“How do I pay my China suppliers?” is a key question that importers of Western companies often ask when considering payment methods for your business.
This article will introduce the payment methods in turn, and analyze the advantages and disadvantages of each method. We hope this article will help you better understand international payment methods.
Bank transfer/Telegraphic transfer (TT)
Telegraphic Transfer (T/T) is one of the most popular payment methods between companies in the world. The remitter deposits a certain amount of money in the remittance bank, and the remittance bank sends the wire transfer payment authorization letter to the remitting bank through telegram and informs the remitting bank to pay a certain amount to the beneficiary.
1.1 Advantages of Telegraphic transfer
Wire transfer is a type of wire transfer that is widely accepted by both buyers and sellers due to the speed of remittance and is widely used in actual business.
•Easy and simple process
•No exchange rate loss
•Suitable for large remittances
1.2 Disadvantages of Telegraphic transfer
Although it is fast and convenient, it also has disadvantages. Its bank charges are relatively high compared to bill remittance. In addition to the remittance fee, it also needs to charge corresponding telecommunication fees.
•There are telegram fees and handling fees
•Need a lot of information to confirm
•For urgent remittance projects, relatively high bank fees
•Not suitable for small transfers of small businesses
2.A Letter of Credit (L/C)
A Letter of Credit is referred to as T/T. It means a written certificate issued by the bank to the exporter (seller) to guarantee the payment of the goods at the request of the importer (buyer).
The use of letters of credit is mainly a tool used in international trade activities. To a certain extent, the buyer and the seller may not trust each other. The buyer is worried that the seller will not deliver the goods as required by the contract after the advance payment; the seller is also worried that the buyer will not pay after the goods are delivered or the shipping documents are submitted. Therefore, two banks are required to act as guarantors for both the buyer and the seller, and present the bills on behalf of the collection, and use bank credit instead of commercial credit.
2.1 Advantages of Letter of Credit
•The payment is guaranteed
•The financial burden of both parties is more balanced
•suitable for large orders
2.2 Disadvantages of Letter of Credit
•High cost of payment
•If the letter of credit is not standardized, it will affect the receipt of the goods.
PayPal transfers funds between users who are identified by e-mail, avoiding the traditional methods of mailing checks or remittances. PayPal has also cooperated with some e-commerce websites as one of their payment methods. But when using this payment method to transfer money to China suppliers, PayPal charges a certain amount of handling fee. Please note that payment using PayPal has an expensive fee and is more suitable for small orders.
Currency exchange is involved when PayPal collects, withdraws, or balances conversion, and PayPal also charges currency exchange fees. Currency conversion fees are generally: 2.5% increase based on the wholesale exchange rate.
3.1 Advantages of PayPal
3.2 Disadvantages of PayPal
•High withdrawal fees
•Suppliers who accept PayPal may pass the cost on to the buyer
•Seller protection policy brings risks to suppliers
4. Cash in advance
Cash in advance is also an advance payment to China suppliers. The buyer completes the payment and pays the seller the full amount before the goods are delivered and shipped to the buyer. Cash in advance methods includes debit card payment, wire transfer, international checks, and so on. Although cash can be used as advance payment, credit card payment and wire transfer are more common in foreign trade payment methods.
Under the advance payment, the funds are received by the exporter before transferring the ownership of the goods to the importer. Therefore, Cash in advance is the lowest risk for exporters, but it brings a high risk to importers.
Suppliers may require importers to pay 100% in advance before production. Full payment will expose the importer to the highest risk because the quality of the goods cannot be guaranteed.
Usually, the total amount of orders is paid to Chinese suppliers in two stages, and payment processing fees will be charged for each transaction.
A typical payment agreement is as follows:
-30% of the order amount before the start of production
-70% after order completion
4.1 Advantages of Cash in advance
•Early payment for exporters
4.2 Disadvantages of Cash in advance
•Risk of cargo damage for importer
•Bad cash flow
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