5 Ways to Pay Suppliers in China: An Analysis on The Pros & Cons

5 Ways to Pay Suppliers in China: An Analysis on The Pros & Cons

China is the world’s largest manufacturing country and the world’s largest exporter. Therefore, if you sell your own goods, you are likely to cooperate with China suppliers.

Although China suppliers are often known for their short turnaround times and affordable prices, remittances are often cumbersome due to strict capital controls in China (especially for young businesses or small and medium-sized enterprises).

There are many ways you can pay your China suppliers (some are easier and cheaper than others), but the way that works best for your business depends on many factors. To help you evaluate the right method, we have written a short guide comparing the most commonly used methods.

This is an analysis of the pros and cons of 5 common methods of paying suppliers in China.

Ways to Pay Suppliers 1: International wire transfer

Perfect for: Large companies who have room to pay international transfer fees

Usually, bank wire transfer is normal business practice. Especially for most smaller factories, this is their preferred payment method.

Pros:

• Simple and clear. In most cases, you can go directly to your bank branch (or through your bank’s electronic banking portal) and transfer money from there.
• No other settings. You don’t need to set up any other accounts or launch any new features.

Cons:

• There are expensive international transfers / SWIFT fees. Usually, international wire transfers to China cost between $ 20 and $ 50. Fees come from banks and beneficiary banks, correspondent banks in the SWIFT network, and currency exchange. For SMEs or young companies, this can add up.
• You may have to wait a long time because international transfers usually take several days to arrive.

Generally, you should also be prepared to provide more information about transfers when sending money into China. For example, you should have the details of the invoice and shipping company, and basically be ready to explain the purpose of the transfer.

Method 2: Make a local transfer from a business account in Hong Kong

Perfect for: If you have regular business dealings with a Chinese supplier and need a simplified recurring payment method

To avoid international transfer fees and waiting times, all Western companies do is set up a corporate account in Hong Kong and pay suppliers from there.

Many Chinese suppliers actually have their own business accounts in Hong Kong because remittances to and from Hong Kong are very easy (especially compared to China). And, because they spend a lot of time doing business with Western companies, trading in dollars is normal.

Pros: 

• This is a local transfer. This means you can avoid the hassle of international transfers, such as loss of funds in conversion and transfer fees
• Remittance to Hong Kong is not complicated. Open an account in Hong Kong, you can avoid logistic complications caused by remittances to and from China.

Cons: 

• Setting up a business bank account in Hong Kong is tough, especially for SMEs or startups. When it comes to Hong Kong banks, they require you to visit a branch in person and the process can take months.

Although opening a bank account in Hong Kong is not the simplest (to say the least), there are other FinTech alternatives that can help you. Built for cross-border entrepreneurs, Neat offers online registration and business account setup, even if you are not in Hong Kong.

Method 3: Transfer funds from your PayPal account to theirs

Perfect for: Remitting the initial deposit on your order

Although PayPal is not popular in China, it is still a viable option for many people to choose, especially since many Western entrepreneurs are familiar with it.

Sometimes, for initial deposits, companies send money through PayPal to ensure you send money to a legitimate account.

Pros: 

• These transmissions are usually instant. So if you both have a PayPal account, this may be a very convenient option.
• This is a familiar and trusted payment method for most Western entrepreneurs

Cons:

• High transfer and conversion fees
• Your supplier in China must use a third-party remittance company to withdraw funds from their PayPal account into their bank account (this also requires additional fees). This step may take up to 2 days.

Once again, many China suppliers don’t like working with PayPal.

Method 4: Remit the payment through a specialized remittance company

Perfect for: If you’re sending a one-off payment and don’t want to spend as much on bank fees

For SMEs and young businesses, bank fees may increase. Another option that is popular among small and medium businesses is to send money through a third-party remittance company, such as Western Union or Lianlian Pay.

These companies usually don’t use SWIFT networks, so many times you don’t have to deal with so many hidden fees. Generally, remittance companies have their own bank accounts and funds in each jurisdiction and process transfers locally.

Pros: 

• Since the SWIFT network is skipped, you usually get lower rates
• The transfer is fast and can usually be completed within 24 hours

Cons:

• Depending on the provider you choose, this can sometimes complicate the reconciliation of the beneficiary, because the remittance is not recorded as coming from your company name, but instead by
• There aren’t many companies in the market that specialize in entering the China market.
• Most Western money transfer companies are not familiar with China, so smaller Chinese suppliers may not accept this payment method

Some fintech companies’ remittance companies provide the same benefits as when they pass directly through the remittance company, such as Neat. As a Hong Kong company, they have made it a priority to ensure that remittance partners perform well in making payments to China and other Asian countries.

Method 5: Use Alibaba Trade Assurance

Perfect for: If you are just starting to find new suppliers and want to ensure the quality of the final product

If you have never worked with a supplier before, you may feel comfortable using products such as Alibaba Trade Guarantee, which will provide you with protection if you do not manufacture the goods as ordered.

In short, Alibaba’s trade guarantees work by sending money to Alibaba and then keeping it in an escrow account. When you are satisfied with the final product, they release the money to your supplier. In the event of a product failure, you can withhold payment and even withdraw money from your escrow account.

Pros

• You protect your money, you can ensure the quality of the goods
• This is a Chinese service specifically for the Chinese market-meaning you don’t have to worry about compliance with China policies that change around capital controls

Cons:

• Most China suppliers do not accept Alibaba’s trade guarantee because Alibaba will cut profits

Generally, only large and reputable China suppliers can choose to pay with Alibaba Trade Margin.

Choosing the best payment method for your business

Sending money to China can sometimes be a headache. There are a number of ways you can choose to pay your China suppliers, but keep in mind that in general, most suppliers do prefer wire transfers.

Take into consideration your business relationship – if you’ll be doing one-off or very infrequent orders, it might make sense to send funds with a third-party remittance company.

If you’re regularly going to be making transfers with suppliers in China, however, it might be worth taking the plunge and setting yourself up for success with a Hong Kong business account.

Resource from : https://www.dragonsocial.net/blog/how-to-pay-chinese-suppliers/