Since the payment is transferred to a supplier who is not in your country and you don’t really know him, you should be very careful making the transfer. There are many frauds associated with payment to factories in China and involve changing the bank account information on the invoice to a fraudulent private one. Because of these scams, make sure that the bank account information you received in the quotation matches the one on the invoice. One way to do this is to ask for the supplier’s payment details as a part of the supplier selection process on Alibaba, and then compare it to the final invoice you need to pay.
The standard payment is 30% before the start of production, and 70% after production and before shipment, or after loading and receiving Bill of landing (B / L).
It is important to determine with the supplier that the payment before shipment will be made after verifying the quality and quality of the products and obtaining the results of laboratory tests when necessary. In case you pay before conducting a quality inspection and discover that the products are defective, the supplier doesn’t have an incentive to correct the defects or take responsibility for the products anymore.
There are several different ways to transfer money to suppliers in China, we will list six of them:
1.TT / Telegraphic transfer – a transfer made through your bank to the bank account of the factory. This is the preferred payment method for enterprises. It usually costs between $25-50 and takes between 3-5 days until completion.
2.E-commerce sites – this payment method operates through a third company that transfers the money to the supplier. For example:
A.Alipay – the company most commonly used in trading with China. A company owned by Alibaba, and therefore very reliable. You can also pay large sums. Alibaba offers Trade Assurance – insurance in case the supplier did not deliver the goods (the insurance level can be seen on the vendor’s page). It is important to know that sometimes their customer service doesn’t respond, and it is very difficult to obtain a refund in case you receive defective goods, since the insurance insures the arrival of the goods to the destination, rather than their quality.
B.PayPal is another platform for e-commerce, but most Chinese suppliers do not have a PayPal account and therefore will not agree to trade with it. Due to the high commission that the site charges, it is customary to use it for ordering samples and small transactions. In addition, like Alipay it is difficult to receive refunds for transactions since PayPal is not involved in the details of the agreement between the importer and the supplier.
3.Letter of credit – the money is transferred to a third party and released from it to the supplier according to the agreement. This payment method is accepted at large orders of $50,000. In this method you sign a binding legal document summarizing the terms of payment. The importer transfers the full amount to the third party at once, and the third party transfers the money to the supplier in a manner that meets the terms of the agreement. The problem with this method is that the paperwork is very cumbersome, and a very large initial capital is required because the money is transferred from the importer at once rather than according to the different stages that were pre-determined.
4.Cash – cash payment is very acceptable by the Chinese suppliers, and sometimes importers use it if they’re in China in person or if they’re represented by a local outsourcing company. This method is the most dangerous method to the importer because there is no way to claim the money in case the supplier breaches the terms of the agreement, but it saves many costs of mediation and commissions.
5.Western union (WU) – the importer deposits the money into a bank account in his name at Western Union and fills in the supplier’s account’s details. This is a fast way of money transfer because the supplier can withdraw the money within a day or two. Sometimes the account is a private one, so it is important to work with WU only with suppliers that you already know and trust. There have been incidents in the past in which manufacturers ran away with the money after the transfer.
6.Credit cards – a payment method which presents a potential risk in the case of an overdraft in the importer’s account since the money enters the supplier’s account only after a while, and therefore is often not accepted by the suppliers.
​Tip: in every payment method it is important to make sure that the details of the supplier’s account are correctly stated. It is not recommended to try to translate the Chinese name of the manufacturer into English yourself, so in case you aren’t sure, just ask the supplier. After completing the forms, it is advisable to photocopy them and send them back to the supplier for approval before submitting them; by doing so you can avoid delayed payment due to incorrect spelling or incorrect numbers.