Money Transfers:
Different Methods to Pay Suppliers

When it comes to international trading, there are a variety of problems that can crop up. One area that is of particular concern is how to carry out a safe transaction with a Chinese supplier. There are a variety of different ways to actually conduct the transaction, each come with their own risks and is suited for different situations–for samples is different from the down payment of a large order. This article will hopefully address some of the concerns you may have. Many suppliers offer different ways of transferring money to China; however, one should be aware of the advantages and disadvantages that each method implies. Different currencies usually do not matter and are converted according to current exchange rates by the bank or a similar intermediary.

 

Different ways to Transfer Money to ChinaThere are countless ways to pay companies abroad each having certain advantages and disadvantages.

 

How to Send Money to China and Pay Suppliers

Transfer Money to China: International Wire Transfer

This method is particularly suited to low to medium transaction amounts. Generally, it consists of an advance payment prior to production (often 30% down payment) and the remaining balance (often 70% final payment) is subject to agreed credit terms. Most suppliers do accept this method of transferring money to China, and you can receive a better exchange rate than using a bank if you use an online broker.

Transfer Money to China: (Online) Escrow Services

If you are unfamiliar with escrow services, the concept is that the money is paid by the buyer to an external service who controls the funds until both parties agree for it to be released. However, while you may feel an added level of security due to an unbiased party holding the funds, suppliers can often forge documentation to get the funds released to them if a dispute occurs. The additional security might be elusive.

Transfer Money to China: Sourcing Agents

This is similar to an escrow service; however, the process is slightly different. When using a sourcing agent, they will often use their pre-vetted suppliers and handle the overall process. Instead of paying the supplier directly, the money goes through the sourcing agent. This is a safer option since the suppliers sourcing agents use are usually more thoroughly checked by someone who is actually on site. In contrast to escrow services, it is in the very own interest of the sourcing agent to work on your behalf since you pay him and he works for you. Furthermore, it is also a relatively stress free process, as the sourcing agent has to handle all issues that arise after you sign a contract with him.

Transfer Money to China: Western Union

There is often a perception that Western Union is only used by those conducting scams and that it is a platform to be avoided. However, this is not the truth. Many suppliers prefer Western Union to send money to China due to the speed and relatively low charges. On the other hand, to the purchaser there is a risk to be taken, as once one transfers money to China, it is usually impossible to get those funds returned. If you trust your supplier and have prior experience dealing with them, it may be a perfectly suitable option.

Transfer Money to China: PayPal

Despite that it is quite difficult to open a PayPal account in China; many suppliers are able to accept this form of payment to China. PayPal offers plenty of buyer protection, so it is an attractive option for purchasers. If you are particularly concerned about risks involved with international payments, try seeking out a supplier who offers PayPal. On the downside, the transaction and exchange rate fees are pretty high, which makes this solution unattractive for

Transfer Money to China: Letter of Credit

A letter of credit is considered to be one of the most secure payment methods available, and is currently one of the most popular methods for transferring money to China, particularly for large transactions of over $50,000. It is basically the professional version of an escrow service. The majority of large and medium sized suppliers will accept this payment method; however, smaller companies are few and far between in regards to acceptance. The feasibility of this method may not be appropriate for small importers, because there are usually large banking fix costs associated with this method, complex paperwork, and hard to understand technical language.

 

Transfer Money to China with WeChat WalletWithin China you can pay suppliers even by WeChat Wallet, basically the Chinese Whatsapp.

 

Further Aspects of Paying Suppliers in China

A useful way of decreasing the level of risk exposure of your company is through strategically timing certain payments. The industry wide standard is to pay an initial deposit prior to production, which is, as mentioned previously, usually around 30%. You may be able to lower this share if you are in doubt of the reliability of the supplier and if you are buying a generic product that could be sold to anyone else your supplier might agree.

However, the final payment is commonly made upon completion of production, which still leaves you vulnerable to paying and receiving low quality goods if certain requirements are not stipulated. It is wise to have certain conditions in the contract before the final payment is made. For example, you could say that the final payment is only made after a product inspection by a 3rd party to confirm the goods conform to certification and quality checks or that large sample has to be approved before.

This creates an incentive for the supplier to ensure they produce what was agreed, as these factories generally run on small margins and often cannot afford to scrap a large batch or being forced resell cheaply on their domestic market.

 

Summary

As with all international payments there will always be risk. The ways to minimize risks do not necessarily relate to the payment method, but mainly to the prior due diligence you conduct beforehand. Effectively verifying all the suppliers’ information and ensuring that they are a legitimate company prior to ordering will greatly reduce the chance of being scammed or having funds stolen regardless of the payment method. Of course, each supplier will only accept certain methods to transfer money to China, so how you make the international transaction may not always be completely under your control.

About the author

Jan has an intimate knowledge of strategic planning and operations management he acquired in the German military and in academia. Having graduated from Peking University, he possesses an acute knowledge of the Chinese economy. Jan routinely consults on short and medium term company strategy and is currently working on the company’s 3 year plan.

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