Payment Methods When Importing From China
Importers are always concerned about the safest ways to pay their Chinese suppliers. They want their funds to reach the supplier safely. When it comes to paying fees for importing, there is no such thing as the best way to pay. The choice of the payment method depends on many factors such as the amount of the payment. In this article, we will provide you with the safest and the most popular payment methods for importers from China.
Letter of Credit
This is considered the safest method of payment in the world. Paying with a Letter of Credit is very popular because the risks are very low. It is the most popular option for transactions that exceed $50,000. Unfortunately, small importers cannot pay using this method because of:
- Small Chinese Factories that offer attractive prices don not like getting paid with LC
- Complicated procedures and confusing paperwork
- Exorbitant Bank Charges
Unlike small foreign factories and companies, large and medium-sized companies have no problem in accepting the letter of credits. In fact, they see it as an opportunity to open up a lot of financing options.
Telegraphic Transfer (TT)/International Wire Transfer
This is perhaps the oldest way of payment in international trade and commerce after the barter system. TT is the most common and popular payment method for low to medium end transactions. TT usually means that the importer sends an advance payment to the supplier before production. Thus, there is a risk that the importer may lose that advance if something goes wrong. For example, if the importer loses interest in the order, he/she will not be able to ask for their money back.
PayPal has gained a lot of respect, acceptance, and trust in the last few years. It has become one of the most popular online paying methods. Since the fee is percentage based, PayPal is adequate for small transactions.
However, when it comes to large imports, acceptance among suppliers is still very low. In computers and mobile industries, PayPal is popular and quite accepted. Experts believe that PayPal acceptance as an international payment method is improving.
International Credit Cards
Many importers wonder whether or not International Credit Cards are acceptable payment methods. Well, they are if you are dealing with technology-oriented suppliers that sell wholesale through e-commerce sites.
However, when dealing directly with factories, it is highly unlikely that you will be able to make a payment with your international credit card. For large Chinese suppliers, ICC is an expensive high-risk payment option.
Escrow is a wonderful concept and probably equates to LC for a small importer. Escrow is the opposite of LC. LC can be used to pay large transactions only and Escrow is used to pay small transactions only.
Alipay Escrow is the most common Escrow service for importers who buy from China. It is owned by Alibaba Group and therefore has some credibility. However, conflict resolution processes are not brilliant. It is quite difficult to obtain refunds from a dispute resolution team.
This payment method is quite common in China but it is not very accepted outside it.
Western Union is a popular payment method in China and outside due to its easy use. Therefore, many suppliers consider it the best payment method for samples and small transactions. However, this method is risky for importers. When you are using Western Union to pay for goods, you are paying an individual who may take your money and simply disappear.
Western Union is a good payment method, it is easy, fast and inexpensive. However, you should be careful using it. Don not pay with WU unless you have already dealt with the supplier once before and you know he/she is trustworthy. If you are dealing with a supplier for the first time, avoid paying with WU.
Cash is always a welcomed payment method in China. Regardless of the amount being paid, cash is always accepted in China and it will continue to be for next years. In order to pay a Chinese supplier in cash, you will need to be in China or represented in China by an agent or a company.
Paying with cash in China is a very risky option. However, it is highly used and popular in some industries such as low tech industries. But when it comes to high tech industries, paying with cash is not quite common.
Of course, these are not the only payment methods to pay a Chinese supplier. There are several other payment options such as Open account, DP (Documents against Payment) & DA (Documents against acceptance), but these methods are extremely risky.