In the last post, we looked at 8 payment methods you can use to pay your Chinese suppliers. In this post, I will look at “Payment Terms” that go along with the choice of payment method & factors influencing the negotiation of payment terms.
It is important not to confuse “Payment Terms” here with “Trade Terms” (FOB, CIF, etc.). “Payment Terms” include:
- The choice of payment method
- The timing of the payment
- Whether there is a pre-payment required & the percentage of the pre-payment
The combination of the factors above dictates the proportion of risk each party takes & the negotiation power buyers have in case disputes arise. Ideally, in every transaction, there would be a 50-50 sharing of risk but in practice, that is hardly the case.
I get a lot of enquiries from new importers wanting to find out the best way to pay their Chinese suppliers. These importers are especially concerned about the “safety” of their funds having read some horror stories online.
When importing from China or from any country for that matter, there is no “Best” Payment Method and the choice of method depends on several factors, with the most important being the amount of payment. In this post, I look at 8 payment method options that are commonly used by importers or feature in enquiries that I get, as well as their popularity, risk & acceptability.
In the next post, I will look at some of the factors influencing the choice of payment method & more importantly also look at payment terms to go along with the mode of payment.
1. Telegraphic Transfer (TT)/International Wire Transfer
This is probably the oldest payment method in international trade after the barter system and the most popular especially for low to medium end transactions. Normally an advance payment is sent before production and the balance as per the payment terms. The main risk for the importer is losing the advance in case things go wrong.