Payment-Importing from China Course Step 5 (2022)

Payment is a crucial and major part in International business. In order to achieve a pleasant and successful transaction, you and the seller shall reach mutual agreement on how and in which terms the payment should be made. In the meanwhile, you need to make sure these terms are specifically stipulated on sales contract or proforma invoice before you sign on it.

Payment Step-by-Step Guide

StepsHow
1. Main methods of paymentThere are three most commonly used methods of payment you may choose from according to your order and financial status.
2. Verify a safe account to payThe very basic step to secure a safe payment process is to know about which common accounts that Chinese suppliers would prefer to use. What I mean is, when you get the account and beneficiary company information, you need to make an analysis. In that way, to some extent, you can avoid some transaction risks.
3. Payment termsBefore you make any payment, you two should agree on payment terms, especially when it comes to payment through T/T.

1.Main methods of payment

There are three most commonly used methods of payment you may choose from according to your order and financial status. By the end of this part, you will be able to identify payment options for various trade transactions and the risks and advantages of each for both you and sellers.

Payment methodsDescriptionProsCons
Open AccountAn open account transaction is a sale where the goods are shipped and delivered before payment is due, called O/A.a. Great flexibility in cash flow
b. Control over goods prior to payment
a. Possibly high price quoted by the seller
Letter of CreditA Letter of Credit (L/C) is a document issued by a bank at the buyer’s request, assuring that the buyer will make payment within a specified period of time.a. To minimize the risks in not receiving the goods ordered
b. To control the time period for shipping
c. To avoid or reduce prepayment
a. Banks only check documents, not goods
b. Higher cost due to bank charges
Telegraphic TransferTelegraphic transfer (T/T) is a method of electronic funds transfer from one bank account to another bank account.a. Fast and reliable
b. The most popular transaction methods
c. Easy to go
a. Higher risk than OA and L/C
Micro-paymentFor small amounts, buyers usually select convenient payment methods such as West Union, Money Gram, Paypal etc.a. Very fast, instantly
b. Suit for small amounts
a. High handling cost

2.Verify a safe account to pay

The very basic step to secure a safe payment process is to know about which common accounts that Chinese suppliers would prefer to use. What I mean is, when you get the account and beneficiary company information, you need to make an analysis. In that way, to some extent, you can avoid some transaction risks.

TypeFeaturesRisk Level
Company account✔ Beneficiary name is confirm to the seller’s company name.
✔ Beneficiary address is confirm to the seller’s registered location.
Bank account is in Mainland China.
Low
Offshore account✔ Beneficiary name is confirm or related to the seller’s company name.
✘ Beneficiary address is NOT confirm to the seller’s registered location.
Bank account is in HK.
Normal
Private account✘ Beneficiary account is not held by a registered company, instead held by an individual person.High
Other account✘ Beneficiary name is NOT confirm to the seller’s company name.
✘ Beneficiary address is NOT confirm to the seller’s registered location.
High

Notice: To safely make a T/T payment, you need to ensure that you get correct beneficiary details confirm to the sales contract. The main details are as below

Beneficiary Name
Beneficiary Add
Bank Name
Bank Add
Swift/BIC Code
Beneficiary Account

You need to input these details correctly, or the receiving bank will return the money, which might have influence on the shipment schedule.

3.Payment Terms

Before you make any payment, especially through T/T, you should also agree on payment terms with the seller. What is the Inco term? When to pay the deposit and the balance amount?

Inco TermDeposit PaymentBalance Payment
Most common options: EXW, FOB, CFR, CIF.
Loading port and destination port.
✔ Normally 30% of order amount.
To officially initiate the mass production.
✔ Normally 70% of order amount.
✔ To pay after production and pre-shipment inspection.
✔ Under certain circumstances, you may negotiate to pay balance payment against copy of Bill of Lading.
Must be stipulated in sales contract to avoid any disputes or confusion.✔ To send T/T copy to the seller and require formal confirmation on payment and production start.✔ To send T/T copy to the seller and require formal confirmation on payment and shipment schedule.
Very important to withhold the balance payment until you get inspection report from either the seller or a third part inspection agent.

Hope you find this article helpful for your importing business.Leave a comment below and let us know if we have further to improve. Thanks for your supporting.

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