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Tough negotiations of payment terms with Chinese suppliers

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Many purchasers are unfamiliar with what is commonly negotiated by other buyers in China, and this is especially true when it comes to payment terms.

Some suppliers take advantage of it by requesting terms that are very favorable to their side.

And it often leads to a typical “Chinese insane situation” where the buyer needs to guess what is going on in the supplier’s head.

Here are five questions that you should ask yourself in this case.

Question 1: have I understood their meaning?

In many cases, the emails you receive are typed by a junior salesperson who translates what a manager tells her.

If something sounds unusually bold or aggressive, make sure you understand correctly before getting upset. You simply need to rephrase it and ask for confirmation, or to ask them for a clearer explanation.

Question 2: are they scammers?

Scammers get an advance payment and then stop responding. It is extremely frustrating. A small minority of Chinese suppliers act as scammers, but in the end if means thousands of importers get screwed every year. Don’t be one of them.

This advance payment can be a cash deposit. Or it can be a full pre-payment (even better for scammers!).

If you have doubts, check the background of your supplier and/or pay by letter of credit.

Question 3: do they want my business?

Maybe they don’t want your order because the price they offered you is too low, but they don’t dare to tell you in a direct manner.

In many cases, they don’t know how to turn a buyer away without burning bridges. Coming up with unacceptable terms is one way of signaling “right now we’d better not work on your project”.

Sometimes an importer accepts to pre-pay an order or to pay 40% more. It comes up as a sign of weakness in the eyes of the supplier. I would always advise to reject crazy terms and to ask questions:

  • Do your other customers accept such terms?
  • Which ones of your customers can I contact to verify this?
  • Maybe you are very busy right now and I can understand that you can’t accept all the new business that comes your way. If I contact you again in 6 months, will the terms be the same?

Question 4: are they playing a game?

As I wrote above, a lot of small buyers fall into the trap of paying too early… and usually regret it afterwards because they have no more leverage for pushing the supplier to respect timing or quality commitments.

If this is the case, stick to your guns and to be as inflexible as they are. If possible, work on bringing a back-up supplier up to speed!

Question 5: does the manufacturer doubt your integrity?

If they suspect that you’ll refuse to pay (or that you’ll play a game and ask for a discount after the goods are shipped out), maybe they want to cover themselves.

This situation often occurs for buyers coming from developing countries (Nigeria, India, Iran…). Same thing if you have a bad reputation in your industry — Chinese suppliers talk a lot among themselves!

What do you think? Any similar experiences?

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Related reading: 

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Comments

  1. Nice post.

    Payment terms are tricky. Pay to early and you get into trouble 90% of the time. Pay too late and in some case suppliers take shortcuts or service also degrades.

    In private life, a Chinese will NEVER pay 100% upfront to any service or good provides (home delivery, furniture, carpenter and plumber, household appliance from Sunnign or Gome, name it).

    Question 3 is really relevant when small buyers address larger companies or when the supplier expects a “complicated” buyer. They will try to get the best out of the deal. Nothing to loose: “If we get the deal we have good conditions and we control the next steps, if we do not get the deal, we avoid troubles”.

    For question 4, always remember that many supplier will test the limit and beyond until the buyer puts a stop to it. “Win Win” is mostly a myth in this region. When you know it, it can turn to your advantage.

    And the answer to Question 5 is fundamentally YES. There is a great deal of suspicion and mistrust at any level of business in here. And frankly, Western buyer have the same attitude when they control quality and all other aspects of transaction: “Yes, I trust you fully, but you know what, I will check anyway !”.