Down Payment

Down payment in foreign trade typically refers to a portion of the payment made by the buyer in advance after the contract is signed and before the goods are produced or delivered, usually 10%-30% of the total contract amount. Its core function is to secure the transaction, share risks, and serve as a guarantee of the buyer's performance. Unlike 'earnest money/deposit', a down payment generally does not have a legal guarantee nature; if the buyer breaches the contract, the seller usually needs to refund the down payment (possibly deducting actual losses), whereas 'earnest money' is subject to the deposit penalty rule, under which the breaching party may forfeit or double the deposit. Usage scenarios include custom products, large orders, or cooperation with new customers. Precautions: the contract should specify the down payment ratio, payment method, refund conditions, and whether it can offset the balance; avoid confusion with 'advance payment', which usually refers to a pure prepayment without guarantee function. In addition, the down payment ratio should not be too high to avoid affecting the buyer's cash flow, nor too low to prevent the buyer from easily abandoning the order.