Best Practices for Making Payments to Overseas Suppliers
Article Catalog
1. Making Payments to Overseas Suppliers at the Right Time
2. Five Best Payment Methods for Overseas Suppliers
(1.1) How to Make Payments to Overseas Suppliers via Telegraphic Transfer (T/T)?
(1.2) Telegraphic Transfer (T/T) Payment Process:
(1.3) What Payment Method is Often Requested by Overseas Suppliers?
(1.4) Recommendations for Making Telegraphic Transfer Payments to Overseas Suppliers
(2.1) Letter of Credit (L/C) Payment Procedure:
(2.2) Letter of Credit (L/C) Payment Process:
(3.1) Using Alibaba Trade Assurance
(3.2) Is Alibaba Trade Assurance Safe?
(3.3) Will Alibaba refund my money?
(3.4) Alibaba charges for each transaction:
(4.2) In what amount makes PayPal fit for using to send money to China?
(5.2) How to Send Money to China via Western Union
(5.4) Ensuring Smooth Transfers
3. Negotiating Better Payment Terms to Pay International Suppliers and Maximize Profit
4. Paying International Suppliers to Avoid Fraud
6. FAQ on Best Payment Methods for Overseas Suppliers
1. Making Payments to Overseas Suppliers at the Right Time
Typically, paying 30% of the amount as a deposit before manufacturing, with the remaining amount paid upon completion of manufacturing but before shipment, is the standard payment terms. However, determining when and under what conditions to make the second and final payments is crucial.
It all boils down to incentivizing suppliers to meet your specific requirements. However, paying the supplier the full amount before any regulatory compliance and quality checks can undermine their incentive, thus payment must be withheld.
However, this payment method isn't secure and doesn't protect the initial deposit payment; even if the deposit is secured, the supplier still bears significant risk.
2. Five Best Payment Methods for Overseas Suppliers
(1.1) How to Make Payments to Overseas Suppliers via Telegraphic Transfer (T/T)?
To make a telegraphic transfer (T/T) payment to overseas suppliers, you need to contact the commercial department of your bank and inform them of the amount you need to remit to the Chinese company. They will provide you with a form to fill out. If this isn't your first time using this payment method, their online banking application will save you time.
Chinese suppliers may send you a proforma invoice. This invoice will include their bank account details. It's strongly recommended to request all this information in advance. Many buyers often fall victim to hackers who send invoices with their own bank account details.
Afterward, you need to screenshot or obtain a digital copy and send it directly to your Chinese supplier.
Follow these important tips:
- Ensure you don't have any spelling mistakes as this might result in your payment instructions being held up for several weeks.
- The name of the company should be in Chinese. You need to write it out in English. Don't translate the company name yourself; ask the supplier as they know the exact registered name.
- If the company name is lengthy, write the name in the "Address 1" field.
(1.2) Telegraphic Transfer (T/T) Payment Process:
The process of making a telegraphic transfer payment to China includes:
1. Paying a 30% deposit
2. Commencing production
3. Completing production
4. Now, testing the products for quality and compliance
5. Upon approval, submitting the batch for buyer approval
6. Once approval is obtained, the products will be delivered at the loading port.
7. During landing, provide scanned copies of the bills
8. The remaining 70% of the balance is now for shipping and loading procedures
9. After shipping, pay the balance.
10. The seller ensures the original loading documents and copies of other necessary documents required at the destination port are sent.
(1.3) What Payment Method is Often Requested by Overseas Suppliers?
Overseas suppliers typically request bank telegraphic transfers. Read on to understand how they work:
- The supplier will develop product samples until they produce the same product you need.
- Before production begins, you'll pay a 30% deposit (via telegraphic transfer).
- Then your supplier will purchase materials and start production.
- You can work with a quality assurance company to inspect product quality.
- Then you must pay the remaining 70% before the shipping process.
- The supplier will then ship the goods and send documents via courier service.
(1.4) Recommendations for Making Telegraphic Transfer Payments to Overseas Suppliers
All Chinese sellers accept telegraphic transfer payments. While it's an accepted method, it lacks protections compared to instruments like letters of credit. This is why it's considered an insecure payment procedure. Here are some recommendations regarding remittances to China:
1. To streamline the process and reduce risks, payments should be split into two halves, i.e., 30% as a deposit, and the remaining 70% paid after the order is completed.
2. Ensure no funds are deposited before signing and completing the sales contract and performance invoice.
3. Pay the remaining balance after quality control reports and inspections in China or upon receiving relevant reports associated with the quality report testing results.
4. Avoid paying the entire amount in advance. This practice could lead to loss of leverage over the supplier to redo/rectify any defective items or poor-quality products.
5. You may need to pay a 30% advance payment within 30 days—because many companies in China don't have ready-made product inventory. Therefore, they may subcontract your order to some local manufacturing factories.
(2.1) Letter of Credit (L/C) Payment Procedure:
T/T is one of the best ways to pay overseas suppliers, while a letter of credit provides additional security for the buyer. The letter of credit requires the supplier or manufacturer to meet some predetermined and specific requirements before the funds are fully transferred. No deposit funds are required throughout the process. This minimizes the buyer's risk.
When choosing the letter of credit payment procedure, what are the terms for releasing payment?
The answer is that the bank ultimately pays the sender and transfers the funds to the buyer only after all conditions are met. Bank staff are not industry personnel; they thoroughly check all relevant documents. Once each document meets the standard, they proceed with the transfer.
Buyers and sellers are responsible for the negotiation process. They'll determine which specific documents must be provided for each transaction. Some examples of conditions are:
- Quality reports of products that have undergone complete inspection to avoid shipping defective items.
- Shipping documents issued before or after specific dates to avoid delays.
- Approved reports of laboratory tests for shipment of any non-compliant items.
All manufacturers/suppliers in China and the Asian region accept letter of credit (L/C) payments.
(2.2) Letter of Credit (L/C) Payment Process:
Here's how you remit money to China via a letter of credit.
1. Both parties negotiate and sign a sales agreement specifying the conditions that must be met before payment.
2. The buyer contacts the local bank and applies for a letter of credit payment.
3. Subsequently, the buyer contacts the seller's bank in China and submits the letter of credit.
4. The manufacturer's or seller's bank then contacts relevant personnel and provides payment advice.
5. Now, upon commencement and completion of production, it undergoes quality checks and product testing.
6. Once the product passes quality and product inspections, it's sent to the loading port and shipped.
7. The consignee provides relevant documents to the bank—these documents could be quality assurance reports or cargo documents.
8. Once all conditions are met, the bank releases the funds.
(3.1) Using Alibaba Trade Assurance
Trade Assurance by Alibaba is a similar payment method to letters of credit as payments
are only released after meeting all requirements. Payment conditions may include:
- Completing the order by or above the specified final delivery time.
- Products meeting and fulfilling all approved specifications and requirements for optimal quality.
What makes them different is the process—buyers must deposit funds into an Alibaba account before production begins.
(3.2) Is Alibaba Trade Assurance Safe?
Absolutely, Trade Assurance is one of the safest procedures for purchasing products through Alibaba. Being one of the safest methods, it means your order is protected until you receive the products. This ultimately means that if for any reason you don't receive the products, Alibaba bears full responsibility. Not only that, but they also handle various disputes between you and the manufacturer/supplier.
(3.3) Will Alibaba refund my money?
If an Alibaba supplier fails to deliver your goods on time or the product quality doesn't match the agreed upon, you can apply for a refund on Alibaba within 30 days after delivery, and Alibaba will support the refund.
Once logged into the Alibaba.com app, follow these steps:
- Open the app, go to "My Alibaba - Manage Orders" tab, then click on "Order Details."
- Once the page opens, click on "Apply for Refund" to open the dispute.
- Fill out the dispute form and click on the "Submit" tab.
- After submitting the dispute, wait for the supplier's response.
(3.4) Alibaba charges for each transaction:
The payment processing fee is 2.95% of the total amount payable. The limit amount may vary between Mastercard users and American Express payments.
Once you make the payment, the relevant fees will be deducted from your account. This means your payment is protected until you receive the products. Furthermore, funds are only released to the supplier once you're completely satisfied with the products and confirm receipt.
PayPal is a convenient option for sample orders and small transactions, although it comes with relatively high transaction fees, usually around 3.4 to 4.4%. It's not commonly used for large orders due to these fees. While PayPal offers free transfers within the U.S., conducting business with Chinese suppliers may incur charges, as most Chinese suppliers have accounts registered with Chinese addresses, and PayPal monitors IP addresses.
To save on fees, it's advisable to register a PayPal account using a bank account for transfers through the ACH channel. Using a bank account instead of credit or debit cards reduces the risk of fraud. PayPal also offers six months of refund protection, providing reassurance for buyers concerned about scams.
(4.2) In what amount makes PayPal fit for using to send money to China?
Chinese manufacturers and suppliers typically prefer receiving smaller amounts under $500 through PayPal to avoid potential scams. For larger orders, alternative payment methods may be requested.
Another drawback for Chinese sellers is the inability to withdraw funds in USD from a PayPal account, requiring conversion to RMB and incurring a high withdrawal fee of $35.
Western Union, established in 1871, is a well-known money transfer service with a vast global network of agent locations.
(5.2) How to Send Money to China via Western Union
Western Union offers various methods for sending money, including online, in-store, or through a mobile app. Transaction fees vary depending on the method chosen, with counter operations typically offering lower fees.
To send money, provide the recipient with the following information:
MTCN number
Sender's name
Amount
Beneficiary's details
Once payment is made, the recipient can collect the money by presenting their ID at a Western Union agent location in China.
To minimize handling fees when sending money to China via Western Union:
Opt for cash transactions, as PayPal rates may be more favorable for credit or debit card transfers.
Choose a transfer plan based on urgency, with same-day transfers incurring higher fees.
Select agent location pickup to save on handling fees compared to receiving funds in an account.
(5.4) Ensuring Smooth Transfers
To ensure smooth transactions with Western Union:
Double-check recipient details to avoid delays.
Contact Western Union immediately for any errors in recipient information.
Avoid using Western Union for commercial purposes, as it's not permitted.
Verify the recipient's annual payment limit before sending large amounts.
Western Union's exchange rates may not be favorable for currency conversions.
Compare handling fees and T/T service fees for high-value transfers.
Be cautious of agents charging excessive fees, as Western Union's popularity in China is declining.
3. Negotiating Better Payment Terms to Pay International Suppliers and Maximize Profit
Negotiating is crucial to ensuring you get the best payment terms to pay international suppliers and maximize profit. When negotiating, consider the following:
- Establish clear payment deadlines and terms to ensure you're satisfied with product quality and delivery time before paying the supplier.
- Negotiate for longer payment terms to have more time to adjust cash flow and sell the products to end customers.
- Consider bulk purchase discounts or early payment discounts to further optimize costs and increase profits.
4. Paying International Suppliers to Avoid Fraud
To avoid fraud when paying international suppliers, some preventive measures need to be taken:
- Verify the identity and credibility of the supplier thoroughly and obtain as many references about them as possible.
- Use secure payment methods like letters of credit or third-party payment platforms to ensure your funds are protected until the transaction is completed.
- Conduct as much due diligence as possible before making payments and ensure you're satisfied with the quality of the products and delivery time.
Choosing the best payment method that suits your business needs is crucial for successful collaboration with overseas suppliers. By negotiating favorable payment terms and taking appropriate precautions to avoid fraud, you can minimize risks and achieve sustainable profit growth.
6. FAQ on Best Payment Methods for Overseas Suppliers
1. Is Telegraphic Transfer (T/T) payment secure?
Telegraphic transfer (T/T) payment is a common international payment method, but it's less secure compared to other methods like letters of credit due to the lack of protection measures.
2. How does Letter of Credit (L/C) payment work?
Letter of Credit (L/C) payment is a payment method conducted through banks, requiring the supplier to meet specific conditions before receiving payment, providing additional security for the buyer.
3. Is Alibaba Trade Assurance safe?
Yes, Alibaba Trade Assurance is a secure payment method that helps buyers get a refund if products are not received or don't match the agreed-upon quality.
4. How can I maximize profit and avoid fraud?
By negotiating favorable payment terms, choosing secure payment methods, and conducting thorough due diligence to ensure reliable suppliers, you can maximize profit and minimize the risk of fraud.
5. What is the best payment term?
The best payment terms depend on your business needs and risk tolerance, but generally, more secure payment methods like letters of credit are recommended over less secure methods like telegraphic transfers.
These are some common questions and answers about the best payment methods for overseas suppliers, hopefully, they're helpful to you. If you have any other questions, feel free to contact us!
