11 Ways to Pay for Your Chinese Supplier

6 June

I have many questions new importers who find the most reliable way to pay Chinese factories. These buyers are particularly worried about the "safety" of their money after reading horrible stories online.

1. Telegraphic Transfer (TT) / International Transfer

It is probably one of the oldest methods of payment in foreign trade according to the exchange system and the most favorable, especially for medium low-end transactions. Normally, a deposit is sent before production and the payment balance conditions. The main risk for the buyer loses prepayment when something goes wrong. Normally, the supplier is charged 30% down payment and 70% balance before shipping. The risk of payment to the supplier: the buyer pays the deposit and loses the interest later due to other reasons, for example, supplier's bankruptcy. Once the product is standard product frequently sold, the seller will often change the stock to other buyers. If it is a niche product, the seller may be stuck. This is one reason why tailor-made products / unique, suppliers (or at least the smart suppliers) are usually required for a higher deposit. The acceptance of suppliers: the most popular payment method.

2. PayPal

One of the problems I see among the most popular in online forums is on the security of PayPal as a payment option. PayPal has gained much acceptance in recent years and is a method of payment now widely accepted, especially with technically savvy e-commerce providers. However, it is not possible for the most important transactions, which calculates the charges on the percentage. You can agree with the Chinese factory to pay the fee but can change their cost and make larger transactions are more careful in terms of investment operation. It is quite common for manufacturers to pay PayPal fees to their suppliers because of a loss of 3.5% + currency exchange rates. It is actually consumed on the margins of the supplier's. In addition, there are many online confusions about the "buyer protection" policy PayPal for international transactions and claims can be difficult to win. Most PayPal accounts are held by individuals or businesses registered in Hong Kong managed by people from Mainland China. They are much better covered with PayPal when the "PayPal Checkout" is used on websites, rather than sent directly to Paypal accounts. The acceptance of suppliers: Most providers accept Paypal as payment for a sample.

3. Western Union

Regarding the availability, Western Union is the next available from PayPal and is the preferred payment method for the payment and small sample payment method provider. This is a method of payment, very coveted by many Internet providers and slandered. There are much online counseling for importers suggesting Western Union avoid using it because it "holds" the risk to the buyer. There is a certain truth that when you pay with the WU, you often pay an individual and not much you can do if they disappear after the payment. There is an online believe that if a supplier request payment from Western Union, don't trust them. This is not always the case, and one of the reasons for its popularity among vendors, especially small vendors is the ease and speed with which they can receive payment and very low cost compared to other methods. Therefore, Western Union can be a good payment option to pay your supplier/agent's trust when you need to get money quickly and cheaply. "Trust" is the key word here, if you send money about WU, there is very little recourse. The acceptance of suppliers: very high, especially for the purchase of less than $ 10,000.

4. Letter of Credit

"Letter of Credit" is probably the safest method of payment, at least in terms of "payment risk" and also a popular choice for transactions over $ 50,000. However, LC is not always possible for small importers, for exorbitant bank charges, complex procedures, and formalities. LC can initially be difficult to understand, and it is advisable to use a certified letter of credit for advice and compliance at least in the first two transactions. Once you understand the concepts, everything becomes much easier. Small and medium-sized enterprises (the attractive prices tend to have) do not always feel comfortable with LC due to the complexity and language barrier. One advantage of using a credit card is that it opens up a lot of "financing options", but this is a complete post itself. LC Acceptance of suppliers: For small transactions, LC is generally not accepted by suppliers.

5. International Credit Cards

On occasion, an importer would ask if "credit cards" option is an acceptable payment. The suppliers of computer accessories and other industries focused on technology through large e-commerce websites, sometimes accepting international credit cards, but unlike that, credit cards are just an option, especially when it deals directly with the factories. It is simply a payment option for high-risk suppliers due to problems and also an expensive option in terms of the cost back. Acceptance of suppliers: Suppliers do not accept.

6. Bitcoin

Bitcoin payments are an area in which we are particularly excited about. As Bitcoin exchanges arise in most countries, there can be a global system that allows you to transfer convertibility between two currencies to one (very brief) bitcoin. Assuming that the proportion and bitcoin are lower than that between the two currencies directly, this could be a great gain for importers and exporters. Acceptance of suppliers: Suppliers do not accept.

7. Alibaba Escrow

Alibaba has its own payment system in place in the world of B2B suppliers. Alibaba Escrow allows buyers to have held their funds through Alibaba.com until the goods have been approved by the former. Personally, I've never used this method of paying on behalf of a customer. I think Alibaba Escrow is mainly used for single microtransactions, and I'm not sure flexibility is the prerequisites for the "cheap" the merchandise is released prior to payment. The acceptance of suppliers: It is only possible through the Alibaba platform.

8. Cash

The cash way is big in China and will come for some time. Even large transactions are often done in cash. Pay in cash if the importer is in China and is represented by a sourcing company/agent company on the ground. Often you can allow access to lower prices for some products. Money is certainly the risky option from the point of view of importers as if something goes wrong. The cash can be used for small transactions, and where there is a certain degree of trust with the supplier. Cash acceptance by suppliers: strong in some areas, especially low technology sectors (eg furniture), low in other areas, particularly high technology. Typically, small workshops from factories that do not allow to run or pay taxes or appropriate wholesalers tend to prefer cash payments. High under the small factories/commercial, low-cost enterprises to become the largest and most organized and public enterprises. The acceptance of suppliers: Every supplier wishes this way.

9. Document against payment (DP)

The exporter will provide the complete documentation to the bank and the bank pay from the customer's money. Note that the bank, which only helps exporters to transfer documents to customers. If the customer refuses to pay, the documents would be handed over without a guarantee to the exporter who is making the payment. In other words, even if the documents are complete and comprehensive, the exporter takes the risks that customers do not pay, and then they have to sell products at low prices or simply send them back. The acceptance of suppliers: they will only accept for big buyers with very good reputation.

10. Documentary collections

This method of payment is similar to an LC but less formal and more flexible. As with LC, the exporter has designated a complete set of business documents for the collection of payments to the bank in the contract. The bank will send the documents to the home office, which in some cases, send the documents to the buyers for further examination. The payment is made after the documents are approved by all parties. This payment method offers only a limited coverage against default. It can be much cheaper than a letter of credit but must be used with caution. It is up to the exporter to determine the specific instructions for use in the collection of letters. The acceptance of suppliers: they will only accept for big buyers with very good reputation.

11. Import Factoring

Import factoring is suitable for the import company using the open account (O / A). At the request of the supplier and in the light of the internal valuation of the Chinese bank in the creditworthiness of the importer, the bank provides the supplier a credit line, under which the bank not only credit protection export to the Chinese bank credit against the credit risk importer, but also importers of financial management services. The importer must choose O / A as a payment period to negotiate with the supplier and the supplier proposes to applying factoring to a Chinese bank, namely the import factor from the local export supplier factor. After the application receives the order, the import factor informs the decision of the supplier's credit line according to a full assessment of the creditworthiness of the importer. The supplier sends the export products and loans granted related factor according to the approved credit line to import. When bills are considered since the import factor will make the importer remembers payment. The acceptance of suppliers: they will only accept for big buyers with very good reputation. Having questions paying your Chinese supplier? Contact us.