Custom manufacturing creates a timing problem. The supplier spends money on materials and tooling before anything ships, while the buyer does not want to pay in full for goods it has not seen. Payment milestones split that risk. This guide explains the common options and how to write them into an RFQ and purchase order. It is general orientation, not legal or financial advice.
The common payment methods, from buyer risk to supplier risk
The U.S. International Trade Administration describes a spectrum of payment methods. Cash in advance is safest for the exporter and riskiest for the importer. Open account is the reverse. Letters of credit and documentary collections sit between them, using banks and shipping documents to balance the exposure.
- Cash in advance: the supplier is paid before production or shipment. It suits small orders or new relationships where the supplier carries tooling cost.
- Letter of credit (LC): the buyer's bank commits to pay when the supplier presents documents that strictly match the LC terms.
- Documentary collection: banks exchange shipping documents for payment or acceptance, but they do not guarantee payment.
- Open account: goods ship first and the buyer pays later, usually only after trust is established.
A typical milestone structure
Many custom orders use a deposit on order, an optional payment on approval of a pre-production sample, and a balance against shipping documents or after a passed inspection. The percentages are commercial choices, not fixed rules. Base them on how much the supplier spends before shipment and how easily the goods could be resold if the order is cancelled.
Tie each payment to an event both sides can verify: a signed PO, an approved sample, an inspection report or a bill of lading. Avoid vague triggers such as 'when production is nearly done'.
Letters of credit: why document discrepancies matter
Under a letter of credit, banks deal in documents, not goods. A spelling mismatch, a late shipment date or a missing certificate can mean the documents are refused and payment is delayed. Suppliers should review the draft LC before it is issued and reject terms they cannot meet, such as an unrealistic latest shipment date or a document they cannot obtain.
Putting payment terms into the RFQ
State your preferred payment terms in the request so suppliers price them in. A supplier asked to fund production for 90 days will usually quote a higher price than one paid a deposit. On Quotendra, payment terms belong in the request scope and in each quote, so the accepted quote and the purchase order carry the same terms. Quotendra does not hold or transfer trade payments; buyers and suppliers pay each other directly through their own banks.