Considering various payment methods, currencies and customs that are in place, finding out the best payment option to pay your Chinese suppliers can be overwhelming. At the time of procuring goods from China, do keep in mind that there is no “Best” Payment Method. Your selection of payment methods will depend on various factors and the most important being the amount of payment.
Telegraphic Transfer is short for TT, also call international Wire Transfer, this is the most common and oldest payment method in international trade, and is widely accepted by suppliers especially for low to medium end transactions. Just like with cash, you’ll bear the cost of the foreign exchange transaction. When sending a TT (Wire Transfer) & needing currency exchange, using an online broker is often faster than using high street banks & you get better exchange rates in most cases.
An escrow service can serve as a decent LOC substitute for small buyers, but they’re not widely available. Escrow, on the other hand, involves a middleman receiving the funds from the buyer – only to release the money once certain conditions have been fulfilled. Escrow payment solutions are generally not provided by third parties, but supplier directories. Whether a supplier accepts Escrow payments or not depends entirely on the payment solutions offered by their supplier directory of choice.
Letter of Credit (L/C)–
A letter of credit is a time-tested financial instrument that protects the interests of the parties engaged in international trade. One of the biggest fears that any western company has is that they may lose their money paid to an unreliable Chinese supplier. Most Chinese commercial banks, e.g., Bank of China, China Construction Bank, Industrial and Commercial Bank of China have the authority to issue letters of credit (L/C) for both imports and exports. Foreign banks with a branch or representative offices in China can also issue letters of credit. Compared to other payment mode of transactions, cost of operating letter of credit procedures and formalities are more, which may be an additional expense to an importer especially on amendment, negotiation etc.
PayPal is adequate for small purchases, such as samples, as It’s quick and buyer friendly. Both the sender and receiver are likely to have an existing PayPal account, and the sender can use their bank card to initiate the payment online. However, Paypal is not widely accepted in China and it’s not feasible for larger transactions as their fee is percentage based. Factories/ medium-large suppliers almost never use PayPal as a transaction tool due to the service fees and complicated set up.
Although most suppliers in China prefer direct transfers, this is not the safest way. You need to figure out a payment method that can potentially save you thousands of dollars on your China sourcing. So it is better to have some basic knowledge to choose the best payment option.