Balance Payment Milestones: Shipment vs. Acceptance
There are two mainstream approaches to the timing of balance payments for power equipment: payment before shipment (standard practice: 30% prepayment + 70% before shipment) or payment after acceptance (project-based: payment after installation, commissioning, and acceptance). Industry experts note that the timing is determined by the contract: standard equipment requires full payment before shipment (shipment upon full payment); project equipment involves split payments (50% at shipment, 20% after acceptance);
and large projects often include a retention/warranty bond (10% paid after the warranty period). Specifying these milestones in the contract helps prevent disputes.
Reference for Balance Payment Milestones
- Standard equipment: Full balance paid before shipment (30% prepayment + 70% before shipment);
shipment occurs after full payment; - Project equipment: Majority paid before shipment (70%–80%), balance paid after acceptance (20%–30%);
- Large projects: Phased payments (prepayment + production payment + shipment payment + acceptance payment + warranty bond), with 10% warranty bond paid after the warranty period;
- Export equipment: Balance paid against a copy of the Bill of Lading (full payment after shipment, per export conventions);
- Credit-term clients: Deferred balance payment (30 or 60 days after goods arrive), based on agreements with long-term clients.
Key Points
First, specify milestones in the contract.
Clearly stating the balance payment milestone (before shipment or after acceptance) prevents future disputes.
Second, establish acceptance criteria.
For payments made after acceptance, clear acceptance standards (FAT/SAT) are essential to avoid disagreements during the acceptance process.
Third is the warranty retention.
For large projects, a retention amount (5%–10%) should be withheld and paid only after the warranty period expires to ensure after-sales support.
Fourth is export documentation.
Payment of the final balance for exports should be contingent upon a copy of the Bill of Lading (securing title to the goods) to prevent the loss of both the goods and the payment.
Pitfall Warnings
First: “Delayed final payment.”
Delays often occur after acceptance; mitigate this by linking payment terms to specific acceptance milestones.
Second: “No warranty retention.”
A lack of retention removes the incentive for after-sales service;
always withhold a portion for the warranty period.
Third: “Export risks.” Final payments without documentary safeguards are risky;
require a copy of the Bill of Lading.
Trends and Reminders
Final payment processes are moving toward “digitalization”: electronic acceptance (online confirmation) and supply chain finance (factoring) are enhancing efficiency.
For both parties, the recommendation is to “specify milestones in the contract, clearly define acceptance standards, and withhold sufficient warranty retention.”
Clear payment milestones prevent disputes during cooperation.
