China Sourcing Payment Methods to Select for China Purchasing

POSTED ON July 7, 2021

When beginning a relationship with a supplier in China and choosing the correct china sourcing payment methods is important, deciding the payment terms and how to actually pay for the goods ordered can be a tough task. Anyone who is sourcing products from China for the first time will have some concerns such as how much to pay when, what payment methods to use and how to ensure that you actually receive the right goods once you have made the payment. In this post, we will try to address most of your concerns regarding payment to Chinese suppliers. Regardless of the payment methods you choose, there are some things that you should always keep in mind. The first one is that you should always make money transfers to a business account and not to a personal account. It is obviously safer to transfer payment to an account in the company’s name with full address rather than to an individual. Also, you must fully document all the payment terms and have an agreement signed sign an agreement with the supplier. This agreement should cover everything right from when will the payment be made, via which payment method and what happens in case the delivery is delayed.

Another very important thing to note here is that fraud are not very common when dealing with Chinese suppliers. If you choose a wrong supplier, you may have issues with quality or timely delivery, but financial frauds are uncommon. Nevertheless, nothing should be left to chance. When you have a long-standing relationship with a supplier within your own country, you may be used to paying them after a couple of months of delivery. However, a supplier in another country may not accept the same terms. They would want a deposit before they start the production process. Usually, they would take 25-30% as a deposit and the remaining amount upon completion. This is particularly true when you are working with a particular supplier for the first time. For repeat orders, you may be able to negotiate better payment terms.

The supplier may demand a bigger deposit if he has to make large upfront expenditures for your order. When we say you need to pay the full amount upon completion, it means you pay when you receive a copy of the Bill of Lading, which denotes that your shipment is out for delivery. Wire transfers refer to the transfer of funds from one place to another via a network of banks and financial institutions across countries. Bank transfers are the most common type of wire transfers. This method is most commonly accepted by both buyers and sellers. However, wire transfers tend to be expensive, because you it involves a lot of costs including a fixed transfer fee, which each participating bank charges, the exchange rate margin and other costs. Moreover, it may take 2-5 days for the payment to reach the recipient. Escrow is a service that allows both seller and buyer to protect a financial transaction by placing the funds with a trusted third party until a predefined set of conditions are met. This is how it works:

  1. Buyer and seller agree to the escrow terms and the buyer funds the Escrow account
  2. Seller ships the products to the buyer
  3. Buyer accepts the products
  4. Escrow pays the seller

The criteria for releasing funds could include the buyer receiving the products within the pre-defined timeframe. Though quite useful, this payment method is not too popular among Chinese suppliers. The best way to avoid all the payment-related risks and to ensure that you receive quality products within the stipulated time is to hire the services of a sourcing agent in China. This is what most of the successful exporters across the world do.