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About to pay a manufacturer in China? How and when you pay your supplier has a major impact on the outcome. If managed the right way, your payment method of choice can reduce the risk of scams, delays, and quality issues. In this guide, we explain what importers must know about bank transfers, letter of credit, supplier credit, and trade financing.
We also cover payment services, including PayPal, Alibaba Trade Assurance, Neat Commerce, and Payoneer.
Telegraphic Transfer (T/T) is the most common way to pay manufacturers in China, and elsewhere in Asia. That said, Telegraphic Transfers are irreversible once the payment is made, and the bank is not responsible for ensuring that you don’t get scammed or pay to the wrong account.
In this guide, we explain what can go wrong when paying Chinese suppliers by Telegraphic Transfer, and what you can do to prevent common issues.
Alibaba.com’s Payment Terms service allows importers in the US to order products with a small deposit upfront (typically 30% of order value), then pay off the balance (typically 70%) up to 60 days later.
This deferred payment service helps small businesses manage and improve their cash flow instead of having to tie up their capital right from the start.
The application process is simple, quick, and done completely online. There’s no need to submit paperwork or wait weeks for approval as it normally does when small businesses try to get loans approved to finance their product imports.
Found a supplier on Alibaba but not sure how to pay them? In this guide, you will learn how to pay suppliers on the #1 supplier directory, both through the built-in Alibaba payment gateway and ‘off-platform’.
Keep reading and learn how you can pay suppliers by wire transfer, credit card and the secure payment system – and how you can claim a refund if the goods are not matching the product description.
In addition, you will also learn why a refund cannot always be taken for granted, and how you can prepare for, and win, a dispute.
This is covered
Telegraphic Transfer (Bank Transfer)
Alibaba Secure Payment (Escrow)
Alibaba Payment Links
Alibaba Payment Terms
Alibaba Online Transfer
Telegraphic Transfer (Bank Transfer)
Alibaba.com is a supplier directory – an online platform for finding factories and trading companies in China, and other countries around the world.
While Alibaba.com has in recent years expanded into providing payment solutions, most buyers go here to find suppliers and then continue business discussions elsewhere. Hence, the transactions are still for the most part made outside of the Alibaba.com ecosystem. That is likely to change in the future but is the case at the time of writing.
Even to this day, we keep receiving reports from importers getting scammed by anonymous traders in China. In many cases, they have one thing in common – the buyer sends money using Western Union.
While Western Union as a company is legit, it was never intended as a platform for paying Chinese suppliers.
In this article, I explain why and how scammers exploit Western Union to defraud importers, and which payment methods you should use instead.
What’s the benefit of using Western Union?
Western Union operates a global payment network that enables individuals to transfer money from one place to another, in a matter of hours. While payment services like PayPal and TransferWise offer fast payments today, that was not the case until only a few years ago.
At a time when telegraphic transfers, normally taking 4 to 5 days to arrive, was the only option, Western Union was the go-to place for fast payments.
While they may not be the only option for fast payments these days, they still have a strong position across the globe. Especially when you need to send emergency funds to a friend or family member that lost their credit card or passport in a foreign country.
Escrow payment solutions require the supplier to meet certain conditions (e.g., ship products) before the funds are released. In theory, Escrow payments ensure that the buyer is not scammed and that products are actually shipped.
In practice, however, Escrow payments are only as good as the ‘money release conditions’ the supplier is forced to comply with. Keep reading, and learn how Escrow payments in China work, and the various solutions available for importers.
What is Escrow?
Normally, a buyer transfers funds directly to the supplier’s bank account. This is risky, as the supplier could then disappear or deliver an insufficient product. There’s no ‘refund’ or ‘chargeback’ mechanism in place when paying suppliers by telegraphic transfers.
Escrow, on the other hand, involves a middleman receiving the funds from the buyer – only to release the money once certain conditions have been fulfilled.
These conditions can either be set by the buyer and seller, or by the Escrow payment services. Common ‘escrow payment conditions’ include the following:
The seller can prove that the documents are shipped (e.g., provide a tracking ID)
The products are approved by the buyer after delivery
Sending money through telegraphic transfer (T/T), or paying by letter of credit (L/C), is slow and relatively complicated.
The wrong beneficiary name, or even address, can delay the payment for weeks, and there is no effective way to request a refund in case you get scammed by a supplier.
So, why aren’t more importers using payment services such as PayPal, that can send money instantly to suppliers – while also offering the chance of getting the money back if the products are not matching the specifications?
Keep reading, and learn why many suppliers refuse to accept PayPal payments, and what you can do to change their mind.
1. Most suppliers only accept PayPal payments when ordering product samples
PayPal is available to both businesses and individuals in both Mainland China and Hong Kong. Opening an account only takes minutes, and is as easy as anywhere else on the planet.
Yet, many Chinese suppliers, both factories and trading companies, don’t accept payments via PayPal.
By default, most Chinese manufacturers require a 30% deposit before production. When, something turns out to not go as planned, the deposit, as if by magic, suddenly turns into a non-refundable down payment, never to be seen again. To avoid undertaking such risks, many importers rely Letters of Credit (L/C) to pay their suppliers, which requires no such deposit. Instead, the payment is released only when the goods are shipped.
In this article, we explain how a Letter of Credit can act as an extra layer of security when buying from China – but also why importers cannot blindly rely on an L/C as the ultimate safety mechanism.
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