How to make business payments to China

How to make business payments to China

China shipped a whopping two and a half-trillion dollars worth of goods around the globe in 2020. 

From smartphones to car parts, if you ordered goods from overseas last year, there’s a good chance they came from China. 

So what’s the best way to pay Chinese suppliers? Let’s 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 send euros and US dollars to China.

If you already send money to relatives in China with Azimo, you’ll know we offer secure, instant CNY payments to China thanks to our partnership with Alipay

If you’re sending payments to Chinese companies with Azimo Business, it’s up to 90% cheaper than your bank or PayPal via the SWIFT network. See just how much you could save with our price comparison table.

Your account also comes with world-class fraud detection, encryption technology and a dedicated account manager. 

Get Letters of Credit

Letters of Credit (LCs) are like a business IOU note written by a bank on your company’s behalf. The bank will tell your supplier that if for some reason you can’t pay, they will.

While more advanced payment methods exist, it’s a good idea to familiarise yourself with LCs as some companies won’t trade without them. 

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

For freelance workers 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

How to make business payments to China

Cash might seem like a surprising way to make business payments in 2021 – especially in a mobile payment-friendly country like China – but it is still pretty common.

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 unfavourable exchange rate mark-ups.  

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. As a result, 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 only releases the funds once the products have arrived.     

Top tip: Finger pointing is considered rude in China. Instead, “point” with an open hand or, if possible, make eye contact and get someone’s attention without using your hands.

Use a sourcing agent

Sourcing agents are similar to escrow agents. Therefore, 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 limit your risk of being scammed. That’s 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 reduce the price of the products or services you’re looking to buy. That’s because suppliers usually offer lower quotes to local agents in Chinese Renminbi (RMB). 

Chinese companies are happy to do this because trading in the local currency 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 telegraphic transfers (T/T transfers) or wire transfers, they’re a popular way for sellers to request business payments to China. 

Not only are businesses in China familiar with wire transfers, but they’re also considered standard for receiving payments. 

As most wire 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 typical Chinese business custom of paying a 30% deposit. 

That means you’ll end up with two sets of fees—one when you send the deposit and another when you send the balance. 

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, getting one there yourself makes 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 fees and foreign exchange mark-ups. 

Fun fact: China is the world’s largest producer of rice but did you know that The Great Wall of China has its fill of rice? That’s because the wall’s stones are held together with a mixture of sticky rice and calcium carbonate. 

Use PayPal to pay Chinese suppliers

How to make business payments to China

If you’re looking for a way to make small, instant payments, PayPal could be worth considering. Available as a mobile app, PayPal 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. 

Other drawbacks of using PayPal include being charged a percentage of your transfer and using their own exchange rate mark-up. On the other hand, Azimo Business is up to 90% cheaper than Paypal, thanks to excellent exchange rates and a 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 keen on card payments in the first place.

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 famous 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, and that’s according to data from The World Bank

Download the Azimo app on iOS and Android and start paying employees and suppliers in China.