Sourcing vocabulary commonly used when buying from China

If you buy from China, you will keep seeing the same terms: MOQ, SKU, RFQ, OEM, ODM, PI, PO, T/T, lead time, AQL, EXW, FCA, FOB, DDP, HS code, commercial invoice, packing list, and landed cost. Some affect price. Others affect payment, quality, shipping, or customs. Knowing what they actually mean makes supplier quotes much easier to read.

The sourcing terms buyers see most often

Supplier, manufacturer, factory and trading company

A supplier is simply the company selling to you. It might make the product itself, outsource part of the work, or buy the finished goods from another factory.

A manufacturer or factory actually carries out one or more production steps.

A trading company buys from factories and resells to customers. That is not automatically a bad thing. Some traders are useful when an order involves several factories, mixed products, packaging, or export paperwork.

So ask practical questions. What is made in-house? What is outsourced? Where does final assembly happen? Can you visit or inspect the site? A supplier audit can check the factory, equipment and real production capacity.

A factory might claim it can make 100,000 units a month. Sounds plenty if your order is only 5,000 units. But if most machines are already booked, that headline number does not help you much.

A sourcing agent may handle supplier search, quotations, samples, audits, inspections and shipping. The China sourcing process can cover just a few of these steps or the whole job.

RFQ and RFI

RFQ means Request for Quotation. It gives the supplier enough detail to work out a price.

This is too vague:

Please quote 5,000 stainless-steel bottles.

One supplier may quote 201 stainless steel. Another may use 304. One may include printed retail boxes. Another may assume plain bulk cartons. A difference of $0.40 becomes $2,000 on 5,000 units, yet the products may not be the same at all.

A useful RFQ normally includes quantity, material, dimensions, finish, packaging, logo, testing requirements, destination market, required date and Incoterm.

When comparing suppliers in a China product sourcing project, send each one the same RFQ. Otherwise you are comparing different products, not different prices.

RFI means Request for Information. It often comes before an RFQ and checks whether the supplier has the right equipment, capacity, experience and certifications.

In simple terms: RFI asks, “Can you make it?” RFQ asks, “What will it cost?”

SKU, MOQ, MOV and price breaks

SKU means Stock Keeping Unit. It is an internal code used to identify a specific product variation.

Say you sell one bottle in three colors and two sizes. That gives you six different product variations, so you may manage them as six SKUs.

• 500 ml black: SKU 1
• 500 ml white: SKU 2
• 500 ml blue: SKU 3
• 750 ml black: SKU 4
• 750 ml white: SKU 5
• 750 ml blue: SKU 6

An SKU is not the same thing as a universal barcode. Buyers and sellers often create their own SKU system to keep products, colors, sizes and versions straight.

MOQ means Minimum Order Quantity.

If a supplier says the MOQ is 3,000 pieces, do not stop there. Ask whether that means 3,000 in total, 3,000 per model, 3,000 per SKU, or 3,000 per color.

Say you want:

• Black: 1,000 units
• White: 1,000 units
• Blue: 1,000 units

That is 3,000 units in total. But it still does not meet the requirement if the factory wants 3,000 units per color.

MOV means Minimum Order Value. Instead of requiring a certain number of pieces, a supplier may require the whole purchase to reach a minimum dollar value.

For example, a supplier might accept mixed products as long as the total order reaches $5,000. You could buy several SKUs rather than meeting a separate high quantity for one item.

You may also see MOP used to mean Minimum Order Price. It normally refers to a minimum amount of money that must be spent before the supplier accepts the order. MOP is less standardized than MOQ or MOV, so ask the supplier exactly what it means on its quotation.

MOQs exist because production has fixed costs. Raw materials, machine setup, printing plates, color changes and packaging setup all cost money before the first saleable unit comes off the line.

The 5,000-unit order is cheaper per piece, but you also spend $20,500 and carry more stock. A lower unit price is not always the better deal.

MOQ, MOV, price breaks and payment terms are often discussed together when negotiating with Chinese suppliers.

OEM, ODM, private label and white label

OEM usually means the factory makes a product based on your design, drawing or specification.

You might send CAD drawings for an aluminum housing, for example, and ask the factory to make the part to those files.

ODM is different. The supplier already has a product or design platform, and you make changes to it. That could mean changing the color, dimensions, features, accessories or packaging.

Private label generally means selling a product under your own brand.

White label usually means an existing product is sold to several brands with only small changes.

The label matters less than the deal behind it. Put in writing what you own, what the factory can change, and whether it can sell the same design to another customer.

WIPO recommends covering ownership, confidentiality and permitted use of intellectual property in supplier agreements.^[1]

BOM, specifications and approved materials

BOM means Bill of Materials.

For an electronic product, a BOM might list the PCB, battery, housing resin, cable, connector, screws, display and packaging components.

A product with 20 components can look exactly the same after one part is changed. Yet its life, performance or compliance may change with it.

A written specification can cover:

• Material grade
• Dimensions and tolerances
• Weight
• Surface finish
• Color reference
• Performance limits
• Approved component brands or alternatives
• Logo position
• Packaging
• Testing requirements

If a part must be 100 ± 0.20 mm, write that number down. “About 100 mm” is asking for trouble.

Prototype, sample, PP sample and golden sample

A stock sample is an existing product the supplier already has.

A custom sample may include your material, color, logo or packaging.

A prototype can be CNC machined or 3D printed even if mass production will use a different process.

A PP sample, or pre-production sample, is checked before bulk production starts.

A golden sample is the approved physical sample used as the reference for later production.

A fairly simple custom sample may take around 3–15 working days. Molded or engineered products can take longer, especially when tooling is involved.

If you went through five sample rounds, record exactly which version was approved. “The latest sample” is not precise enough once production starts.

Tooling, mold fee and NRE

Tooling includes molds, dies, jigs, fixtures and other equipment made for production.

A basic fixture may cost a few hundred dollars. Custom tooling can run into several thousand. Injection molds may cost a few thousand dollars, tens of thousands, or more depending on size, cavities, steel, expected mold life, complexity and finish.

Before paying, ask:

• Who owns the tool after payment?
• Can the factory use it for another customer?
• Where will it be stored?
• Who pays for maintenance?
• What mold life is expected?
• Can it be moved to another factory?
• Who pays for later engineering changes?

NRE means Non-Recurring Engineering. It usually covers one-time development, programming, engineering or setup work.

If tooling costs $6,000 and you buy 30,000 units, the tooling works out to $0.20 per unit. Stop after 3,000 units and that same tooling costs you $2.00 per unit.

Quotation, PI, PO, commercial invoice and packing list

A quotation tells you what the supplier is offering and on what terms.

It may include unit price, MOQ, price breaks, tooling, packaging, sample cost, lead time, payment terms, Incoterm and quotation validity.

PI means Proforma Invoice. It is normally issued before shipment and often before payment. It lists the proposed products, quantity, price and commercial terms.

PO means Purchase Order. It is the buyer’s formal order document.

A PI saying “5,000 pcs × $4.20 = $21,000” still does not tell you the material, tolerance, packaging or component requirements. Those details need to exist somewhere else in writing.

A commercial invoice is different from a PI. It covers the actual commercial shipment and states what is being sold and the amount the buyer is paying. Customs authorities use commercial invoices when assessing imported goods and duties.^[10]

A commercial invoice commonly includes details such as seller and buyer information, product description, quantity, unit value, total value and other shipment information required by the destination market.

A packing list describes how the shipment is physically packed. It may show carton or pallet count, quantity, net and gross weight, dimensions and package marks. Freight forwarders and customs officials can use it to check the cargo.^[11]

Think of the difference this way:

• Commercial invoice: What was sold and for how much?
• Packing list: What is packed, where is it packed, and how much does it weigh?

If the commercial invoice says 5,000 units but the packing list shows 4,800, stop and check before shipment. The shared information across the documents should make sense together.

The China sourcing documents guide covers purchase, invoice, packing, inspection and shipping documents.

T/T, deposit, balance and L/C

T/T means Telegraphic Transfer. In everyday sourcing, that normally means a bank wire.

30% T/T deposit, 70% balance before shipment.

On a $20,000 order:

• 30% deposit: $6,000
• 70% balance: $14,000

30/70 is common, but it is not a fixed rule.

The real question is when that $14,000 becomes due. After production? After inspection? Before shipment? Against shipping documents? Put the trigger in writing.

L/C means Letter of Credit. It is a bank payment method based on documents.

Under ICC UCP 600, banks deal with documents rather than the goods, services or performance behind them.^[2]

So a clean set of shipping documents does not prove that 10,000 products inside the container meet your specifications.

Lead time, production time, ETD and ETA

Lead time is the time needed to complete a stated stage.

If a supplier says “30 days,” ask when the clock starts. It might be after the deposit, artwork approval or PP sample approval.

An illustrative schedule might look like this:

• Sample and approval: 5 days
• Mass production: 30 days
• Ocean transit: 25 days
• Planning buffer: 5 days

That comes to about 65 days. Real timing can be shorter or much longer depending on the product, factory, route and season.

ETD means Estimated Time of Departure.

ETA means Estimated Time of Arrival.

QA, QC, AQL and inspection

QA means Quality Assurance. It covers the controls used to stop defects from happening in the first place.

QC means Quality Control. It checks whether the actual goods meet the agreed requirements.

Common inspection terms include:

• PPI: Pre-Production Inspection
• DUPRO/DPI: During Production Inspection
• PSI: Pre-Shipment Inspection
• CLC: Container Loading Check
• CLS: Container Loading Supervision

PPI happens before production, DUPRO during production, and PSI before shipment. Different products need checks at different stages, which is why the quality inspection process is not the same for every order.

AQL means Acceptance Quality Limit. ISO 2859-1:2026 sets out AQL-indexed sampling schemes for lot-by-lot inspection by attributes.^[3]

An AQL inspection usually does not mean checking every single unit.

A 5,000-piece order may be inspected through a defined random sample. The sample size and acceptance criteria depend on lot size, inspection level, AQL and the sampling scheme used.

Defects are commonly grouped as:

• Critical: serious safety or regulatory defects
• Major: defects affecting function, use or saleability
• Minor: smaller deviations from the agreed standard

Agree on these before inspection. If a 2 mm cosmetic scratch matters to you, say so before the inspector arrives.

If final payment depends on inspection, book the pre-shipment inspection early enough to leave time for rework.

EXW, FCA, FOB, CIF, DAP and DDP

The International Chamber of Commerce publishes Incoterms® rules. Incoterms® 2020 has 11 rules covering specific transport tasks, costs and risks.^[4]

They do not decide product quality, payment terms or IP ownership.

EXW — Ex Works

Under EXW, the seller makes the goods available at the named place. Under the rule, the seller does not have to load the collecting vehicle or clear the goods for export.

FCA — Free Carrier

Under FCA, the seller delivers the goods to the buyer’s nominated carrier at the agreed place. It can be used for different types of transport.

FOB — Free On Board

FOB is for sea or inland-waterway transport. Delivery happens when the goods are on board the nominated vessel at the named port. ICC says FCA should be considered when containerized goods are handed to the carrier before vessel loading.^[5]

Do not just write “FOB China.” Use the named port and version:

FOB Ningbo Port, Incoterms® 2020

CIF — Cost, Insurance and Freight

Under CIF, the seller arranges specified freight and insurance to the named destination port. Risk still transfers earlier, when the goods are on board at the port of shipment.

DAP — Delivered at Place

Under DAP, the seller moves the goods to the named destination ready for unloading. The buyer normally handles import clearance and import duties.

DDP — Delivered Duty Paid

Under DDP, the seller carries the transport risk to the named destination and handles import clearance plus applicable import duties and taxes under the rule. Local law can still affect whether a foreign seller is allowed to complete those import formalities.

If someone quotes “$4.60 DDP,” ask who files the import declaration, who appears as importer where relevant, which duties and taxes are included, and whether any destination charges are left out.

FCL, LCL, CBM, GW and NW

FCL means Full Container Load. Your shipment uses dedicated container space rather than sharing the container with unrelated LCL cargo. The container does not need to be packed completely full.

LCL means Less than Container Load. Your cargo shares the container with other shipments.

LCL works well for smaller shipments, but there is usually more consolidation and handling. This LCL shipping guide explains warehouse cutoffs, consolidation and common charges.

CBM means Cubic Meter.

For a carton measuring 60 cm × 40 cm × 40 cm:

0.60 × 0.40 × 0.40 = 0.096 CBM.

For 100 cartons:

0.096 × 100 = 9.6 CBM.

This is why a cheap but bulky product can still be expensive to ship.

GW means Gross Weight, including packaging.

NW means Net Weight, excluding the relevant packaging.

B/L, AWB and freight forwarder

B/L or BOL means Bill of Lading and is used in ocean shipping.

AWB means Air Waybill and is used for air cargo.

A freight forwarder arranges the shipment. A carrier moves the cargo. A customs broker handles customs entries where authorized.

Before shipping, check the company names, addresses, product descriptions, quantities, package count and weights across the commercial invoice, packing list and transport documents.

HS code and customs classification

HS means Harmonized System.

The World Customs Organization says the HS contains more than 5,000 commodity groups identified internationally by six-digit codes. More than 200 countries and economies use it, and more than 98% of merchandise in international trade is classified in HS terms.^[6]

The first six digits form the international base. Individual countries can add extra digits for their own tariff and statistical needs.

In the United States, the Harmonized Tariff Schedule provides tariff rates and statistical categories, while U.S. Customs and Border Protection administers and enforces tariff classification.^[7]

Do not copy a supplier’s HS code without checking it. Confirm the destination classification based on the product’s material, function and construction.

Importer of Record

IOR means Importer of Record.

In the United States, CBP uses an Importer of Record number to identify importers for customs purposes.^[8]

If a supplier or forwarder offers DDP shipping, ask who appears on the customs entry and which import documents your company will get.

Landed cost

Landed cost is what the order really costs by the time it reaches the required destination.

Take this illustrative 10,000-unit order:

The supplier price is $3.80 per unit. The illustrated landed cost is $4.87 per unit.

Now compare two factories:

• Supplier A: $4.20 per unit
• Supplier B: $4.45 per unit

On 5,000 units, Supplier A looks $1,250 cheaper.

But if A’s cartons use 20% more shipping volume, or the order needs extra testing or rework, that saving can vanish pretty quickly.

When comparing China suppliers, use the same specifications, quantity, Incoterm and landed-cost assumptions.

Compliance, test reports and CE marking

“We have certificates” is not enough.

Ask for the certificate or report number, exact product model, applicable standard, laboratory and issue date.

A test report for Model A does not automatically cover Model B. And a report from several years ago does not prove that today’s production still uses the same materials and components.

For products covered by applicable EU legislation, the manufacturer must identify the relevant requirements, complete the required conformity assessment, prepare technical documentation and issue the required EU declaration before adding the CE marking. A notified body is not required for every product.^[9]

Ask which EU legislation applies to the exact model you are buying and request the supporting documents.

Electrical products, toys, food-contact goods, medical devices, PPE and battery-powered products can all have different requirements. Check what applies to your product and destination market before ordering.

NDA, NNN and IP ownership

NDA means Non-Disclosure Agreement.

NNN commonly refers to non-disclosure, non-use and non-circumvention provisions.

If you are sharing CAD files, molds, formulas, packaging designs or unreleased products, spell out what the supplier can and cannot do with them.

If you spend $15,000 on development and tooling, ask whether the factory may:

• Make the same design for another buyer
• Keep your CAD files after the project
• Modify the design for another customer
• Use your trademark in marketing
• Keep the mold if production moves elsewhere

Common supplier phrases that need another question

“Same quality.”
Same material, dimensions, components and defect limits?

“MOQ is 1,000.”
Per SKU, per color, per size or for the whole order?

“Minimum order is $5,000.”
Can several SKUs be combined to reach the MOV?

“Tooling is refundable.”
After how many units or how much total purchasing?

“Sample fee refundable.”
At what order quantity, and when is it credited back?

“Passed inspection.”
Which inspection, sample size, checklist and defect limits?

“Food grade.”
Which material and which destination-market requirement?

“We have CE.”
For which exact model and which EU legislation?

“DDP shipping.”
Who handles the import declaration, who appears as importer, and which charges are actually included?

How to read a China supplier quotation

Product: custom storage box
SKU: BX-750-BLK
MOQ: 3,000 pcs
Price: USD 4.35/pc FOB Ningbo
Mold: USD 2,500
Sample: 7 working days
Production: 30 days after PP sample approval
Payment: 30% T/T deposit, 70% before shipment
Packing: 4 pcs/master carton

Before you place the order, ask:

• Is the 3,000-piece MOQ per SKU, per color or total?
• Can several SKUs be combined if there is an MOV?
• Which material grade is included in $4.35?
• Does $4.35 include printed packaging?
• Who owns the $2,500 mold?
• Can the mold be moved to another factory?
• When do the seven sample days start?
• Does the 30-day production time include packing?
• What happens if the PSI fails?
• Is the balance due before or after inspection?
• Which named port applies to the FOB quotation?
• What are the carton dimensions and gross weight?
• Will the final commercial invoice and packing list match the actual shipment?
• Which other shipping documents are included?

3,000 units at $4.35 cost $13,050. Add the $2,500 mold and the project reaches $15,550 before freight and import costs.

A 30% deposit on the goods is $3,915. If the $2,500 mold is also paid upfront, the first payment becomes $6,415.

Finally

Start with the terms that change price, specifications, payment, quality and delivery. Before paying a deposit, tie each one to a number, date, document, specification or named delivery point. “MOQ 3,000,” “30-day lead time,” and “FOB price” still need more detail before you can safely act on them.

What does MOQ mean when buying from China?

MOQ means Minimum Order Quantity. Check whether it applies to the whole order or separately to each SKU, color, size or design. If the supplier requires 3,000 pieces per color, a mixed order totaling 3,000 pieces will not meet the MOQ.

What is the difference between MOQ and MOV?

MOQ sets a minimum number of units, while MOV sets a minimum order value. A supplier might require 1,000 pieces of one product, or it might allow several SKUs to be combined as long as the whole purchase reaches a stated value such as $5,000.

What is the difference between OEM and ODM in China sourcing?

OEM usually means the factory makes a product to your design or specification. ODM normally starts with a product or design already developed by the supplier. Either way, put drawings, ownership, allowed changes and IP rights in writing.

What is the difference between a PI and a commercial invoice?

A PI is normally used before the final shipment to show the proposed products, quantities, prices and payment terms. A commercial invoice reflects the actual commercial shipment and is used in customs and import procedures.

What is the difference between a commercial invoice and a packing list?

The commercial invoice records the commercial side of the shipment, including products, quantities and values. The packing list shows how the goods are physically packed, including packages, weights and dimensions. Where the same information appears on both documents, it should be consistent.

Should I use FOB or FCA for containerized shipments from China?

It depends on when and where the cargo is handed over. FOB is for sea or inland-waterway transport and delivery happens when the goods are on board the vessel. If containerized cargo is handed to the carrier before loading, ICC says FCA should be considered instead.

What does 30% deposit and 70% balance mean?

It means 30% is paid at the first agreed payment stage and 70% later. The PO or contract should say what triggers the balance payment, such as production completion, a passed pre-shipment inspection or specified shipping documents.