Trade Advisory

12 October 2021 • 16 min read

Ways to Pay Your Supplier in China

Editorial Team

To secure their payments in China and to avoid risks, importers must pick the right method of payment. Use this guide to see which mode is right for you.

What is the safest method of paying your supplier in China? This is a question raised frequently by importers who source their goods from there. We will answer this question for you by listing the various methods by which you can make payments to your supplier in China. Remember, there is no one-size-fits-all answer as each method has its own pros and cons. Additionally, your choice of payment mode depends to a great extent on the size of your order.

Apart from payment methods, this article will also address the following subjects:

  • Currencies in which you can pay your China supplier
  • Ways to negotiate favourable payment terms with your supplier

Read about the best practices to find and verify China suppliers here.      

7 ways to pay your China supplier

  1. Bank-to-bank transfer: This is a widely accepted form of payment among suppliers in China and usually takes a few days. It is generally considered safe, though there are some risks for both the importer and supplier. To lower the element of risk, importers can opt to pay in batches. The standard rule is a 30 percent deposit paid upfront and the remaining 70 percent on completion of production. The timing of the final payment is key and should preferably be after the goods have been through a quality check and have been shipped. As common as bank transfers are, they can be costly due to the fees charged by the importer’s bank, the recipient bank, and any other banks the transaction goes through, as well as currency conversion charges. And, because of the common practice of paying in tranches, you end up paying for two transactions.                      
  1. Letter of credit: A letter of credit (LC) is a payment mechanism where a bank promises to pay the seller an agreed upon sum on behalf of the buyer, provided certain pre-determined conditions (product specifications, quality inspection requirements, etc) are fulfilled. It is considered the safest way to pay Chinese suppliers. Not only does it allow the importer to set terms that the supplier must fulfil before they receive the funds, it also removes the risk of making an initial deposit. On the flip side, LCs are the most expensive payment method and document-heavy as well. Hence, they are more popular with large businesses than with small to medium-scale importers. For suppliers, LCs lower the risk of non-payment by the buyer. That said, many China suppliers, especially small manufacturers, hesitate to trade under an LC. This is because small manufacturers work on very thin profit margins and rely on the upfront deposits for their cash flow needs. Many also consider LCs a hassle. While this payment mode is reliable, importers and suppliers must remember that there are different types of letters of credit and take care to choose the right one to make their transaction secure.  

To know about the different types of letters of credit available, click here                            

  1. Escrow: Here, a trustworthy, neutral third party holds payment received from the importer and releases it to the supplier when the goods are ready and pre-determined conditions are met. An escrow account benefits both sides. It protects the importer from unscrupulous suppliers who take off with their money without delivering the goods. It protects the supplier from non-payment. The third party charges a fee, usually 5 percent of the transaction amount. It is billed to the supplier, who might pass it on to the importer. Apart from being safe, this mode involves minimal paperwork. However, it does require the importer to pay in advance, so that might be a deal-breaker. Escrow accounts are also not the most popular payment method in China and are generally used for low-value transactions and small orders.              
  1. PayPal: This is an easy way to pay for small orders and samples. However, most Chinese suppliers don’t accept PayPal payments for complete or large orders. Importers, too, might be discouraged by the transaction cost – a fixed fee of 3 percent to 5 percent of the invoice value plus PayPal’s own marked-up currency conversion rates. Furthermore, PayPal’s protection policies are considered complex, especially for cross-border transactions. Another risk of paying through PayPal is that most PayPal accounts in China are held by individuals and not businesses. This raises the buyer’s risk of paying the wrong person.          
  1. Western Union: Despite beingfast and easy to use, Western Union is not the best way to pay Chinese suppliers and is generally discouraged. This is because of the high costs involved and lack of payment protection. While the transaction fee itself is low, Western Union’s currency conversion rates are on the higher side. This mode is almost always used to pay for samples and small orders.          
  1. Sourcing agent: If you have a sourcing agent handling your imports from China, you can pay your supplier through them. A sourcing agent specialises in procuring goods from overseas. Apart from the actual purchase, a sourcing agent can take care of the entire sourcing process by shortlisting and verifying suppliers, negotiating payment terms, organising quality checks, and shipping the goods. There are distinct benefits to paying via a sourcing agent. If the sourcing agent has an office in your city or country, you can avoid an international transaction and its associated risks. An experienced sourcing agent also works with verified China suppliers, so the chances of meeting a fraudulent supplier through them are low. Sourcing agent fees can be high, but your agent can help you offset this by getting you a lower product price from the supplier.                    
  1. Debit and credit cards: International debit and credit cards are a secure way of making payments but their acceptance in China is low. This is because your supplier will incur a charge on receiving the funds, which they will, in all likelihood, pass on to you. This can make the transaction cost prohibitive.  

Click here to find out how to avoid China supplier scams.

Pros and cons of payment methods to China suppliers

Currency to use

The US dollar is the primary currency in which importers pay their suppliers in China. Payments in renminbi (RMB) – better known as the Chinese yuan – are allowed but not widely prevalent. Payments in RMB usually go through a clearing bank in Hong Kong or mainland China. By paying in RMB, you will be helping your China supplier cut their currency conversion costs. They might offer you lower prices in return. However, RMB payments are mostly used by importers from countries that have currency swap agreements with China. In India’s case, its trade with China is mostly settled in US dollars. But there have been discussions and proposals to allow direct convertibility between the rupee and yuan so traders in the two countries can transact in their national currencies and cut transaction costs.

Most importers pay their Chinese suppliers in US dollars, though RMB transactions are also allowed. Photo by Eric Prouzet on Unsplash

How to negotiate favourable payment terms

  • Choose your mode of payment wisely, considering the pros and cons of each
  • Check the exchange rates and charges of multiple service providers before picking one. Check their customer reviews and whether they offer 24x7 support in case of problems
  • Plan remittances in advance to avoid currency fluctuations
  • Be considerate of the supplier’s risk and costs. This will help you build strong ties with your China supplier, which is mutually beneficial in the long run
  • A key rule to ensure the safety of your payments in China is to spell out payment terms, methods, and schedules clearly in your contract, ideally both in English and Mandarin/Cantonese. It doesn’t hurt to confirm by calling the supplier directly
  • Never pay the full invoice amount in advance or you might have to deal with a delivery delay or inferior goods. You could go with the standard 30:70 split or negotiate more competitive terms. A 30 percent payment upfront, 40 percent on shipping after quality check, and the remainder once you’ve received your goods is considered acceptable to both sides
  • Never pay to a personal account. Always insist on the supplier’s business account, which should be specified at the contract negotiation stage itself
When picking a payment method, factor in the fixed transaction fee and currency conversion costs.
Photo by Karolina Grabowska from Pexels


Can I pay my China supplier after I receive my goods?

No. The best you can do is to get your supplier to ship the goods before they receive the money.

What are the standard payment terms in China?

A 30 percent deposit upfront and the remaining amount on completion of production.

Do Chinese suppliers accept all currencies?

No. The US dollar is the most widely used currency for international trade in China. You can also pay in RMB.

Why does my supplier have a Hong Kong account?

It is not uncommon for Chinese suppliers to have Hong Kong bank accounts to receive payments because of the ease of transaction rules there.

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