Interest on a Chinese Supplier’s Prepayment Refund: When Does It Start?

A Chinese supplier agrees to return an advance payment, but the money has been held for months. Should interest start when the buyer paid, when the sale ended, or when the promised refund became overdue? Those dates can produce very different claims. The answer depends on the legal basis for the refund and any later agreement.

This guide concerns business-to-business purchases of goods. It focuses on the buyer’s refund calculation; an unpaid sales invoice owed to a seller raises a different starting-point analysis.

1. Establish why the supplier must refund the payment

A transfer receipt proves payment, not by itself an immediately enforceable refund obligation. Identify whether the buyer has validly avoided the sale, the parties agreed to cancel it, or a separate settlement creates the repayment obligation. A delivery delay does not automatically establish every condition for termination and repayment. The non-delivery and prepayment-refund guide addresses that first step.

Where the United Nations Convention on Contracts for the International Sale of Goods (CISG) applies, Article 81 addresses restitution following avoidance. If both parties owe restitution, it is concurrent. Where Chinese domestic law governs the issue, Civil Code Article 566 addresses the consequences of termination. A new refund agreement must also be read for its own amount, conditions and treatment of earlier claims.

Check the parties’ places of business, transaction, contractual exclusions and State declarations. The CISG entered into force for China on 1 January 1988; China’s declaration concerning Article 1(1)(b) remains relevant. A choice of Chinese law does not necessarily exclude the Convention. See the official status table and depositary declarations.

2. Under CISG Article 84, distinguish payment from the later refund deadline

Article 84(1) requires a seller bound to refund the price to pay interest from the date the price was paid. In a qualifying restitution claim, that date can therefore precede both avoidance and a later demand for repayment. The rule does not mean that every advance automatically earns interest while the sale continues normally.

Record each advance separately. Preserve the transfer instruction, bank debit, value-date information and available evidence of receipt; explain any disputed payment date rather than choosing whichever date produces the highest figure. A newly promised refund date should be recorded alongside the original payment dates, with any agreed change to interest rights identified.

Article 78 separately addresses interest on amounts in arrears. Adding Article 78 and Article 84 amounts for the same principal and period should not produce double recovery. Where goods must be returned, Article 84(2) also requires the buyer to account for benefits in the circumstances it specifies. Refund interest does not remove that accounting obligation. See the official treaty text, Articles 78, 81 and 84, and the return-and-refund guide.

3. Support the rate instead of inserting a familiar percentage

Neither Article 78 nor Article 84 specifies a numerical interest rate. Identify any relevant agreed term and whether it covers restitution, late repayment, or something else. A charge printed on a later demand is not necessarily an agreed contract term. The validity of contractual provisions generally falls outside the CISG under Article 4 and requires the relevant law to be considered.

For an issue governed but not expressly settled by the Convention, Article 7(2) provides a framework involving its general principles and, in their absence, the law applicable under private international law. The calculation should explain the proposed rate’s legal basis and the approach relevant to the chosen court or tribunal. Neither a Chinese LPR benchmark nor a fixed percentage applies automatically to every cross-border refund.

Keep the original payment currency visible. If the claim converts it into another currency, explain the proposed conversion date and exchange-rate source. Do not combine a renminbi benchmark, a foreign-currency principal and an unexplained exchange rate. Under a domestic-law restitution or settlement claim, analyse the interest or funding-loss basis separately; Article 566 itself does not prescribe a numerical rate or a universal start date.

4. Make a calculation that can be checked payment by payment

Schedule field	What to record
Payment and refund basis	Order, payment evidence, amount, currency, payment date and the legal or agreed reason for repayment.
Interest period	The proposed start, calculation cutoff, excluded periods and any disputed dates, with reasons.
Rate and method	Contractual or legal source, historical benchmark if used, day-count convention and rounding.
Partial repayments	Actual receipt date and amount, allocation to costs, interest or principal, and the resulting balance.
Other adjustments	Agreed deductions, benefits requiring accounting, other damages and items still in dispute.

If the justified method is simple interest, calculate the relevant principal multiplied by the annual rate and the applicable fraction of a year. A 365-day or 360-day denominator is not universal. Split the schedule when the principal or applicable rate changes; do not capitalise unpaid interest without a separate basis.

A partial refund does not always reduce principal by its full amount. Where Chinese domestic law governs allocation, Civil Code Article 561 provides, absent a different agreement, an order of relevant debt-enforcement costs, interest and principal when payment is insufficient. Establish which items are actually payable before applying that order. Separate additional funding losses from interest and explain any non-overlapping recoverable damage under CISG Article 74 or the applicable domestic rules.

5. Make any interest concession conditional in clear terms

A settlement should state whether its amount includes principal and interest, the date to which interest is calculated, the allocation of instalments, and what happens if payment is late. If a concession is intended to depend on actual receipt by a deadline, express that condition and the consequences of failure clearly. Do not assume that signing a repayment schedule preserves every previous interest claim.

Review release language such as full and final settlement before signing. A broad release may affect interest as well as principal; a general reservation elsewhere may not resolve conflicting terms. An agreed extension also needs a clear answer on whether interest continues during the extension. These are drafting and negotiation points, not obligations the supplier must accept.

6. Turn the calculation into a focused recovery review

For an initial discussion, provide the parties’ legal names, amount and currency, contract and dispute-resolution clause, payment records, termination or cancellation documents, refund promises and actual repayments. Identify any deadline to accept a settlement and the result sought. Detailed sensitive materials can follow an initial conflict check.

The review can separate the defensible principal, interest basis, disputed periods and evidence gaps, then consider negotiation, arbitration or litigation and practical recovery in China. Service scope and fees are confirmed before engagement; sending an enquiry does not itself establish representation or guarantee recovery.

See China procurement legal support or contact Jianxing Pan at panjianxing46@gmail.com.

Official sources checked on 25 October 2026: the CISG text and status records linked above, and the Civil Code of the People’s Republic of China, effective 1 January 2021, including Articles 561 and 566. General information, not an opinion on a specific claim. Cover: AI-generated conceptual illustration, not a real client, case or shipment photograph.

Author: Jianxing Pan
Partner, Beijing ChangAn Law Firm; working in Beijing and Shenzhen.