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3 Key Considerations When Paying Your Chinese Manufacturer

China is the largest export country in the world, exporting over $2 trillion USD in 2016. More and more Amazon sellers are sourcing their products from China more than any other country. When done right, it’s proven to be well worth the effort. The most successful sellers of Chinese-made products have chosen a reliable manufacturer – not a trader or wholesaler.  It’s important to negotiate a fair price, establish agreements, secure documentation  for quality control, payment and delivery.  Ultimately, Amazon sellers need to foster a quality B2B relationship, or Guan Xi, with Chinese manufacturing partners. With all the care taken to get to this point, sellers will want to examine whether they are utilizing the best option to pay for products and are using the most effective form of payment to pay their Chinese suppliers.

Evaluating your optionsHow payments are made to your Chinese supplier

Once you’ve vetted your supplier and understand the degree of trust and security required to complete an initial payment, you will then need to consider the payment options to pay your Chinese supplier. Depending on whether they are final installments or payments on initial samples they may necessitate a form of payment that may add complexity to your ability to finalize the deal. The level of trust that you have established with your supplier over time can help shape the payment program you choose going forward. Ultimately, how you pay your Chinese supplier comes down to a negotiation around the size of the order, the scale of the manufacturer, the length of the relationship and the degree to which both parties are willing to share the risk.

Types of payments made to Chinese suppliers

There are a variety options Amazon sellers have in paying their Chinese suppliers which will be described below, but ultimately that method will be driven by the value of the transaction, the maturity of the relationship and the degree to which the parties are willing to share the risk.

Security Deposit

An agreed amount paid upfront before manufacturing, with balance payment upon completion or delivery. Again, it’s crucial to establish the conditions of each payment in writing, ahead of time. Security deposits may be considered risky for the buyer but if you have established a good relationship then it will give your Chinese manufacturer an incentive to comply with your arrangement in a timely manner. It’s important to make sure that your choice for sending a security deposit is quick and secure.

 

Payment Installment

Payments made throughout the manufacturing process at agreed-upon points of completion.  This may include your Chinese supplier manufacturing a limited run of samples or payment for a partially completed order. Payment installments are less risky for the supplier, and can help ensure that the manufacturing process moves forward without holdups. One consideration when choosing to make installments is that it will increase transaction costs. It is important to choose a payment provider that charges competitive rates on transactions.

 

Final Payment

Final payments or installments may be more or less complicated, depending on what payments preceded it and the history you have with your Chinese supplier. Final payments are generally the largest payment made to your Chinese manufacturer and should be supported with documentation around quality and compliance. Here, it may be important to have an intermediary who can handle disputes if the products delivered do not meet expectations.

 

Ways to Pay your Chinese suppliers

Bank Wire

The most common form of payment is the bank wire. For an initial payment by the Amazon seller to the Chinese supplier there is some degree of risk as there is little protection for you or any recourse should the transaction go awry. In addition to the lack of protection, international wire transfers can be subject to delays (up to 5 business days or more) and additional fees.

 

PayPal or credit card

For small and quick transactions that may require some short-term assurances PayPal or credit cards giving you the ability to initiate a chargeback and creating some additional risk for the Chinese supplier.  Notwithstanding, PayPal is increasingly becoming a more popular form of payment. Assuming the supplier chooses to accept PayPal by opening an account, this form of payment provides dispute resolution, secure technology and fraud and purchase protection. PayPal charges relatively high percentages and fees, on top of any fees that your payment method may apply for a foreign transaction. PayPal may choose to limit your payment options if they decide the risk is too high for certain sellers. If PayPal identifies a transaction as high-risk they will place a hold on your transaction and the delivery of your products may be delayed or even cancelled.

Escrow Service

Escrow is a popular payment option for medium to large transactions where payments are sent and held by a third party and the funds are only released when the buyer receives and approves the goods that have been received. Alibaba Secure Payment is a popular and trusted service in China that provides the buyer with some assurances before final payment is made. Secure Payment secures transactions, along with inspection and dispute resolution services; however, these services are expensive. Alibaba will mediate trade disputes based on the evidence provided by both the buyer and supplier. However, currently only manufacturers designated as Gold Suppliers on Alibaba.com from mainland China, Hong Kong, and Taiwan can use this service. There are payment limitations depending on the payment means ($50,000 or less), with the exception of bank transfers. Alibaba.com charges the suppliers 5% of the sub-total service fee, unless the buyer agrees to pay beforehand. Other fees may apply to buyers, depending on their choice of payment.

 

Payoneer Payment Alternatives

Payoneer provides Amazon sellers with the ability to sell on any International Amazon marketplace and collect their Amazon earnings in that local currency. Sellers sign up for Payoneer for free and are issued ‘collection accounts’ in any currency where they are selling on Amazon. Payoneer’s business model is based on the need for an international seller to convert their foreign earnings back to their local bank at a very attractive foreign exchange rate. Sellers can also use their collection account balances to make local payments in that currency using the Make-A-Payment feature at no cost to the seller. Payoneer continues to expand their offerings for Amazon sellers, including VAT payments to local tax authorities and the payment of suppliers, including Chinese suppliers.

Payoneer Escrow offers trusted and secure payments alternative for buyers transacting with manufacturers. Buyers do not need to purchase products through a specific marketplace. Once you and your manufacturer agree to the terms, your manufacturer can request payment to be held in a secure escrow account. Payment and delivery are guaranteed, when the transaction terms are met, and disputes will be mediated quickly, fairly and with full transparency. All transactions are tracked by Payoneer. The Escrow Transaction Fee may be assigned to the buyer or seller or split at the time the payment request is created. Escrow Transaction Fees are clearly communicated to all parties. Transaction fees are based on the payment value, and are considerably less than Alibaba.com. For example, a $75,000 transaction through Secure Payment would cost $3,750. The same transaction amount through Payoneer Escrow would cost only $1,087.50.

The Optimal Payment Service

The economic outlook for China remains positive. And Chinese manufacturers will have greater options for selling their products in the coming years. Amazon sellers who are sourcing from China should be looking not only to improve their bottom line by choosing a safer, less expensive and less complicated payment provider, but should also be looking to build stronger relationships with their Chinese suppliers.

Increasingly companies sourcing products directly from China and selling them on Amazon are moving away from more expensive, traditional payment options such as banks, credit cards and even PayPal. Instead, they are choosing payment providers that guarantee the integrity of payment traffic and ensure that all payments—deposits, installments and final—go through as planned. In addition, these payment providers can help you avoid regulatory compliance headaches and provide personal account management support around the clock for you and your supplier, if needed. To read more about one of these payment providers visit www.payoneer.com.

 

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