The complete guide to paying business suppliers in China

The complete guide to paying business suppliers in China

What’s the best way to pay suppliers for products, and contractors for their work, if they’re based in China? In this article we look at the most common ways to send business payments to China and discuss their pros and cons.

Pay suppliers in China with Azimo Business 

If you’re wondering “How do you pay for imports from China?”, consider using Azimo Business. It’s one of the fastest, cheapest and best ways to pay suppliers in China.

If you already send money to relatives in China with Azimo, you’ll know we offer secure, same-day payments to Southeast Asia’s largest territory. 

Azimo Business uses the same lightning-fast technology and is up to 90% cheaper than using your bank or PayPal. See just how much you could save with our price comparison table.

Your account also comes with world-class fraud detection and encryption technology. And if you have any questions or need assistance setting up your transfer, you can ask your dedicated account manager.

It takes just a few minutes to register with Azimo Business, and your first five transfers are fee-free.       

Get Letters of Credit

Letters of Credit (LCs) are the business form of an IOU, written by a bank on your company’s behalf. The bank will write to your supplier stating that if for some reason you can’t pay, they will.

While more modern forms of business payments to China exist, it’s a good idea to familiarise yourself with LCs as some companies won’t trade without one. 

This is because LCs act as a safety net for the supplier in case you don’t pay up. And given the high fees involved for getting LCs from the bank, they reassure the seller that you are a legitimate business. 

For individuals and start-ups, LCs might not be the best option for paying your Chinese supplier. First of all, it’s best for large orders and also, getting one written up can be a long, drawn-out process. 

Pay Chinese suppliers with cash

Cash might seem like a surprising way to pay for imported goods in 2020 – especially in a mobile payment-friendly country like China – but it is still pretty common to do business in China using cash.

Despite this, paying with cash doesn’t offer much protection for you if something goes wrong. 

It can also be an expensive method of payment, especially when dealing with an unfavourable exchange rate mark-up.  

Use escrow for payments to China

While escrow is a popular payment method within China, suppliers may baulk at trading that way with international buyers. Escrow agents act as third parties who receive your payment for goods or services. 

Using an escrow agent is a great way to protect yourself and the supplier. That’s because the agent won’t release the funds to the seller until the work is done or the products have been delivered.     

Use a sourcing agent

Sourcing agents are similar to escrow agents. Using a sourcing agent is highly recommended when dealing with new suppliers. 

Instead of making direct payments to the company, you can pay a sourcing agent based in China. 

For a fee, a good sourcing agent will vet the supplier for quality and standards, and will only greenlight the transaction when they are satisfied. 

Sourcing agents can cost quite a lot but they can mitigate your risk of being scammed. This is because they can be your eyes, ears and feet on the ground in China, and will handle your due diligence.

On the other hand, using a sourcing agent can actually reduce the price of the products or services you’re looking to buy. This is because suppliers usually offer lower quotes to local agents in Chinese Renminbi (RMB). 

Chinese companies are happy to do this because dealing in RMB represents less risk, as they won’t be at the mercy of unpredictable currency fluctuations.   

Transfer money to China with your bank

Also known as a telegraphic transfer (T/T transfer) or a wire transfer, it’s one of the most common ways that sellers request business payments to China. 

Not only are businesses in China familiar with bank payments, wire transfers are considered best practice when it comes to sending funds to China. 

As most telegraphic transfers are typically from one bank to another, paying this way can involve sending and receiving bank charges, high SWIFT bank fees and dealing with unfavourable foreign exchange mark-ups. 

Another disadvantage of using a bank to send money abroad is the common Chinese business custom of an upfront 30% deposit. 

That means you’ll pay two sets of fees. One when you send the deposit and another when you send the rest of the balance later. 

Send payments to China via Hong Kong

If you do regular business with Chinese companies, you should consider setting up a business bank account in Hong Kong. 

As many Chinese suppliers have accounts in Hong Kong anyway, getting one there yourself makes a lot of economic sense. 

That’s because all money transfers (usually in US dollars) from you to your supplier will be considered local transactions, thereby side-stepping international transfer and foreign exchange mark-up costs. 

Use PayPal to pay Chinese suppliers

If you’re looking for a way to make small, instant payments, PayPal could be worth considering. PayPal, which is available as a mobile app, is a great way to make initial low-sum payments to potential suppliers, while developing your business relationship. 

While PayPal may be a simple and convenient form of payment for you as a seller, businesses in China often get hit with high charges just for receiving the funds. 

On top of that, the process of transferring the funds from PayPal to a Chinese bank account involves the use of third-party payment services. 

Other drawbacks of using PayPal include being charged a percentage of your transfer and using their own exchange rate mark-up. Azimo Business is up to 90% cheaper than Paypal, thanks to our excellent exchange rates and low, transparent fee.

Pay businesses in China by credit or debit card

You know the famous slogans, “… for everything else there’s MasterCard” and “Life takes Visa” but you should avoid paying suppliers by card. The truth is that most Chinese companies aren’t too keen on this method of payment anyway. 

That’s because credit and debit card payments incur charges for the supplier, which they may pass on to you. 

Send money with Western Union

Western Union (WU) has been in business since 1851. It’s the original way to send money abroad and is still popular around the world.

But with comparatively high fees, using WU for business payments in China is less attractive.

In reality, Western Union is usually among the most expensive options for sending money abroad. It’s best known for emergency payments to friends, family and anyone you completely trust. 

Azimo Business is the fastest, cheaper way to make international business payments. Set up an account in minutes and start paying employees and suppliers in China. Get your first five transfers fee-free and at an exceptional exchange rate. Register today to start sending online business payments