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How to Structure Payment Terms with a Vietnamese Manufacturer

August 25, 2026

Payment terms decide what happens when something goes wrong. While everything is going well, any structure works. The purpose of thinking about them in advance is that you cannot renegotiate them at the moment you need them.

The standard structure

For most orders in Vietnam the convention is:

Tooling. Paid separately and before tooling starts, often in two parts, with a portion on order and the balance on approved samples. Tooling is a distinct transaction from production and should be invoiced and documented separately. See tooling ownership in a turnkey contract.

Production. Thirty percent deposit on order confirmation, seventy percent balance before shipment.

That 30/70 split is the default, and both numbers have a logic. The deposit funds material purchase, which is the factory’s real exposure if you disappear. The balance is held until goods exist, which is your exposure if they do not.

Tie the money to milestones, not to dates

The upgrade that costs nothing and helps most: attach each payment to an event, not to a calendar date.

A workable structure for a first order:

1. Deposit on order confirmation.
2. Tooling balance on written approval of the golden sample.
3. Production balance against a passed pre-shipment inspection and a copy of the bill of lading.

The third line does the work. It means the factory has to produce acceptable goods and get them on a vessel before the last payment moves, and it gives a failed inspection a financial consequence that both sides agreed to in advance. See AQL inspection levels explained for how that inspection is defined.

Getting documents right

Three practical points that matter more than they sound:

Pay the company on the invoice. Payment instructions to an account in a different name, a different country or a personal name are the most common signal in supplier fraud. Confirm bank details by a channel you established separately, and re-confirm if they ever change mid-order.

Keep the contract and the invoice consistent. The legal entity, the address and the bank details should match the business registration you saw during the audit.

Ask for a proforma invoice before paying anything. It is the document that pins down quantity, specification, price, term and delivery, and it is the reference if a dispute starts.

When a letter of credit earns its cost

A letter of credit replaces mutual trust with a documentary process at a bank. The factory gets paid when it presents documents that comply, and you pay when those documents exist.

It makes sense when the order is large enough that the bank charges are small relative to the exposure, when the supplier is new, or when your own financing requires it. It makes less sense on small orders, where the charges and the administrative discipline outweigh what it protects, and where a milestone structure with inspection gives most of the benefit.

If you do use one, be aware that the protection is documentary. The bank checks papers, not goods. An inspection certificate named as a required document is what connects the two.

Terms that should make you pause

Full payment before production. There is no version of this that is in your interest on a first order.

A deposit far above convention with no explanation. Sometimes legitimate, when a factory is buying an unusual material lot for you. It should be explained in those terms and the material should be nameable.

Balance due on completion rather than on shipment. Completion is declared by the factory. Shipment is evidenced by a document.

Payment to a third party. Trading arrangements exist and are fine when disclosed. Undisclosed, it means the entity you audited is not the entity being paid.

Refusal to accept inspection as a condition. A factory confident in its process rarely objects to being measured. Objections here are worth understanding before proceeding.

Balance the relationship, not just the risk

It is possible to write terms so protective that good factories decline the work. Manufacturing runs on working capital, and a buyer who pushes every risk upstream gets quoted accordingly, or gets the factory’s leftover capacity.

The aim is a structure where both sides lose something if the project fails, and where each payment is released by an event both sides can see. That is usually achieved with a standard deposit, a milestone in the middle and an inspection-gated balance. Everything beyond that is negotiation rather than protection.

Currency, fees and the small losses

Most Vietnam export business is quoted and settled in US dollars, and most payments go by international bank transfer.

Three details worth settling in advance. Agree who pays the intermediary bank charges, because a transfer that arrives short is a genuinely common cause of a delayed shipment while both sides work out who covers the difference. Confirm the full beneficiary details, including the intermediary bank, before the first payment rather than during it. And if you are quoted in a currency other than your own, decide whether you are hedging or accepting the movement, since a project running six months can move meaningfully.

None of this is large money. All of it causes delays out of proportion to its size.

Tying terms to the relationship you want

Terms signal intent. A buyer who arrives with a protective contract, a small first order and no indication of future volume is quoted as a one-off, and gets whatever capacity is left. A buyer who explains the programme, commits to a realistic schedule and pays on time becomes someone the factory plans around.

That is not an argument for loose terms. It is an argument for terms that are firm and conventional rather than adversarial, and for doing the thing that actually buys goodwill: paying on the day you said you would. Factories talk to each other, and a reputation for paying on time is worth more in negotiation than any clause.

Before the first payment, check three things

1. The legal entity on the invoice matches the one on the business registration and on the audit report.
2. The bank account is in that entity’s name, in Vietnam.
3. The proforma invoice states quantity, specification, price, Incoterm, lead time and the payment schedule you agreed.

If any of the three does not match, stop and ask. The explanation is sometimes perfectly ordinary. The cost of asking is one email, and the cost of not asking is the whole deposit.

Terms for tooling specifically

Tooling deserves its own schedule because it is paid earliest and protects you least.

A workable split is a portion on order to start the design and cutting, and the balance on approval of first samples from the tool. That structure ties the final tooling payment to evidence that the tool produces an acceptable part, which is the only thing you were buying.

Pair it with the ownership language, because a tooling payment without ownership terms is the single most common way buyers end up paying for an asset they cannot use. See tooling ownership in a turnkey contract.

What to do if a supplier asks to change terms mid-order

It happens, usually because material prices moved or the factory’s own cash position tightened. It is not automatically a red flag and it is always worth understanding before agreeing.

Ask what specifically changed and whether it affects the order already in production. A factory explaining that a resin lot repriced is describing a real problem. A factory asking for the balance early with no explanation is describing a different one.

If you do agree to help, get something for it: a firm ship date, an inspection condition, or a fixed price on the reorder. Changing terms without renegotiating anything teaches the relationship that terms are provisional.

Send your project brief and we will match you with manufacturers that quote on conventional terms. For what else to settle before the deposit, see what a turnkey manufacturing contract actually covers.

Frequently asked questions

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