Episode #7 of the course Fundamentals of importing physical products from China by Damir Serbečić
Hey, it’s Damir with another lecture about importing products from China.
Today, you’ll learn about the most common payment methods for paying Chinese suppliers and how to negotiate the best terms.
Paying a supplier for the first time can be REALLY frustrating. That’s why you need to do your due diligence and make sure you are not dealing with a fraud.
However, if you are still not 100% sure, then try to add as many layers of protection as possible.
When dealing with Chinese suppliers, there are 2 common ways of adding protection:
• Trade Assurance (more about that in the next lecture)
• 30:70 payment terms
A 30:70 payment term is common for almost every transaction, not just the 1st one. It basically means that once you have negotiated all the details, you’ll make a payment of 30% of the proforma invoice value. This will be enough to start and finish the production and to show that you are serious about the order. Once the production is finished, you’ll pay the remaining 70% so they can release the goods to a shipping agent.
Why Is This Important?
The 30% shows that you are willing to start the production, and more importantly, the 70% gives you the control.
Once the production is finished, you can ask for images, videos, and send third-party inspection agents before you pay the rest of the sum. Doing so, you are motivating suppliers to work even harder for the remaining 70%.
Now that you have negotiated the payment terms, it’s time to decide which payment method suits you the best.
Ask your supplier which payment methods they accept.
Here are the most common ones:
Paypal. As mentioned before, Chinese suppliers are not keen on PayPal because of the high withdrawal fees. However, many suppliers still use it.
Overview: Transfer is immediate, and there are usually no fees on your side (unless you agree to split PayPal fees with your supplier). You are protected by PayPal’s refund policy.
Telegraphic transfer. This is the most common form of payment, which I highly recommend. Telegraphic transfer, or T/T, is basically a regular bank transfer.
The supplier’s bank details (IBAN account number, company name, bank name, SWIFT code) should be visible on the proforma invoice. Use the supplier’s bank details to submit an international money transfer at your local bank.
Overview: Transfer takes 3-7 working days (depending on your bank), and fees are low and paid by the buyer. Use Trade Assurance to get protected.
Alipay. Alipay is Alibaba’s credit card payment processor. I usually don’t recommend using this form of payment, since the credit card-processing fees are high. Also, if your credit card currency is different from the payable currency, then you’ll have high currency conversion costs.
Overview: Transfer is immediate, fees are high, and you are protected by Alibaba.
Western Union. As I covered previously, Western Union is a legitimate form of payment. The problem is when Western Union is the only payment method that a supplier offers.
EVERY legitimate supplier should accept telegraphic transfer (T/T). If they are forcing you to use Western Union, then run in the other direction.
Also, Western Union is very expensive (high fees and negative currency conversion rates). It’s mostly used for small money transfers, such as paying for samples. It has never been intended for paying international suppliers.
With Western Union, you are never protected by any third-party company. Once a receiver withdraws money, it can’t be refunded nor do you have any protection.
Overview: Transfer is immediate, fees are very high, and there’s no payment protection.
That’s it for now!
Tomorrow, you’ll learn about Trade Assurance and how to use it in order to add an extra layer of protection to every transaction with a supplier.
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