What is the best way to pay Chinese suppliers?
New importers wanting to find out the best way to pay their Chinese suppliers. These importers are especially concerned about the “safety” of their funds having read some horror stories online.
When importing from China or from any country for that matter, there is no “Best” Payment Method and the choice of method depends on several factors, with the most important being the amount of payment.
However, let’s review these payment method and choose best way to pay your suppliers.
Someone may said PayPal is the most safety and popularity payment method, but it’s still not feasible for larger transactions as their fee is percentage based. You could agree with the supplier to pay the fee, but for larger transactions it’s not most prudent investment in terms of securing the transaction, please also think about the PayPal fee almost 4.5% on your costing.
T/T (Telegraphic Transfer)/ International Wire Transfer
This is the most common payment method, and is widely accepted by suppliers.There are risks on both sides. Suppliers will often insist on a deposit to lower their risk which subsequently then increases yours. The more customised or more hard-to-sell the goods are, the higher the deposits will normally be. As such, it’s best if you have a good relationship with your supplier.
Letter of Credit (L/C)
“Letter of Credit” is probably the most secured payment method out there, at least in terms of “Payment Risk” and also a popular option for transactions exceeding $50,000. However, Small manufacturers, workshop factories or small Chinese trading companies are still not comfortable with Letters of credits.it’s just good among large and some medium sized companies as well as trading companies
Escrow protects both parties. It means that you pay before dispatch, but the funds are held by a third party. They aren’t sent to the supplier until you’ve received your goods. but for now, where buyers have ended up with junk goods because of “proof of dispatch” provided to Escrow provider, it will be hard to get the dispute resolution team working on your behalf.
And If you’re buying through Alibaba, you might be offered payment using Alipay Escrow.
This is acceptable payment method for both suppliers and small buyers, buyer would pay agent for the goods & sourcing agent will place orders to their suppliers.
Once the agent get the goods delivered we can pay using “Cash on Delivery” or a Chinese escrow as the payment method. The difference here is that because the delivery address is in China, the receiver can reject the goods if they don’t conform to the agreement when they arrive and retain their escrow payment.
Sourcing Services offered by AQI Service , we have a fairly 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(Cash on Delivery), as they may otherwise pay upfront for the goods.
Benifit is most good suppliers do not have a problem doing so for small orders when it comes to delivering to a “Local Chinese address”.
In terms of ease of use Western Union is second only to Paypal and is the preferred mode of payment for suppliers for sample payments & small payments. This is a payment method, which is highly sought after by suppliers and much maligned on the internet.
International Credit Cards
Occasionally an importer would ask, if “credit cards” are an acceptable payment option. Suppliers in computer accessories and similar technology oriented industries selling wholesale through e-commerce websites, sometimes accept international credit cards, but other than that, credit cards are hardly an option, especially when dealing direct with factories. It is simply a high risk payment option for suppliers, due to charge-back issues and also an expensive option in terms of charges.
Payoneer Escrow offers trusted and secure payments alternative for buyers transacting with manufacturers. Buyers do not need to purchase products through a specific marketplace. Once you and your manufacturer agree to the terms, your manufacturer can request payment to be held in a secure escrow account. Payment and delivery are guaranteed, when the transaction terms are met, and disputes will be mediated quickly, fairly and with full transparency. All transactions are tracked by Payoneer. The Escrow Transaction Fee may be assigned to the buyer or seller or split at the time the payment request is created. Escrow Transaction Fees are clearly communicated to all parties. Transaction fees are based on the payment value, and are considerably less than Alibaba.com. For example, a $75,000 transaction through Secure Payment would cost $3,750. The same transaction amount through Payoneer Escrow would cost only $1,087.50.
Alipay and WeChat Pay
Most vendors accept these 2 payments instruments for samples and even orders. With Alipay and WeChat pay all you ever need is your mobile which you carry anyways.
To be fair you actually need a local Chinese bank account linked for them to be really useful but if you are outside China you can still link your Viisa or Master card, just that you will not be able to use the full range of payment services.