How to pay a Chinese supplier safely and efficiently?

Options for paying a Chinese supplier

There are many reliable methods of payment for suppliers located in China.

We have selected the following 4 for you:

Use international bank transfers

This is the most popular payment method. It is a telegraphic payment or transfer funds from one bank account to another . This is an international bank transfer outside the SEPA zone. The bank generally requires a special authorization to carry out this transaction.

Simply go to your branch and add your Chinese supplier to your list of suppliers.

Bank transfers offer the following advantages simple and inexpensive . Visit approximately 40 euros per transaction for a traditional bank, and slightly less for digital banks. This cost is shared between the seller and the buyer, except for small amounts where the seller requires the customer to bear the entire cost.

Pay via an online payment platform

You can also choose to pay your Chinese supplier via an online platform such as PayPal, Wechat et Alipay for example. They are appreciated for their short processing times. What's more, in the event of a dispute, you can benefit from a certain level of protection, depending on the fintech you choose.

Paypal is preferred for small orders, due to the high transaction costs. It is also rarely used for merchandise orders.

Wechat Pay and Alipay, on the other hand, are widely used in China . Their advantage? They are widely accepted by Chinese suppliers and facilitate instant payments . On the other hand, navigating these tools can be complex, as you need to understand Chinese.

There are other payment platforms like Wise or Veem, for example. Take the time to compare them in terms of cost and availability in China before choosing one. You should also make sure that the platform you choose is listed on the register of authorized financial agents in France.

Using a letter of credit

This operation enables your bank to give a guarantee to the supplier's bank. that the contracted amount will be paid on condition that the required documents are provided . This means of payment offers greater security than a bank transfer, for example. In fact, it obliges the supplier to meet certain requirements in order to release the funds.

The documents to be provided in advance by the supplier may be :

• Quality control reports

• A bill of lading to certify shipment of goods

• Laboratory test reports (to avoid receiving non-compliant products), etc.

What's more, it's expensive, with costs ranging from 200 to 500 euros. This is why it is mainly used for larger amounts.

Pay with money transfer services like Western Union

Western Union is an internationally recognized payment method that can also be used to pay your Chinese suppliers. Indeed, the platform is renowned for its processing speed and simplicity. As a result, it is the preferred choice for simple, small-scale exchanges. That's right, transaction costs can be high.

Comparison of payment methods for a Chinese supplier

Here's a comparison of the different payment methods in terms of cost, security and processing speed.

Transaction security

Here's what each of the above payment methods is worth in terms of security:

• Bank transfers remain a secure means of payment. However, it has been superseded by the letter of credit, which offers a real guarantee, provided the terms are clearly defined.

• The security of transactions via online platforms depends on the protection offered by each platform.

• Payments via Western Union are not recommended. In fact, it offers little guarantee of transaction traceability . What's more, the data required from the recipient remains too superficial to guarantee real transaction security.

Fast payment

Bank transfers are a fast method of payment, especially when made via a neobank.

On the other hand on average 4 days for the funds to reach the supplier's account. It is important, however, to fill in the supplier's full details.

Chinese banks are very demanding on this point. This will help you avoid additional costs and delays.

The setting up of a letter of credit, on the other hand, is due to the complexity of the procedure . It involves cumbersome legal and administrative procedures.

Payments via payment platforms are also appreciated for their speed. This is also one of the advantages offered by Western Union.

Associated costs and expenses

From a cost point of view, bank transfers can be expensive due to fixed charges. It is therefore not suitable for small sums.

Similarly, letters of credit are only used for large sums, as the associated costs can be high.

Transaction costs vary from one online payment platform to another. You should compare them carefully before choosing one.

Western Union, on the other hand, is not suitable for large transactions, as costs can be high.

Precautions to take before paying a Chinese supplier

Given the distance and language barrier, it can be challenging to do business with Chinese suppliers. You need to take certain precautions to avoid disappointment.

Check supplier reliability

Here's what to look out for when choosing a reliable Chinese supplier:

• Legal documents related to the supplier's legal situation and the legal authorizations required to market the goods it offers.

These documents must be translated into French to ensure their authenticity.

• Online reputation. You can easily obtain information about the supplier online by checking all the Chinese or English-language sites where it appears.

• Certifications . There are various types of certification you can demand, such as ISO 9001, FSC or BSCI. The first thing to do here is to consult Customs and Afnor. Then, when the supplier issues the certifications, you need to check with the laboratories that are supposed to have issued them to see if they are up to date.

• Supplier sales performance . You need to be sure that the supplier is up to the task of meeting its commitments under the specifications, particularly in terms of delivery times.

Realize an on-site audit can also be an effective way of ensuring supplier reliability. You can then travel to China to visit the supplier's factory and check the quality of the product for yourself.

Use clear, detailed contracts

In legal terms, a contract is a legal agreement between two parties. In this case, the contract must establish the legal and formal basis of the relationship between supplier and customer.

It is therefore necessary to write it well to include all the details and requirements for a smooth business partnership.

To do this, it must show :

• Product specifications

• Agreed quantities

• Delivery times

• Price list

• Quality standards

• Terms of payment

The contract may also include clauses providing for penalties. in the event of non-compliance with the terms by either party. Confidentiality clauses can also be included to protect strategic customer information and intellectual property.

From a formal point of view, the contract must also comply with legal requirements to ensure its validity.

Ensuring customs compliance

Since we're talking about international trade, customs are inevitably involved in the transaction. In particular, certain documents must be provided for the customs clearance process to run smoothly:

• A certificate of origin . It indicates the country of origin of imported products.

• The goods invoice which specifies product type, quantity and prices

• Cargo insurance in the event of transport incidents

• The packing list describing the product and quantities per package or container

• Specific authorizations for controlled or regulated products

• Quality and brand licenses or certificates that guarantee product authenticity and compliance with legal standards

• Shipping invoice which details shipping costs

• Bill of lading which certifies receipt and loading of the cargo.

You must therefore make sure that the supplier is able to provide you with these documents.

The benefits of using Hero to pay your suppliers

You can also use Hero to pay your Chinese suppliers. Here are the advantages of this option:

• Fast, reliable payment

• Affordable costs

• Optimized cash management thanks to the platform's payment facilities . Hero allows you to pay your suppliers in deferred payment or in 2 or 3 instalments, while advancing full payment to the supplier.

How do payment terms work with China?

Here are 4 payment options commonly used for transactions in China:

• 30% deposit and 70% payment before shipment . You pay a 30% deposit when you place your order, and then pay the balance before the goods are shipped. Shipping by sea usually takes between 30 and 40 days. You'll have to wait this long to sell the goods and recover your capital.

• Deposit of 30% and payment of balance of 70% on bill of lading . This is the most commonly used method, as you only pay the balance once the goods have arrived at their destination.

• No deposit, full payment against bill of lading . This payment condition will only be accepted once you have established a solid relationship with your supplier.

• O/A payment . You pay the balance in full after receipt of the goods, or up to 30 days after receipt. This payment condition is only possible if the supplier has taken out insurance. If the customer defaults, he receives 80-90% of the order value. The customer, on the other hand, will have a poor credit history.

In short, there are many ways to pay your Chinese suppliers. But remember to compare them carefully to choose the one that suits you best in terms of cost, speed and security. You can also pay your Chinese suppliers via Hero to optimize your cash management.