Best Ways To Pay A Chinese Supplier Without Getting Scammed Or Paying High Fees
Navigating the complexities of international trade includes understanding the most effective and secure ways to conduct financial transactions. This is particularly crucial when dealing with Chinese suppliers, where the payment process involves not just the transfer of funds but also building trust, adhering to regulatory compliances, and mitigating risk. For businesses worldwide sourcing from China, figuring out the best payment method is a strategic decision that balances safety, convenience, cost, and reliability.
In this blog post, we delve into the best practices for paying Chinese suppliers, a topic that is critical for maintaining healthy business relationships and ensuring smooth procurement processes. Whether you're a small business making your first international purchase or a large corporation managing a complex supply chain, understanding the nuances of payment methods in China is essential.
We will explore various payment options, from traditional methods like Telegraphic Transfer (TT) and Letters of Credit (LC) to more modern solutions like escrow services and digital payment platforms. Each method has advantages and considerations, including transaction fees, payment terms, currency exchange rates, and protection against fraud.
Additionally, this post will provide insights into negotiating payment terms with Chinese suppliers, understanding China's regulatory framework regarding international transactions, and tips for avoiding common pitfalls and scams.
Join us as we navigate the landscape of financial transactions with Chinese suppliers, offering you the knowledge and tools to choose the most suitable payment method for your business needs. This understanding is not just about making payments; it's about fostering trust, ensuring compliance, and building a solid foundation for long-term business relationships.
So you’ve found a supplier–now how will you pay them?
Sending thousands of dollars overseas to someone you’ve probably never met can be a scary, if not downright, sketchy step. Though most suppliers in China prefer direct transfers, this is not the safest way. You'll likely drown in fees even if you have a trustworthy supplier. Lucky for you, we’ve made hundreds of transactions and tested a dozen different services to determine the best way to save you thousands of dollars on your next purchase.
Disclaimer: Remember that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. We try to keep things fair and balanced to help you make the best choice.
Avoid Direct Bank transfers to avoid outrageous fees.
The default payment method for most purchases is direct bank transfer; however, this may be the worst way to send money due to outrageous fees. For example, we sent a USD 38,000 payment via Wells Fargo and were slapped with USD 3,100 in fees. No, this is not a typo–that’s over 8%! You can expect the same exorbitant fees if you look at Citi, Bank of America, or any other major banks.
Negotiate in the local currency.
China’s currency is the Renminbi, and the units are the Yuan. As of this writing, the exchange rate is 6.375 CNY to 1 USD (https://xe.com/currencycharts/?from=USD&to=CNY). Remember this: most factories give CNY prices, so you’ll have to convert all amounts yourself. When you ask for a quote in USD, they’ll usually choose an exchange rate and one that, not surprisingly, favors them over you.
I negotiate and ask for all quotes in CNY since it’s easier for Chinese factories to work in their currency, but I give clients USD. I always use the most recent quote from xe.com for my exchange rates. We at Cosmo have a transparent sourcing process, and you make all payments directly to the factory. Therefore, we can help all our clients with the payment process and even handle the payment when requested.
Use PayPal for small purchases or samples.
When it comes to the payment, you have options. PayPal is adequate for small purchases, such as samples, as It’s quick and buyer-friendly. Consider it a red flag if the factory does not accept this method since PayPal will verify both parties and ban fraudulent suppliers. However, remember that PayPal charges fees (~3-4%), and they do not offer the best exchange rate. For this reason, PayPal is not recommended for large orders.
Never use:
Western Union is unreliable; you are not protected if the factory scams you. Also, they do not convert currencies. The typical fee ranges from 7-12%, depending on the amount. Note: This is a favorite method among scammers and fraudsters.
Bank-to-bank transfer is not a good option because not only are you paying those excessive fees, but there isn’t much protection for the buyer. In addition, this may take several days, and you can only transfer to certain banks (for instance, Wells Fargo only can transfer to the Agricultural Bank).
OK, but not recommended:
PayPal is not recommended for large purchases due to the high fees; however, it is a decent option for the first purchase and samples, as it can act as insurance. One downside is that PayPal often freezes accounts for both parties for various reasons and has been known to lock people’s money (including mine). The benefit is that payment is instant.
T/T wire transfers are the most commonly requested form of payment. However, there is no buyer protection because it’s a bank-to-bank transfer. We only recommend this method when paying trusted clients you’ve worked with before. This method takes 3-5 days.
Alibaba Trade Assurance is Alibaba’s in-house escrow service. The money is sent, held by Alibaba, and transferred to the seller once Alibaba confirms your products have been shipped. This is a popular choice, as it’s much safer, especially for first-time buyers unsure of the factory. To get money to Alibaba, you need to make a transfer, and only bank transfers, e-checks, and T/T are accepted. Even if you don’t use Trade Assurance, checking if they accept this is essential, as it’s an easy way to determine whether a supplier is legitimate.
Letters of Credit: this is the preferred purchasing method for large corporations making transactions in millions of dollars. However, it’s incredibly complicated and risky, requiring both parties’ banks to cooperate and often accruing high fees, particularly for small buyers. https://www.investopedia.com/terms/l/letterofcredit.asp
What we do recommend:
Veem, Transferwise, and OFX are the services we use most at Cosmo. Though we have not used them personally, Wyre and Xoom are highly recommended. Our research has the lowest fees; some services don’t charge a fee and profit from the exchange rate. We currently use Veem for most purchases in China and Transferwise and OFX for elsewhere, such as Vietnam, Mexico, Colombia, Indonesia, and more.
Veem specializes in sending payments to China. Remember that both parties must be signed up with Veem, though we haven’t had a problem convincing almost every factory we’ve worked with to sign up. Veem also has a customer service office in China. Now, we use it for the majority of our transactions. For example, a $20,000 payment had only about $100 in fees. That’s an incredible rate at only .5%
Wise (formerly Transferwise) is another reliable way to send money and was previously my preferred way of paying factories in China. Cosmo ended up using Wise for about 75% of their foreign transactions.
OFX offers transfer services to 55 currencies and ties with 115 banks. OFX, along with Transferwise, works best for non-China businesses.
Wyre - Though I have not personally used Wyre, several people and companies I trust have recommended it. According to our analysis, they have the second-lowest rates behind Veem. I may set up an account and transfer to test them and update this post accordingly.
Xoom is a service by PayPal made for sending money to China. It has better rates than PayPal, and the recipient only needs a UnionPay account set up (if they have a bank account in China, they will have UnionPay). The catch is that it’s limited to just $5,000 per payment, although you can send multiple payments. Be mindful that the exchange rate is not the best.
How much does it cost to send 10,000 USD to China?
Estimates Sending $10,000 to China, with a current exchange rate of 1 USD = 6.3942 CNY
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