When it comes to paying invoices, there are multiple options. What makes sense for a low amount (say, 100 USD) is not appropriate for a higher amount (say, 15,000 USD).

I described before the two main options for paying Chinese suppliers: T/T (bank wire) and L/C (letter of credit). But what about paying service providers (be they logistics agents, quality inspection companies, sourcing agents, etc.)? Letters of credit make no sense. And bank wires are too expensive for settling a small fee.

There are three main options.

1. Paypal

This is the fastest payment method. It is pretty much immediate. However, fees are pretty high.

First, there is a 4.4% to 5% services fee, depending on various factors. Here is an example of a client that needed to send us 298 USD — he had to send us more than 312 USD.

Second, there is a 2.5% conversion fees when a Hong Kong-based company gets USD and needs to get them on their bank account (Paypal forces them to change it in HKD first). It means the example I showed above (sending 312 USD) is not even sufficient for us to get 298 USD!

Total: about 7 to 7.5% cost. Which is why service providers ask their clients to add that amount to cover for the high fees.

(Note that the service fee is waived if the payment is declared as a personal transfer, but the conversion fee is never waived.)

Does 7.5% sound high? I was told the amount is even higher for payees located in mainland China (up to 9%).

Most Chinese suppliers link their Paypal account to their Hong Kong company. They are usually reluctant to getting paid over Paypal, though, since it is too easy for their customers to claim and get a refund.

2. T/T (international bank transfer)

International bank wires to China or Hong Kong rely on the SWIFT technology that was developed in the 1970s. It is slow and not very efficient, as Richard Bensberg explained in that article about payments.

Virtually any importer can ask its bank’s commercial department to transfer money to a bank account in Hong Kong or China. It takes about 2 to 5 days for the money to be available for the payee.

Disputes frequently arise as to which party (payer or payee) is responsible for which fees. Things can be simple, as in this example:

• Payer’s local fee: 25 USD
• Payee’s local fee: 8.5 USD
• End result: payee gets full amount minus 8.5 USD.

Or it can be tricky, as in this example:

• Payer’s local fee: 25 USD
• Intermediary bank chosen by the payer’s bank: 30 USD
• Payee’s local fee: 8.5 USD
• End result: payee gets full amount minus 38.5 USD.

Why is this tricky? Because the payer doesn’t know about the intermediary’s bank fee. And it is usually not mentioned on the advice to the payee. The payer needs to ask their bank for confirmation that they used an intermediary bank.

We have seen more and more cases of “surprise” intermediary fees over the past 5 years. At that time we changed our terms & conditions from “client pays his local fees” to “client pays all bank fees”. The same terms were adopted by most service providers that work with international clients.

Note for US companies: sending a good old cheque to your overseas supplier is generally a bad idea. We have received cheques in dollars or euros a few times and our bank charged high fees to cover for the extra work they had to do.

3. Other third party payment solutions

Beyond Paypal and bank wires, multiple payment options are available.

For example, Transferwise allows for payment by credit card or bank wire to another bank account anywhere in the world. The money takes about 5 to 7 days to get on the payee’s account, and fees are generally very low — around 0.5%.

However, transferwise.com forces clients to pay Hong Kong-based companies in HKD, not in USD. If your supplier invoiced you in USD and you choose this option, make sure to confirm an acceptable exchange rate with them before sending the money.

Another option is Remitsy. They specialize in payments to China. It seems quite easy to use, and the money arrives very fast on the recipient’s bank account.

When you use such a solution, make sure to get the confirmation that, if you wire X USD, the payee will receive X USD. We had experiences where the third party payment company (for example ‘World First’) deducted a fee without telling the payer.

Yet another option will soon be Stripe, it seems. They have been accepting beta users in Hong Kong. Your service providers might offer this option to you soon!

4. What about Western Union?

Some buyers use Western Union for sending small amounts to China. But this method was designed for personal payments. It is basically like cash (no refund), which is why many scammers like to get paid through Western Union.

The payee doesn’t need to have a bank account to get the money, so it is hard to track.

The vast majority of service providers (including us) doesn’t accept payments through Western Union. The alternatives I listed in points 1 to 3 are more appropriate.

In summary

• For small amounts, use Paypal (cheap and fast)
• Credit card is an option if payment is not urgent
• For large amounts, traditional bank wire (T/T) is appropriate