How to Structure Payment Terms With a Clothing Manufacturer
Matias Santos, Founder·
The standard payment structure in clothing manufacturing is 30% deposit before production, 70% balance before shipment. Most brand founders accept this split as if it's a law of nature. It isn't. It's a default optimised for the factory's interests, and most brands never negotiate it because they don't know what's actually negotiable. Payment terms are where more first-time brands lose money than in any other part of the process, not through fraud, but by structuring payments that leave them no leverage when a factory delivers late, wrong, or inconsistently. Here is how to structure terms that protect you without souring the relationship.
The standard split and why it exists
The 30/70 payment structure (30% deposit before production starts, 70% balance before shipment) has been the industry default long enough that most people treat it as fixed. It isn't a regulation. It's a default that emerged because it works reasonably well for both parties in the absence of any other arrangement.
For the factory: the deposit covers initial material procurement, which typically represents 30–40% of total production cost. The balance, held until just before shipment, gives them leverage to ensure payment before releasing the goods.
For the brand: the deposit commits the factory to starting production on your order. The deferred 70% is the only leverage you have if something goes wrong during production.
This split is the starting point. Whether you modify it, and how much, depends on your relationship with the factory, your risk tolerance, and how much you actually want leverage at each stage.
How to Structure Payment Terms With a Clothing Manufacturer | NovaSupplier
Where the risk actually sits
The most important question to ask about any payment structure is: what do I lose if something goes wrong at this stage?
With a standard 30/70 split:
Before production: you've paid 30%. If you walk away, you lose the deposit. In most cases you cannot recover it. Even in legitimate disputes, factory deposits are rarely refundable once material procurement has begun.
After the balance is paid but before shipment: you have no leverage. You've paid 100%, the goods aren't yet in your possession, and any dispute is now a legal matter that will take longer and cost more than the disputed order was worth.
This is the central risk in the 30/70 model: the moment you pay the balance, your leverage disappears. If quality issues surface after you've settled the invoice, your options are limited and expensive.
The alternative is to tie payment milestones to production milestones.
Milestone-based payment structures
A more protective structure adds checkpoints between deposit and balance.
A four-stage model might look like this:
30% deposit: paid before production starts, triggered by confirmed production slot and fabric procurement.
20% on PPS approval: paid when the pre-production sample is approved. This is the sample made from the actual bulk fabric lot, by the actual production operators, not the sample room. Releasing funds here acknowledges that production has started correctly and you've verified the setup.
30% on bulk completion / TOP approval: paid when a top-of-production inspection is completed satisfactorily. This is the moment the bulk run is finished and units pulled from the line have been reviewed. Tying funds to this checkpoint is the most effective protection against quality drift between sample and bulk.
20% on shipment: paid on verified loading or delivery confirmation, depending on your Incoterms.
This structure costs you more administrative overhead. You need to actually do the inspections, document the approvals, and manage the release triggers. It also requires the factory to accept it, which not all will, particularly for smaller orders where the complexity isn't proportionate to the value.
But it changes the dynamic fundamentally. At every milestone, both parties have a financial reason to ensure the inspection passes cleanly. The factory wants the next payment. You want to release it. Neither side benefits from a dispute.
What factories will and won't agree to
On small orders (under €20,000), most Portuguese factories will expect something close to the standard 30/70 or 50/50 split. The administrative overhead relative to order size makes a four-stage schedule impractical.
On orders above €30,000–50,000, milestone payment structures are increasingly normal and a well-run factory won't be surprised by the request. They may push back on the specific breakdowns, asking for more upfront to cover fabric procurement, but the principle of milestone-tied payments is not unusual at this order value.
The red flag is not a factory that asks for a higher deposit. It's a factory that insists on 100% payment before production starts, or that objects to any inspection milestone at all. Neither of these is standard, and both remove every protective mechanism you have.
The deposit question: how much is reasonable
The deposit's job is to cover the factory's fabric procurement costs. On a cut-and-sew order, fabric typically represents 30–50% of the unit cost. On a knitwear order with proprietary yarn or complex structure, it can be higher.
A 30% deposit on a €50,000 order (€15,000) roughly covers fabric procurement for most categories. A 50% deposit on the same order (€25,000) covers fabric plus most of the cutting and setup cost, and is more typical for orders involving custom fabric, long-lead materials, or novelty trims that require early payment to the mill.
If a factory asks for a deposit significantly higher than what fabric procurement would require, ask why. The answer may be legitimate: production is starting immediately and fabric has already been ordered. Or it may indicate a cash flow problem you don't want to be the solution to.
Incoterms and when you actually own the goods
Payment terms and Incoterms interact, and most founders don't understand how until after something goes wrong.
Incoterms determine at what point ownership and risk transfer from the factory to the brand. Under EXW (ex-works), the goods are your responsibility the moment they're loaded onto a vehicle at the factory. Under FOB (free on board), risk transfers when the goods cross the ship's rail at the port of origin. Under DDP (delivered duty paid), all risk and cost sit with the factory or freight forwarder until the goods arrive at your door.
Why this matters for payment structure: if you're paying the balance "before shipment" under EXW terms, you may be paying before you've inspected anything. If you're paying on DDP delivery, you have maximum protection, but you'll pay a premium for it.
The most common structure for Portugal to UK or EU delivery is FOB Leixões or FOB Lisboa, with balance due against shipping documents (bill of lading). This gives you a moment to review documents before releasing funds, even if the full physical inspection has to wait for arrival.
Structuring the first order with a factory you don't know well
For brands placing a first significant order with a factory they haven't worked with before, a milestone-based payment through a platform like NovaSupplier's managed payment flow gives both parties protection without the administrative complexity of a multi-stage bank transfer schedule.
The logic: the brand deposits the agreed amount into a managed account at order placement. The factory sees confirmation of funds. Payment releases to the factory on confirmed delivery milestones, typically PPS approval and shipment. If there's a dispute, the funds remain held while it's resolved, giving both parties a reason to resolve it without escalation.
This isn't yet universal across the industry, but it's how the best-structured direct-sourcing platforms handle first-order risk. It removes the adversarial element from the payment conversation and lets both sides focus on production.
What to do on your next order
You probably won't restructure an existing factory relationship's payment terms overnight. But on your next new factory relationship, you can set the structure from the start.
Ask for milestones. Tie at least one payment to a PPS approval and one to a pre-shipment inspection. Negotiate the percentages based on the actual cost structure of your specific order. And understand your Incoterms before you sign anything. Not because you expect something to go wrong, but because if it does, the details matter.
The factory relationship is worth protecting. The way to protect it is not to assume good faith will be enough, but to structure the financial arrangement so that both parties have aligned incentives at every stage.
On NovaSupplier, payments between brands and Portuguese manufacturers are structured around milestone-based release triggers: deposit before production, balance on shipment, with full visibility for both parties in one shared project thread. Start at novasupplier.com.