China Supplier Payment Terms Calculator: T/T Deposit vs L/C
Most China suppliers ask for a 30 percent deposit and 70 percent before shipment. A usance letter of credit moves payment later, at the price of bank fees. This calculator compares the two on cost of capital so you can negotiate with numbers.
Your numbers
The balance is paid before shipment.
From shipment date (bill of lading) to receipt.
Opening, amendment, negotiation and confirmation charges for the whole tenor.
Your results
Financing-cost comparison only. It does not price supplier credit risk, prepayment loss risk, FX or the quality protection that documentary terms may give.
Cost of T/T vs L/C by usance days
Sweeps L/C usance after bill of lading from 0 to 120, holding your other inputs fixed.
Working capital by supplier from your ERP
Optional: we can outline a report of deposits and open payments per supplier from your purchasing tables.
Optional. The tool and every export work without this. No spam.
How to use it
Enter the order value, the T/T deposit percentage, production and shipping days, and your annual cost of capital. For the L/C side, enter the usance period that starts at the bill of lading date, the total bank fees as a percentage of the order, and any price premium the supplier adds for deferred payment. The tool returns the financing cost of each route, the saving, and the break-even bank fee at which both options cost the same. The chart shows how a longer usance changes the L/C total.
The method
Cash tied up before receipt is multiplied by the annual rate and the fraction of the year it is outstanding. Under T/T the deposit is out for production plus transit days and the balance for transit days. Under the L/C payment is due usance days after shipment, so the buyer is funded by the supplier's bank for the days beyond arrival, which gives a negative financing cost when usance exceeds transit. Fees and any supplier premium are added to the L/C side.
- T/T cost = deposit x rate x (production + transit) / 365 plus balance x rate x transit / 365
- L/C financing = value x rate x (transit - usance) / 365
- Break-even fee solves for equal total cost
Reading the result and mistakes
On a 100,000 dollar order with default inputs, T/T ties up capital worth roughly 1,600 dollars, while a 60 day usance L/C earns a small benefit before 1,200 dollars of bank fees. The L/C wins only if fees stay below the break-even. Mistakes include ignoring supplier discounts for prepayment, forgetting the L/C may need cash margin with your bank, and treating cost as the only factor. Documentary terms also reduce the risk of paying for goods that never ship.
Frequently Asked Questions
What is a usance L/C?
A letter of credit where the issuing bank pays the supplier at sight or at maturity, with the buyer's payment due a set number of days after the shipping document date. The tenor is the usance period.
Is the L/C always cheaper?
No. Bank fees, cash margin requirements and supplier premiums can exceed the capital cost saved. The break-even fee output shows the maximum total fee at which the L/C still wins.
What cost of capital should I use?
Use the rate you would pay on a short-term credit line or your internal hurdle rate. Using a very low rate makes T/T look cheaper than it is for cash-constrained buyers.
Does this price supplier risk?
No. A 30 percent deposit paid months ahead carries credit risk. Documentary terms transfer part of that risk to banks, which is a benefit not captured in this financing-only comparison.
If you track open POs and payment milestones in an ERP, Netray can build a read-only view of working capital tied up per supplier. It can run on your own infrastructure.
Related Tools
China Sourcing Landed Cost Calculator (FOB to US Delivered)
Build the true delivered cost per unit of a China FOB purchase, then test how a tariff change moves it.
Supply Chain & InventoryUS Duty Calculator for China Imports (Section 301, MPF, HMF)
Estimate total US duties and fees on a shipment from China and see how total cost moves as the additional tariff rate changes.
Costing & FinanceRMB/USD Contract Margin and Breakeven FX Calculator
Find the margin on a USD-priced order built with RMB costs, the breakeven exchange rate and the profit swing per 1 percent move.
Supply Chain & InventoryRaw Material Index Price Adjustment Calculator (China Suppliers)
Calculate the new unit price and annual cost impact when copper, steel or resin indexes move, using a deadband and a pass-through share.
More Costing & Finance tools
See all- RMB/USD Exchange Rate Sharing Clause Calculator
- SAP QM Inspection Effort and Cost Calculator
- SAP Standard Cost Estimate BOM Rollup Calculator
- Legacy ERP Retirement Cost and Payback Calculator
- JD Edwards World Month-End Close Procedure Template
- Distributor Customer Credit Application Template
- Distributor Customer Profitability Worksheet
- Distributor GMROI and Inventory Turns Calculator
- Vendor Early Pay Discount Worksheet