Quick answer: Payment terms are priced into the unit rate, so a 58,000 CNY order on 90-day terms carries about 1,144 CNY of funding cost, or 1.97% of the unit price.
Table of contents
- Turning Payment Terms into Money Before Days
- The Three Tiers Differ by Days of Capital Tied Up
- Where Each Payment Instrument Puts the Risk
- Four Hooks That Make Payment Terms Enforceable
- FAQ
1. Turning Payment Terms into Money Before Days
Take 1,000 cases at 58 CNY. That is a 58,000 CNY order. At an 8% funding cost, 90 days costs 1,144 CNY, or 1.14 CNY a case and 1.97% of unit price. Sixty days costs 762 CNY at 1.31%. Thirty days costs 381 CNY at 0.66%. That gap is the price of time.
Funding costs run 6% to 10%, so 90-day payment terms land at 1.5% to 2.5% of unit price. A supplier asking two points on credit is handing back that figure.
Cash discounts sit in the same range. Spending 2 million CNY a year at 60 days holds 330,000 CNY, worth 26,000 CNY, so a 1.3% discount splits it evenly.
Two costs never reach a quote: collections at 72 person-days cost about 14,000 CNY, and a 1% bad-debt provision adds 10,000 CNY.
The 30% deposit is not goodwill: it covers the tool and the first resin lot, money the plant has spent before a single shell exists.
2. The Three Tiers Differ by Days of Capital Tied Up
A clause reading 90 days usually occupies 105. Reconciliation takes 5 days, invoicing 3 and approval 7, none of which appears in the contract.
The start date is worth arguing. Counting from the signed inspection sheet rather than the invoice moves the clock by 8 to 12 days.
| Clause days | Days occupied | Cost (CNY) | Share of unit price | Typical condition |
|---|---|---|---|---|
| 30 | 45 | 572 | 0.99% | Under 200,000 CNY a year |
| 60 | 75 | 954 | 1.64% | One year of history |
| 90 | 105 | 1,335 | 2.30% | Over 500,000 CNY a year |
Limits follow spend: above 500,000 CNY a year, 90 days is negotiable; under 200,000, expect 30 days or cash at 1% off.
Credit stacks on inventory. A 58,000 CNY batch sitting 30 days in the buyer's warehouse turns 90 days into 120 and lifts the cost to 1,526 CNY.
3. Where Each Payment Instrument Puts the Risk
The instrument decides who carries the risk. T/T at 30% deposit and 70% against a bill of lading copy settles on title transfer, leaving the seller least exposed.
An L/C at 90 days moves the obligation to the issuing bank. Opening costs 0.15% and negotiation 0.1%, near 0.25% of value, while each discrepancy costs 50 USD and checking takes 5 days. Add bank charges and courier and a discrepancy settles nearer 60 to 100 USD, so three amended documents eat the cost of 5 days of funding.
D/P carries refusal risk: once the 14 free days end, storage runs 80 USD a day and the seller usually absorbs it.
O/A at 60 days needs credit insurance at 0.3% to 0.8%, and only with a policy will a bank finance the receivable.
| Instrument | Seller risk | Buyer capital tied | Cost | Cash point |
|---|---|---|---|---|
| T/T 30 plus 70 | Low | From deposit | 0.1% transfer | 3 days after B/L copy |
| L/C at 90 days | Low, bank-backed | 90 days | 0.25% of value | 5 days after documents |
| D/P at sight | Medium | On arrival | 0.1% collection | On payment |
| O/A at 60 days | High | 60 days | 0.3%-0.8% premium | 60 days after arrival |
Only O/A leaves the whole risk with the seller, so it needs insurance or a guarantee, or it is an unsecured loan.
Currency is a second layer: on a dollar contract at 90 days, a 1% move is 580 CNY, so fix a band or buy a forward at 0.2%.
4. Four Hooks That Make Payment Terms Enforceable
Days alone bind nobody. Payment terms need four hooks: batch, inspection, retention and guarantee.
Batch is simplest: settle every 400 cases separately and a late payment pauses the next. Inspection works too: if AQL 2.5 fails, the clock restarts on the passing date, adding 15 days.
Retention at 5% for 6 months lets claims be deducted from the balance. A guarantee runs at 10% to 30% of order value as a bank letter or parent undertaking, with the stop rule in the contract body, not an annex.
By the third order buyers push retention to 12 months, which costs the supplier another 0.5% at an 8% funding rate. A monthly account with 4 shipments also clears each invoice on its own batch, so a disputed lot holds a quarter of the month rather than the month.
| Hook | Wording | Consequence |
|---|---|---|
| Batch | 400 cases settled separately | Late batch pauses the next |
| Inspection | Clock starts on AQL 2.5 pass | Failure adds 15 days |
| Retention | 5% for 6 months | Claims deducted |
| Guarantee | Letter at 10%-30% | Line stops when exhausted |
Guarantees can step down: a 20% letter in year one, then a pledged policy at 0.5% after two clean years.
Conclusion
Payment terms are short-term financing at a 6% to 10% funding cost. The gap between 30, 60 and 90 days is 45, 75 and 105 days occupied, worth 572, 954 and 1,335 CNY. Settle that arithmetic and the batch hook, and payment terms become a clause both sides can sign.
This article discusses only the container (case body) side of specifications and design intent, and does not cover any handling, loading or use of the contents.
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