Knitted Bag Payment Terms: A Five-Step Decision Sequence for Deposits, Balances, Letters of Credit and Open Account
Which knitted bag payment terms should a buyer choose? In a fixed order: establish whether this is a first order, decide who carries the risk at sea, set the deposit and balance split, then decide whether the order is large enough to justify a letter of credit, and only then move toward open account. Each step narrows the options before the next one opens, which is why negotiating them all at once produces a structure nobody is comfortable with. This article walks the five steps with the figures each one turns on, and compares the four methods side by side on cost and risk.
The Decision Sequence, in One Pass
Payment terms are decided in five steps and the order matters: order history first, then risk allocation at sea, then the deposit split, then whether a letter of credit is justified, and only last whether open account is available.
The reason for the sequence is that each step constrains the next. Order history determines how much risk either side should be carrying at all. The Incoterm determines where the risk sits during transit, and a buyer who has taken risk at loading under FOB Xiamen has less need of a document-based control than one who has asked for DDP. The deposit split then allocates the production risk, which is the period before the goods exist. The letter of credit question is a cost question at that point rather than a trust question, and open account is an outcome of the first four rather than an opening position.
Negotiating all five at once is the common failure. A buyer asks for open account on a first order, meets a refusal, and settles on a deposit structure without ever having decided what the deposit is for or who carries the transit risk. The result is a workable arrangement arrived at by accident and renegotiated on every subsequent order. Five questions answered in order take one conversation and produce a structure that can be stated in the contract and repeated on the next programme.
Step One: Is This a First Order or a Repeat
The first question is whether the order is a first order, and the answer sets the whole risk posture: on a first order the buyer has no evidence about the production partner and the partner has none about the buyer.
That symmetry is worth naming, because buyers tend to think of payment terms as protection for themselves alone. On a first order both sides are exposed: the buyer is paying for goods that do not exist yet, and the production partner is buying yarn, booking a line and committing labour against a promise. A structure that puts all the risk on one side is not a better structure; it is one that gets priced into the unit cost. With a 100 pcs per style and colourway minimum, a first order can be small enough to settle that question at low cost: at USD 4.80 a unit, 100 pieces is USD 480, which is a reasonable price for evidence.
By the third order the evidence exists on both sides and the terms should have moved. What produces that movement is a record: orders delivered on the quoted dates, release results under AQL 2.5 that passed, and payment made when due. Buyers who want better terms on the second order and have none of that recorded are asking on the basis of a feeling. Those who have the record can point at it, which is a different conversation entirely.
Step Two: Who Carries the Risk at Sea
The second question is which Incoterm applies, because it decides whether the payment terms need to control documents at all: under FOB Xiamen the buyer's risk starts at loading, and under DDP it does not start until delivery.
This step is skipped more often than any other and it changes what step four is for. A letter of credit exists partly to ensure that payment happens against documents that prove the goods were shipped. Under FOB the buyer books and pays the freight and carries the marine risk, so the documents matter to them directly and a documentary control has real value. Under DDP the goods arrive cleared and delivered, the buyer's risk starts much later, and the case for paying a bank to control shipping documents is considerably weaker. Deciding the term first prevents a buyer from paying for control they do not need.
- Step one, order history
- First order, second, or a running programme; sets the risk posture
- Step two, transit risk
- FOB Xiamen places risk at loading; CIF arranges freight but risk still passes at loading; DDP at delivery
- Step three, deposit split
- About 30% deposit, balance of about 70% against a bill of lading copy
- Step four, documentary control
- LC at sight where the order value justifies roughly 0.5% to 1.5% plus bank fees
- Step five, open account
- 30, 60 or 90 days, once a delivery and payment record exists
- Currency clause
- USD, with a review band of about 2% to 3%
Step Three: Deposit and Balance, and What the Deposit Is For
The third question is the split, and the standard answer on a knit bag programme is about 30% deposit with the balance of about 70% paid against a copy of the bill of lading.
Understanding what the deposit is for makes the number negotiable rather than arbitrary. The deposit covers the material that has to be bought before anything can be made: yarn, trim and hardware. On a 6,000-piece programme at USD 4.80 a unit, the order value is USD 28,800 and a 30% deposit is USD 8,640, which is roughly what the yarn and trim cost. That is why 30% is a common figure rather than a ritual one, and it is also why the deposit is usually non-refundable once material is booked. A buyer cancelling after booking is asking the production partner to carry a dyelot minimum and a hardware minimum, typically 500 to 1,000 pieces per component.
The balance leg is where the buyer has real leverage and should use it deliberately. Paying the balance against a copy of the bill of lading means the goods have shipped but the buyer has not yet released the payment, and that is the point at which any outstanding condition can still be enforced. Paying before shipment removes that entirely. Where a programme has had a quality question, the alternative is to tie the balance to the release result at AQL 2.5 rather than to the shipping document, which is a reasonable request and worth stating in the contract rather than raising at the time.
Step Four: Does the Order Justify a Letter of Credit
The fourth question is a cost question, and the answer depends on the order value: a letter of credit typically costs about 0.5% to 1.5% of the value plus bank fees of roughly USD 80 to 150, which is proportionate on a large order and disproportionate on a small one.
On the 6,000-piece example at USD 28,800, the cost lands somewhere between about USD 225 and USD 580 including fees, which buys a bank's undertaking to pay against conforming documents. Whether that is worth having depends on what else is at stake. On a first order of a size the buyer cannot absorb losing, yes. On a 100-piece trial at USD 480, the fee would be a significant fraction of the order value and the same protection can be had on better terms by paying the deposit by card or transfer and the balance against documents. The threshold is worth stating rather than feeling: below about USD 5,000 of order value, a documentary collection or a simple transfer is usually more sensible.
Two details matter if a letter of credit is used. The first is that the credit must be workable: a requirement for a document the production partner cannot obtain, or a date that conflicts with the 30-day bulk block, results in an amendment, and amendments cost time as well as fees. The second is the tenor. A credit at sight pays on presentation of conforming documents, while a usance credit of 30, 60 or 90 days defers payment and functions more like short-term financing. Neither is better; the second costs more and helps the buyer's cash position.
| Method | Typical cost | Where it fits on a knit programme |
|---|---|---|
| T/T deposit and balance | Wire fees of about USD 15 to 40 each side | The default. About 30% deposit, balance of about 70% against a bill of lading copy |
| Letter of credit at sight | About 0.5% to 1.5% of value, plus roughly USD 80 to 150 in fees | Large first orders where the buyer cannot absorb a total loss |
| Usance credit, 30 to 90 days | More than sight, priced as short-term finance | Where the buyer's cash position matters more than the fee |
| Documents against payment | Bank handling fee, well below a credit | Mid-size orders; documents released on payment at sight |
| Documents against acceptance | Similar handling fee | A step toward open account; documents released against a promise to pay |
| Open account, 30 to 90 days | No bank fee; the risk is carried directly | Running programmes with a delivery and payment record on both sides |
Step Five: When Does Open Account Become Available
The fifth question is when open account becomes available, and the honest answer is when both sides have a record: typically after three to five completed orders delivered on the quoted dates and paid when due.
Open account is simply the absence of a documentary control: the goods ship, the invoice is issued, and payment follows in 30, 60 or 90 days. It costs nothing in bank fees and it removes a week or more of document handling from the programme, which on a 30-day bulk block followed by about 21 days of sea freight is a real saving of working capital. The exposure is that the buyer has no document to withhold if something is wrong, so the protection has to come from elsewhere: the contract, the defect liability window, and the relationship.
Moving to open account in stages is more realistic than moving in one step. A common path is deposit and balance on the first two orders, then balance against documents, then documents against acceptance, then open account at 30 days, and finally at 60. Each step can be reversed if a delivery or a payment slips, and stating that in the agreement makes the progression something both sides are working toward rather than a concession extracted each season.
Currency, Fees and the Cost of Each Method
The currency clause is the part of payment terms that costs nothing to agree and saves the most argument: state USD, and state what happens if the rate moves beyond a band of about 2% to 3%.
A quotation held in USD for a 30 or 60 day validity period is exposed to movement, and without a clause every renewal becomes a renegotiation because one side is absorbing a cost they did not price. A review band of about 2% to 3% means small movements are absorbed and large ones are discussed, which is how most supply relationships handle it. Beyond currency, the fees are worth naming: who pays the advising fee, who pays the amendment fee if the credit has to be changed, and who pays the correspondent bank charge. Each is small and each is a dispute waiting for a first occurrence.
T/T, 30 and 70
The default. Deposit covers booked material; the balance is paid against a shipping document.
LC at sight
About 0.5% to 1.5% plus fees. Worth it on a large first order, disproportionate below about USD 5,000.
Documents against payment
A bank handling fee well below a credit, with documents released only on payment.
Open account, 30 to 90 days
No bank fee and a week or more removed from document handling, once a record exists.
Three Arrangements to Avoid, and Why
Three arrangements cause most of the trouble on knit bag programmes: full payment before shipment, a balance tied to a document the production partner cannot produce, and an open-ended credit with no expiry.
Full payment before shipment removes every lever the buyer has and is worth resisting even when the order is small, because the habit carries into larger orders. A balance tied to an unobtainable document guarantees an amendment: a certificate of origin is obtainable, a certificate stating something no authority issues is not, and the difference is discovered at presentation rather than at drafting. An open-ended credit with no expiry date and no latest shipment date is the third, and it produces exactly the ambiguity it was meant to remove. Each of the three is avoidable with one sentence at contract stage.
What to Put in the Contract
The payment clause should carry five items: the method, the split, the currency and review band, the trigger for the balance, and who pays which fee.
Written as one paragraph it reads roughly: payment by telegraphic transfer, 30% on order confirmation and the balance of 70% against a copy of the bill of lading, in USD, with a review if the rate moves more than 3% before shipment, and with each side bearing its own bank charges. That is short, unambiguous, and covers the five items that otherwise get renegotiated. Where a letter of credit is used instead, the clause names the tenor, the expiry, the latest shipment date and the port, and it should be drafted against the 30-day bulk block rather than against a hopeful date.
One more item belongs alongside it and is usually left to the last minute: the bank details and the account name should be confirmed by a channel that has already been used, rather than by an email that arrives with new details attached. Invoice-redirection fraud is not a knit bag problem specifically, but a change of bank details arriving at exactly the moment a balance is due is the pattern it follows, and confirming by telephone against the details already on file is a five-minute control.
Agree payment terms that fit your programme
Send the order value, the destination, the required date and whether this is a first or repeat order. Our knit team will return the terms we can support at that size, with the deposit split, the balance trigger and a quotation on 7 working days of sampling and 30 days of bulk. Start on the contact page.
Frequently Asked Questions
What payment terms are normal for a knitted bag order?
About 30% deposit with the balance of about 70% against a copy of the bill of lading. The deposit covers yarn, trim and hardware booked before production begins, which is why it is usually non-refundable once material is committed. It is worth stating in writing before production begins, because it is far harder to agree once the goods exist.
Why is the deposit usually 30%?
Because that is roughly what the material costs. On 6,000 pieces at USD 4.80, the order is USD 28,800 and a 30% deposit is USD 8,640, close to the yarn and trim bill. The figure is an estimate of exposure rather than a ritual.
Is the deposit refundable if I cancel?
Usually not once material is booked. A cancellation after booking leaves a dye lot minimum and a hardware minimum of about 500 to 1,000 pieces per component on someone's shelf, and the contract should say whose before it happens. Both sides are better served when this is agreed early rather than discovered halfway through the programme.
When is a letter of credit worth the cost?
On a large first order. It costs about 0.5% to 1.5% of value plus roughly USD 80 to 150 in bank fees, which is disproportionate below about USD 5,000 of order value and sensible well above it. That is the practical control, and it costs nothing to put in place before the deposit is paid.
What is the difference between a sight and a usance credit?
A sight credit pays on presentation of conforming documents. A usance credit of 30, 60 or 90 days defers payment and is priced as short-term finance, so it costs more and helps the buyer's cash position in the meantime. Programmes that skip this step tend to rediscover the same problem on the following season.
What is documents against payment?
A documentary collection where the bank releases the shipping documents only once the buyer has paid. The handling fee is well below a letter of credit, and it suits mid-size orders where a full credit would cost more than the exposure. Ask for it as a figure rather than a statement, since a statement cannot be checked or compared.
When can I move to open account terms?
Usually after three to five orders delivered on the quoted dates and paid when due. Moving in stages is more realistic: documents against payment, then acceptance, then open account at 30 days, and finally at 60 once the record is longer. Getting it right at this stage removes a whole category of argument from the rest of the programme.
How does the Incoterm affect payment terms?
Under FOB Xiamen the buyer's risk starts at loading, so shipping documents matter to them and a documentary control has real value. Under DDP the risk starts at delivery, and the case for paying a bank to control documents is weaker. It belongs in the written specification rather than in a conversation that nobody can quote later.
Should I ever pay in full before shipment?
It is worth resisting even on a small order, because it removes every lever the buyer has and the habit tends to carry into larger orders. A deposit and balance keeps one document between the buyer and the payment. It is worth stating in writing before production begins, because it is far harder to agree once the goods exist.
How do I check a change of bank details?
Confirm by a channel already in use, such as a telephone call against the details held on file. A change of details arriving at the moment a balance falls due is exactly the pattern that invoice redirection fraud follows. Record the figure at approval so that inspection and any later run can be measured against it.
People Also Ask
What are typical payment terms for bag orders?
About 30% deposit and 70% balance against a copy of the bill of lading, moving toward open account terms of 30 to 90 days after three to five clean orders. It costs nothing and prevents the argument later.
Is a letter of credit worth it for a small order?
Usually not. At about 0.5% to 1.5% plus USD 80 to 150 in fees, a credit is disproportionate below roughly USD 5,000 of order value, where a transfer or collection does the same job.
How much deposit should I pay for a bag order?
About 30%. That figure tracks the cost of yarn, trim and hardware, which is the material bought before production starts and the reason the deposit exists at all. Confirm it before production rather than after.
What is open account payment?
No documentary control: goods ship, an invoice is issued, and payment follows in 30, 60 or 90 days. It costs no bank fee and removes about a week of document handling. Check the detail before the deposit is paid.
Should payment be in USD or another currency?
USD, with a stated review band of about 2% to 3%. Small movements are absorbed and large ones discussed, which stops every renewal becoming a renegotiation. Both are free to agree at the first contract.
Sources and further reading
Every figure on this page is either our own programme data or attributed below. Open the originals before you write them into a specification.
- ICC — International Chamber of CommerceInternational Chamber of Commerce Publisher of the Incoterms rules and the uniform customs and practice for documentary credits.
- Incoterms rulesInternational Chamber of Commerce Defines FOB, CIF and DDP, which determine where risk passes and therefore what a documentary control is for.
- ISO 2859-1 — Sampling procedures for inspection by attributes, Part 1: AQL-indexed sampling schemesISO The AQL 2.5 release that the balance payment can be tied to instead of a shipping document.
- World Customs OrganizationWorld Customs Organization Source of the Harmonized System classification behind the certificate of origin and customs documentation.
- World Trade OrganizationWorld Trade Organization Framework for the trade facilitation rules that govern document handling at the destination.
- Substances restricted under REACH (Annex XVII)ECHA One of the declarations in the document set that the balance payment is released against.
Decide in Order, Write It Down
Payment terms on a knit bag programme are a sequence of five decisions, not one negotiation. Answer them in order, state the result in five items in the contract, and the arrangement survives into the next season rather than being reopened every time an order is placed. The two clauses worth adding are the currency review band and the allocation of bank fees, both of which cost nothing to agree.
For the clauses around this one, see knitted bag contract terms, and for the protection of the design being paid for, see knitted bag design protection. The framework is set out in the knit bag sourcing guide.