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Payment Method Options when Paying suppliers in China

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Old 05-30-2014, 06:25 PM
imexsourcingservices imexsourcingservices is offline
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Thumbs up Payment Method Options when Paying suppliers in China

P.S: This post discusses payment methods in regard to “Payment Risk” only and is silent on other import risks such as quality risks, exchange rate risks & transportation risks.

When negotiating with a supplier about payment, there are two important elements
1.The Payment Method
2. The timing of payment, i.e. how much do you pay in advance, when do you pay the balance, etc.

Both these factors directly affect the proportion of risk each party takes. Ideally, in a transaction there would be 50-50 sharing of risk, in practice, that is not always the case. The above two factors can determine, the share of risk each party takes.

Most of the discussions on the forums are focused on how to prevent fraud happening to the “buyer”, however it is extremely important to realize that cases of fraud happen to sellers too and therefore, there are many “genuine” sellers, who might not always agree to your preferred payment methods, simply because they are trying to manage their risk too. The other important factor here is that your “leverage” when negotiating payment methods & terms, is based on:
1. Value of your order
2. Scale of the supplier

(And saying that, "This is my trial order and if it goes well, we will be ordering huge quantities", doesn't work anymore. In fact suppliers would know straight away you are a beginner, which in their eyes equals to a very small chance of a repeat order, which in turn equals to an incentive for maximizing profit on first order by sending low quality goods. So please resist this cliche when negotiating (modified versions of this may still work ).

Payment Methods Commonly Accepted by Chinese Suppliers

1. Telegraphic Transfer (TT)/International Wire Transfer: This has for ages been the most used payment method and still the most popular. The main point of negotiation when paying a supplier by TT is, what part of the payment is to be paid upfront. 30% upfront and 70% upon complement/shipment is the most common standard across industries, but the upfront can be as low as 10% or as high as 50% depending on various factors. It can also be 100% when buying ready stock (often the case for small buyers, especially those buying computer/mobile accessories & electronics).

Payment Risk for Buyer: Losing the upfront deposit
Payment Risk for Seller: Buyer paying the deposit, later losing interest in the order. If the product is a standard commonly sold product, the seller can often shift the stock to someone else. In case of a unique product, the seller could be stuck. That is one reason, why for customised/unique products, suppliers (or at least smart suppliers) tend to ask for higher deposit.
Acceptance by Suppliers: Most Popular.

Tip: When sending a TT, using an online broker is often faster than using high street banks & you get better exchange rates in most cases.

2. Letters of Credit: “Letter of Credit” is probably the most secure payment method out there, at least in terms of “Payment Risk”. However, LC’s are not always feasible for small importers, due to
1. Bank Charges
2.Complex procedures & paperwork. LC’s can be difficult to understand initially and it is advisable to use a Certified Documentary Credit Specialist for consultation and compliance at least for your first couple of transactions. Once you grasp the concepts, everything becomes a lot simpler.

LC’s are one of the most popular payment method use for large import transactions. They are rarely used for transactions less than $10,000 and in most cases for transactions of $30k +.

3. Escrow: Escrow is a great concept and probably the equivalent of an LC for a small buyer. Just like LC’s are not commonly used for small transactions, Escrow is not commonly used for large transactions (typically below $5000).

Alipay/Aliexpress Escrow is the most popular escrow service for importers buying from China. However, the feedback I have personally had in cases where they have been disputes is far from pleasing. It can be hard to get refunds or even responses from the dispute resolution team. There have also been numerous cases, where buyers have ended up with junk goods, but because of “proof of dispatch” of goods, buyers get paid (not very different from an LC, where banks are bothered with the right documentation only, which is an often exploited loophole).

Note: In most cases, suppliers are a bigger customer for an escrow provider with a permanent account with them, than a one off customer. Could this effect their dispute resolution process? You decide.

Escrow Acceptance by Suppliers: Acceptance by escrow within China is actually quite good, but for international transactions it is still low. Acceptance of foreign escrow services like is very low compared to say a Chinese escrow service.

4. Sourcing Companies/Agents: Sourcing companies/agents can often play the role of a more reliable escrow service (but with the intention of protecting buyer’s interest). When the buyer pays the sourcing company, the company can get the goods delivered to their door and pay using “Cash on Delivery” or escrow as the payment method. The difference here is, because they are physically in China, they can reject the goods when they arrive and retain their escrow payment, if goods are not as agreed.

IMEX Sourcing Services has a well thought out “Cash on Delivery/Consolidation” service, designed exactly for this purpose. Your existing sourcing agents can also play this role, if they are instructed to do so. It is important you specifically instruct your agent to use an escrow or COD, as often they will pay upfront for the goods. Whether a supplier accepts this or not, is up to the supplier, but most good suppliers do not have a problem doing so for small orders.

5. Paypal: One of the most popular question on the china forum here is about the safety & popularity of Paypal as a payment method. Paypal has gained more and more acceptance in the last few years and is a commonly accepted payment method now, especially in tech-savvy industries. However, it’s not feasible for larger transactions as their fee is very high. You could agree with the supplier to pay the fee, but it can upset your costing and for larger transactions is not the most prudent investment in terms of securing the transaction.

Also, there is a lot of confusion online about paypal’s “buyer protection” policies for international transactions and it can be hard to win claims. All in all, great payment method for sourcing very small quantities and samples, but not for serious importers in my opinion. Majority of the Paypal accounts are either held by individuals or by Hong Kong registered companies managed by mainland china individuals. You are covered much better by Paypal, when using “Paypal checkout” on websites, as opposed to sending directly to paypal accounts.

6. Cash: Cash is big in China and will be for some time to come. Even large transactions take place in cash often. Paying in cash works when there is a sourcing company/agent involved. It can very often, enable access to lower pricing for certain products. Typically small workshops factories who do not have export licences or pay proper taxes, tend to prefer payments in cash. This is one of the reasons why sourcing companies can very often find better pricing than importers find through online sellers.

7. Western Union: This is a payment method, which is highly sought after by suppliers and much maligned on the forums. There is a lot of advice online for importers suggesting them to avoid using Western Union, as it’s highly risky for a buyer. There is some truth in it. When you pay by WU, you are paying to an individual and there is not much you can do, if they simply disappear after getting the payment.

However, WU, can be a good payment option, for paying your trusted suppliers/agents when you need to get the money across quickly. So while there is a lot of negative publicity around it, it is still a very good payment solution, for the right circumstances and when there is sufficient trust between the buyer and seller.

NB: At the time of writing this, individuals in China can only receive up to USD50,000/Year from abroad to their personal accounts or through other methods such as WU. Therefore, it is not uncommon for suppliers to use different names to collect western union payments each time in order to circumvent this restriction. These could be different employees or family members.

Myth: “every Chinese supplier that accepts western union, is fraud”.
Fact: While frauds have a preference for Western Union, a lot of genuine suppliers also prefer Western Union due to tax & convenience reasons.

8. Credit Cards: Occasionally an importer would ask, if “credit cards” are an acceptable payment method. Suppliers in computer accessories and similar technology oriented industries selling through e-commerce websites, sometimes accept credit cards, but other than that, credit cards are not at all popular. It is simply a high risk payment option for suppliers, due to chargebacks, etc.

Important Tips:
· Do not judge suppliers based on the “payment method” only.
· Always carry out proper due diligence, before entering into a transaction with a seller. The risk of fraud can be reduced substantially with proper due diligence while Quality risks, can be managed through choosing payment methods wisely and having proper contracts or at least a proper Proforma invoice for small value consignments.
IMEX Sourcing Services - Managing All Your China Sourcing & Quality Control Needs?
China Sourcing Services ! China Pre Shipment Inspection & China Company Verification !
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Old 05-19-2015, 09:40 PM
nelsonbailey3 nelsonbailey3 is offline
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There are various suppliers that are selling their items through ecommerce items. They accept credit cards, but apart from that, there are several other options to consider.
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Old 10-23-2015, 07:23 PM
danielmichael3 danielmichael3 is offline
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In order for you to have a great shopping experience ecommerce suppliers offer various payment method options. Some of it consists of credit, PayPal, cash and more.
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Old 10-26-2015, 08:55 PM
smithtaylor2 smithtaylor2 is offline
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Various Ecommerce websites can be used to sell items. The providers accept credit cards. However, there are many other options that can be considered too.
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