Payment Terms in the Diamond Trade: T/T, LC, or Consignment?

One of the most common questions we get from new buyers: "What payment terms do Chinese suppliers accept?"

The answer depends on your order size, relationship, and risk tolerance. Let's break down the three main options.

Option 1: T/T (Telegraphic Transfer / Wire Transfer)

How it works: You wire money directly to the supplier's bank account. Typically 30-50% deposit, balance before shipment.

Pros:

• Fast and simple
• Low transaction fees (usually $25-50)
• Preferred by suppliers (they get cash upfront)

Cons:

• High risk for buyers (you pay before seeing the goods)
• No recourse if the supplier disappears or sends wrong goods
• Requires trust in the supplier

When to use T/T:

• You've worked with the supplier before and trust them
• Small orders ($5,000-20,000) where LC fees aren't justified
• You have a local agent who can inspect goods before final payment

Option 2: LC (Letter of Credit)

How it works: Your bank guarantees payment to the supplier once they provide proof of shipment (bill of lading, packing list, etc.).

Pros:

• Lower risk for buyers (payment only after shipment proof)
• Supplier is protected (bank guarantees payment)
• Standard in international trade

Cons:

• Expensive (1-3% of transaction value, plus bank fees)
• Slow (2-4 weeks to set up)
• Requires good banking relationship
• Doesn't protect against quality issues (only shipment proof)

When to use LC:

• Large orders ($50,000+)
• First-time transactions with new suppliers
• Your company policy requires it

Option 3: Consignment

How it works: The supplier ships goods to you. You pay only after you sell them to your customers.

Pros:

• Zero upfront cost
• No inventory risk (you can return unsold goods)
• Ideal for testing new products or markets

Cons:

• Very few suppliers offer this (requires high trust)
• Usually requires established relationship or strong references
• Supplier may charge higher prices to offset risk

When consignment is available:

• You're an established retailer with verifiable sales history
• You're working with a supplier who has a local office in your country
• You're buying high-value goods (3ct+ stones) where the supplier wants to maintain control

The Hybrid Approach: Memo

In the diamond industry, there's a fourth option called "memo" or "approval."

The supplier sends you stones on approval. You have 7-14 days to inspect, show to clients, and decide. You pay only for what you keep.

This is the gold standard in the diamond trade, but it requires:

• Strong personal relationship with the supplier
• Proven track record of returning goods promptly
• Insurance coverage for goods in transit

How to Build Trust for Better Terms

Want to move from T/T to consignment? Here's how:

1. Start small. Place a few small T/T orders to prove you're reliable.
2. Pay on time. Every time. No exceptions.
3. Communicate clearly. Respond to emails promptly, provide feedback on goods.
4. Provide references. Bank references, trade references, business licenses.
5. Visit in person. If possible, visit the supplier's office/factory. Face-to-face builds trust.

Red Flags to Watch For

Be cautious if a supplier:

• Demands 100% payment upfront (even for large orders)
• Refuses to accept LC (legitimate suppliers should accept it)
• Offers consignment immediately to a new buyer (too good to be true)
• Uses personal bank accounts instead of company accounts

The Bottom Line

There's no "best" payment method—only the right method for your situation.

Start conservatively (T/T with deposits), build trust, and negotiate better terms over time.