Here are two big no-nos:

• You should never pre-pay 100% of the order before production starts. We have seen buyers make this mistake and deeply regret it. Once that’s done, what keeps the factory working hard on shipping good products to you on time? You will become their last priority…
• You should never wire the down payment before having a relatively high certainty that the factory knows what you expect of them. Most experienced buyers issue purchase orders, then receive a sample and confirm it is very close to what they want to receive (after mass production), and after that, they send the advance payment. In some cases, you might need

It might be true. Yes, it does happen. If possible, get all the information about that supplier, their product price, and so on.

In that case, you can usually negotiate the amount to pay at the time of that purchase. It is not necessarily 100%, but often is. And make sure you understand how much you will still need to pay later for the advance payment (before production).

Whether you found them on Alibaba, Global Sources, Made In China, or other similar directories, doesn’t change anything. If you pay them by telegraphic transfer, what I wrote above in this article applies.

At the very minimum, your supplier will send you their pro forma invoice and ask you to confirm it. Naturally, it comes with their own terms, which is why we suggest you issue your own purchase orders (POs).

However, a PO is not a contract. It is difficult to sue a rogue Chinese supplier on the basis of a PO. A purchase agreement, or manufacturing agreement, is what you need (and make sure it is enforceable in China).

Both are usually fine (up to negotiation between you and them). The “standard” is to pay in USD, but more and more buyers have decided to remit RMB. This might make sense if your bank offers that possibility. I wrote here about the reasons why many companies pay their Chinese suppliers in RMB.

Sometimes it doesn’t work if you select that option. We have seen many projects delayed that way.
So, we suggest you ask a bank officer to confirm this is something they are used to facilitating and it will work out fine.
And you will also need to make sure the supplier gave you a bank account that accepts CNY received from an international source, of course.
Note: more and more companies pay their suppliers in CNY regularly. It is part of a wider system. Quotations are in CNY, payments are in CNY, etc. I wrote about it here.

If you purchase products from a Chinese company, do like most other buyers — buy under the FOB (“Freight On Board”) incoterm. It means you appoint the freight forwarder (or directly the shipping line) that will handle international transport.

As we suggested above, you don’t want the supplier to ship the goods before a final quality inspection has taken place. If you buy FOB, the shipment can only take place after your freight forwarder has released the “shipping order” to your supplier.

You can find more information on this topic in this post about negotiation.

In general, a deposit is wired as a T/T payment (or an L/C is opened) only after samples have been approved.
If the supplier asks for an early payment to do a “feasibility study” or “prototyping work”, that might make sense. But keep it separate from the deposit, and have the supplier commit to an agreed deliverable.

 

If your bank charges you 40 USD or more, and their transfers take 4-5 working days to be executed, you are working with a traditional bank that follows an antiquated system (SWIFT was developed in the 1970s). This should change in the coming years with cryptocurrencies such as XRP, but right now there are other solutions.
Some of our clients have used alternative solutions and seem happy about these services. Depending on your situation, they might offer a better deal than your traditional bank. Here are a few examples:

# If you make payments from your country

 

• Wise.com — was set up to compete directly with traditional banks when it comes to T/T payments. Has become quite popular. In early 2020, they added the ability to send money to an Alipay account (but I strongly advise against payments to personal accounts).
• Payoneer — very convenient for collecting money from marketplaces such as Amazon. Sending money to another company that has its own Payoneer account is fast and inexpensive.
• Revolut — seems to be geared more to European consumers and companies, so far. Fantastic value for certain usage.

# If you can make payments from Hong Kong
The above options are still valid, but in addition:

• GoRemit — a good pick if you have a Hong Kong company and you want to send money in local currency to suppliers in China or South-East Asia. Very easy to use. Can also be used to top up a Wechat or Alipay account!
• If your Chinese suppliers accept payment in Hong Kong, you may set up a business account there and do local transfers (immediate and inexpensive). Neat can help if you want to set this up. 

[Note: We are NOT getting any affiliate fees or commissions of any kind from the companies listed on this page.]

As we wrote in ‘How to Pay a Service Provider Based in Hong Kong or China?’, there are a variety of options.
If the amount is small, Paypal is most often used.
For amounts above 300-400 USD, bank wires (T/T) start to make more sense.

I never heard of a transaction that got lost forever (i.e. never arrived, even after honest investigations), but I heard of many transactions that “disappeared” for a little while. The whole SWIFT system is a bit clunky. It would happen as follows:

1. Payer’s bank processes the application for payment
2. Payee’s bank doesn’t register the money coming in
3. Payee asks his own bank to investigate, and no information is found
4. Payee asks the payer to ask their own bank to investigate, and they find an issue that was holding the execution of the wire

Depending on the two banks’ reactivity, unlocking such a situation can take up to 2 months!

As we wrote in ‘International Payment to Chinese Factories’:
SWIFT was originally built in 1973 – long before the creation of the Internet. When money is sent overseas, physical assets don’t have to move. Instead, SWIFT acts as a messaging system between banks to clarify the ownership of assets on their books.

Euros are taken from your account and traded for you on the FX Markets by your bank in order to receive USD. Or for smaller banks, they outsource this process to larger institutions. The USD is then sent to your supplier’s bank via a correspondent bank, which actually holds the USD. Chinese suppliers often hold offshore accounts, which means in order to pay their costs in China (raw materials, salaries, rent), this money needs to be sent to an onshore bank. Again a correspondent bank is often involved.But the process doesn’t end there. The USD must be traded on the Chinese FX markets before RMB is finally available to the supplier. And when a wire arrives in China from abroad, the supplier must physically visit a bank branch to collect it. This involves a heap of paperwork, stamps and signatures.

Yes! Some hackers regularly collect payments from buyers who send wires to the wrong accounts. You can read 7 tips to avoid this scam here.

It often happens. Here are the typical steps behind this, for a hypothetical 5,000 USD amount:

1. Payer’s bank receives instruction to do a wire for $5,000 and charges a $ 25 fee. Payer is down $5,025.
2. Payer’s bank chooses to work with an intermediary bank that has a direct ‘channel’ to send the money to the payee’s bank. That intermediary charges $25.
3. Payee’s bank receives $4,975, and payee’s bank charges $10, which means in the end payee receives $4,965.
4. The total cost of the payment (to both parties) is $60, which is 1.2% of $5,000.

(Note that the $25 fees typically range from $20 to $40, but there are no absolute rules here. Ask your bank’s commercial department in advance.)

Ask for an invoice that calls for payment to their company account. If you send money to a personal account, it will be much more difficult to litigate against them if they let you down later.

If they insist on payment to a personal account, there might be several reasons:

• The amount of the purchase is very low (for example, 1000 USD), and it makes no sense for them to do all the paperwork for converting your USD into RMB and so on and so forth.
• They don’t want to declare it in order to avoid taxes. This is not reassuring, but it is still very common in China. Don’t expect this company to be a perfect supplier over time.

Not necessarily. Again, there might be several reasons. They might use a Hong Kong company to avoid declaring the sale in China (and pay taxes), they might not have an export licence, and/or they might find it much more convenient to collect payments and do all the export procedures under another company.

As I wrote above, this will make it harder for you to litigate against your supplier, since you won’t be able to show a trail of payments from your company to theirs.

What can you do? The very minimum is for you to ask both companies (your supplier — “A”, and the one collecting payments — “B”) to jointly sign and stamp on a declaration that B is collecting payments on behalf of A and that A is the supplier to your company.

For three reasons:

• They know that it is a “standard” and they suspect that you, as the buyer, will have a hard time finding a better deal.
• They need cash to pay their suppliers who, for a good part, don’t extend any credit.
• They have heard many stories of buyers who played games and managed to underpay for their production, or even cancelled after production was completed without having paid anything — for good reasons (poor quality) or bad reasons (disappointing sales, low cash position, etc.)

If the supplier sees your project as interesting in the mid- to long-term, and if the manufacturer has sufficient cash on hand to order and pay the components, yes it is generally negotiable.

If your production is highly customized and (in the unfortunate event of order cancellation) difficult to sell to another customer, negotiating a lower deposit will be difficult. It is a measure of risk prevention.

It depends on the industry, on the business relationship, on their power on the market, and so on:

• Some always do.
• Some do if they don’t have any confidence, but extend credit (generally 10-30 days, or enough time for the assembler to complete production and ship the goods out) when they feel the risk is limited.

This is unfortunately quite common. Generally speaking, if you have had a quality assurance agency confirm the quantity and the quality of your goods, the risk of paying before shipment is relatively low. Few companies scam their suppliers after doing all the production.

I have heard of companies in the US or in Europe who have managed to negotiate that type of deal. Here is their situation:

• They buy relatively high volumes and are not very tough on pricing (in other words, they are attractive to suppliers)
• They buy standard products for which there is high competition
• They ask 50 to 200 potential suppliers if they’d be open to that type of deal; they keep talking to the 5% who say they might be interested; they do business with 1 or 2 of them

Do you have any questions about making wire payments to overseas suppliers that we haven’t addressed here? Any experiences to share with the community? Let us know in the comments below!