. Source: Sinosure (中国信保), domestic trade credit insurance, observed September 2026. https://www.sinosure.com.cn/ywjs/myxcp/gnmyxybx/gnmyxybxjj/index.shtml

If you ship from abroad, you’re the exporter, and the policy comes from your home export credit agency or a private insurer such as Coface or Atradius. Sinosure also covers Chinese banks and factors that buy receivables from importers, so ask your bank whether it works with one.

An insurer checks the distributor before it sets a limit, and you can buy the same report.

Sinosure lists a standard credit report on a Chinese company at 1,200 RMB, and a credit-limit report, which suggests how much trade credit to extend, at 1,440 RMB. Source: Sinosure (中国信保), credit information fee schedule, September 2026. https://www.sinosure.com.cn/khfw/sfbz/zgckxybxgs/2026/09/220663.shtml

When an insurer refuses a limit on your distributor, stay on prepayment or a letter of credit.

RMB or dollars: who carries the exchange-rate risk

When you invoice in your own currency or in dollars, the exchange risk stays with the distributor. That’s still how most of China’s goods trade settles.

RMB made up 28.1% of China’s cross-border settlement for trade in goods in January to June 2025, up from 27.2% in 2024. Source: People’s Bank of China (中国人民银行), RMB Internationalization Report 2025, October 2025. http://www.pbc.gov.cn/huobizhengceersi/214481/3871621/5885243/index.html

A distributor that insists on RMB wants you to carry that risk. Agree only with a buffer in the price or a forward contract at your bank.

SAFE, China’s foreign-exchange regulator, also limits what a distributor can offer.

A company must report to SAFE within 30 days any prepayment made more than 30 days ahead, and any deferred payment or deferred-payment letter of credit over 90 days. Companies rated class B or C may not in principle pay on deferred terms beyond 90 days. Source: State Administration of Foreign Exchange (国家外汇管理局), current-account FX guidelines (2020 edition), Art. 20, 34 and 35, August 2020. https://www.safe.gov.cn/safe/file/file/20200831/f0127756271c43ef9b3908d5d157bd91.pdf

So ask which SAFE class your distributor is in. A class B or C importer is under closer watch and generally can’t take long credit from you, even if it wants to.

When to move to open terms

The rule we use when we set up distributor deals: three orders paid on time and an insurer’s limit on the buyer. Read the credit report yourself as well. Then open at 30 days, and stretch to 60 only after a clean year. Write late-payment interest into the contract, with the right to stop shipping while an invoice is overdue.

The 81-day Coface average is what competition forces Chinese suppliers to give each other. You’d be lending across a border.

One clause needs striking every time: payment “within X days of receipt of payment from our customers.” Chinese courts now void it when a large buyer imposes it on a small Chinese supplier.

Where a large company makes payment to a small or medium supplier conditional on receiving payment from a third party, courts must hold the clause void. Source: Supreme People’s Court (最高人民法院), reply on back-to-back payment clauses (法释〔2024〕11号), August 2024. http://gongbao.court.gov.cn/Details/a56bf04193752b0ae2dd77152dbeb3.html

It was written for Chinese small businesses, so a foreign exporter shouldn’t count on it.

Consignment is the last case: your stock sits in China, unpaid for, until it sells. Without a Chinese entity, the nearest version is a bonded warehouse behind your own cross-border store, and our Tmall Global calculator shows what that costs before the first sale.

Bonded warehouse deposit of 100,000 RMB plus a bonded tax prepayment of 300,000 RMB: 400,000 RMB committed before the first order. Source: TheChinaPath calculator data, September 2026.

Our comparison of a distributor and your own store prices both roads.

Payment is one of seven terms to settle before the first container ships. The rest are in our guide to finding a distributor in China. Every distributor in Compass has been met in person, and distributor management covers the relationship after signature.

FAQ

What payment terms do Chinese distributors usually ask for?

Long credit. Companies in mainland China offer customers 81 days on average (Coface, 2026), and a distributor may open near that. Without a payment history between you, start with prepayment, a deposit plus balance or a confirmed letter of credit.

Is a letter of credit from a Chinese bank safe?

The bank is safe enough, since Chinese courts make it pay against documents that match. Your paperwork is the risk. Have a bank at home confirm the credit, and go through the document list with your forwarder before the distributor’s bank issues it.

Can Sinosure insure my sales to a Chinese distributor?

Only if you invoice from a company registered in China. A brand exporting from Europe or the US buys its policy at home, from an export credit agency or a private credit insurer, and that insurer decides how much credit the distributor gets.

Ask Compass for a shortlist of vetted distributors in your category