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How to Pay Chinese Suppliers by T/T Payment (Bank Wire Transfer)
T/T stands for Telegraphic Transfer. In other words, an international wire of funds from the buyer’s bank to the seller’s bank.
When a Chinese supplier asks for a T/T payment, what they really mean is they want a wire transfer. (Technically, a T/T is not exactly the same as a wire transfer through the SWIFT system, but the vast majority of people think of them as the same thing.)
A wire transfer based on SWIFT is the most common payment method in international trade with Asian countries. It typically takes 3-5 working days to clear, and generally costs between 25 and 50 USD, depending on your agreement with the commercial department in your bank.
What is the most common payment term requested by Chinese suppliers?
The most common payment method is a bank wire that works this way:
- You have the supplier develop sample(s) until you are confident they know exactly what you want.
- You send a 30% deposit (by T/T) before production starts.
- Your supplier (the manufacturer & exporter) purchases the components and/or materials, and arranges production
- You work with a quality assurance firm to inspect product quality (this is optional but usually a good idea).
- You send the remaining 70% (by T/T) before shipment.
- The supplier ships the goods and sends you the documents by express courier.
In graphical form, it looks like this:
What is another common, and better, payment term?
It is quite similar, except for the end of the process.
- Once the supplier confirms the goods are ready, send an inspector to check quality (again, not a must, but highly advised)
- If quality is OK, release the goods (allow the goods to be shipped out) — this works best if you purchased under FOB terms
- Once the goods are on the ship, the supplier gets the Bill of Lading (B/L), and sends you a copy of it
- If the product name, quantity, etc. are all fine on the bill of lading, you send the final payment to the supplier
- Once the supplier receives the payment, they send you the original B/L
It looks like this:
Why is it better?
- The buyer knows the goods have been shipped out before paying the remainder.
- The supplier knows the buyer can only take possession of the goods after the original bill of lading has been sent.
Can you negotiate this term? If you insist on it from the very start, and if your suppliers are motivated to work with you, probably yes. If you come out as a beginner and your orders are very small, probably not.
How to do a T/T payment?
Contact the commercial department of your bank, tell them you need to wire (for example) 25,000 USD to a company in China, and they will generally give you a form to fill out. If you do T/Ts frequently, your bank probably has an ‘internet banking’ application that will save you time.
Your supplier will probably send you a pro forma invoice that includes their bank account information. I strongly suggest you ask for that information earlier (as part of your pre-qualification of a potential supplier). Many buyers have been scammed by hackers who send invoices with their own bank account information…
I shot a short video that shows how to fill out a T/T application form:
After you have done this, take a screen shot, or get a digital copy, and send it to your supplier.
- Make sure to avoid any misspelling, which might cause the payment instruction to be held in limbo for weeks!
- You will need to write the company name in English, not in Chinese. Don’t try to do your own translation job, even if your written Chinese is excellent! It has to match exactly the English name under that is registered in the seller’s bank records.
- If the company name is too long, keep writing it in the “address 1” field. This is sometimes mentioned on the T/T forms of banks that work a lot with China:
How to negotiate better payment terms?
There are various ways you might be able to negotiate for payment of some (or all) of the amount after shipment.
- Your company is well established and famous — think Apple or Disney. The risk of the buyer’s company defaulting is much lower. And the seller want to boast about that prestigious customer in order to get more business.
- You arrange financing of your suppliers — as the buyer, if you have relatively strong financial guarantees and you purchase more than 1 million USD a year, you can work with a company (or a bank department) specializing in trade assurance solutions. Your supplier gets the cash when they need it, and your account is debited much later.
- You have a buying office in China — having a strong presence in-country does help. A supplier that hasn’t been paid in time can pay you visits and take different measures to push you for faster payment.
Frequently Asked Question
Tips and tricks about the T/T payment process
What are some mistakes we should never make?
- 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 a 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
The supplier says they need a deposit earlier to buy one of the components, which needs to be ordered 3 months in advance. Is it true?
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).
Are there common scams that we should be aware of?
Our supplier asks for payments to be wired on a personal account. Is it a problem?
If they insist for 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.
Our supplier asks for payments to be sent to a different company. Is it a problem?
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.
How to do when an Alibaba supplier asks for payment by TT?
Should we issue a purchase order? It is considered as a contract?
However, a PO is not a contract. It is difficult to sue a rogue supplier on the basis of a PO. We are not legal specialists, but the China Law Blog covered the topic of contracts nicely in this post.
Should we pay suppliers in USD or in RMB (China’s currency)?
Do you advise using the FOB incoterm, when shipment is by sea?
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.
Our bank charges us a lot for an international wire. Is there a cheaper alternative?
Some of our clients have used Transferwise and Payoneer and seem happy about these services. Depending on your situation, they might offer a better deal than your traditional bank…
Can a bank wire transfer get “lost” in the system?
- Payer’s bank processes the application for payment
- Payee’s bank doesn’t register the money coming in
- Payee asks his own bank to investigate, and no information is found
- Payee asks 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!
Why do suppliers in China, Vietnam, or India always want payment before we get our products?
- 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 under-pay 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.)
Can the amount of the deposit (before production) be negotiated down?
If your production is highly customized and (in the unfortunate event of an order cancellation) difficult to sell to another customer, negotiating a lower deposit will be difficult. It is a measure of risk prevention.
Do all component suppliers need payment in advance?
- 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.
Our supplier asks us to pay all the remaining 70% before they ship the goods. Is it dangerous?
Can we negotiate for 100% to be paid after we receive the goods?
- 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