The most common payment method is a bank wire (also called telegraphic transfer, or “T/T”. It usually works this way:
You make sure you work with serious people: ask for customer reference, run background checks, and/or perform factory audits.
You develop samples until you are confident the suppliers knows exactly what you want.
You wire a 30% deposit (T/T) before production starts.
You pay a quality assurance firm to inspect product quality.
You wire the remaining 70% (T/T) before shipment.
The supplier ships the goods and sends you the documents by express courier.
Then Etienne Charlier, from Procur’Asia, wrote this complement to my response:
Adding on Renaud’s information, a possible alternative to letters of credit (L/C) is what I call the L/C of the poor:
You pay first the down payment that you can negotiate (from 0% to 30%). 30% should be the maximum.
Once the supplier confirm the goods are ready, you ask your inspector to check the goods. If everything is OK, you release the goods (allow the goods to be sent to the ship
Once the goods are on board of the ship, the supplier gets the Bill or Lading (B/L)
You ask the supplier to send you a copy of the B/L
If everything is OK on the bill of lading (it is important to check this thoroughly), then you pay the final payment to the supplier
Once the supplier receives the payment, they send you the original B/L
This is not fool proof, but the incentives are properly placed:
if you do not pay the supplier knows you will never get the goods, so there is not much incentives for you not pay
if the supplier gets the money but does not send you the original B/L, they still do not get any advantage since the goods are sent out, so there is no reason to do that.
However, this is not foolproof. The L/C is the only way to really get some security.