Wire Transfer Payment Terms and China Vendors
Negotiating preferred payment terms with Chinese suppliers is a big concern for buyers. “How much deposit is normal? When to pay the balance? Why won’t supplier accept “looser” payment terms? Can’t they trust me?” Let’s shed some light on this topic.
What are standard payment terms and when to make?
From my stand point and line of work, standard payment terms, to start numerically are 30% deposit and 70% balance.
Once the sample is signed-off, purchase order issued, supplier gives their invoice, THEN it’s time for money to change hands. Generally this looks like a 30% transfer to the vendor.
After you issue your PO, don’t assume the supplier moves forward based solely on a PO. Starting the process based only on a purchase order, is generally a favorable term that you may not have yet.
Make sure your purchase order and the supplier’s invoice (or contract) match up. Go back to the well if there are discrepancies, don’t proceed with deposit. If your PO has a term that the supplier’s document doesn’t have, the supplier will use that as a reason to say later, “this wasn’t considered in the order” or price or whatever.
What are favorable payment terms?
Some examples of favorable terms are the following:
If the supplier quotes you FOB China port, do your best to insist that balance payment is due once the goods are on the vessel and they give you the scanned copy of the on-board bill of lading. An on-board bill of lading will have the freight-line stamp with date.
The more you order with the same vendor, the more you pay invoices on time, the more likely the vendors will extend favorable terms.
By the way the on-board bill of lading is also a document required if you are doing a letter of credit (L/C). As you see, I’m not focusing on letter of credit in this post, but sticking to wire transfer.
Why do China suppliers seem to be sticklers on payment terms?
Traction helps create favorable payment terms
Perhaps buyers think because they’re from a Western country or because they do so much in sales, then this should immediately translate into credit and favorable terms.
But to a supplier in China, until they’ve started seeing more action and less talk, the biggest company and the smallest company might as well be the same. There are small companies that pay on time and frequently order.
There are large companies that don’t pan out and when they do order, aren’t prompt at fulfilling terms.
And vice versa.
The more you order with the same vendor, the more you pay invoices on time, the more likely the vendors will extend favorable terms…or even agree to accept lower volume orders.
Don’t let payment term talk be held to the end or delay a shipment
Here’s a brief scenario. Payment terms are not clearly defined from the beginning. The buyer pays the 30% and assumes they can pay the balance once the goods are on the water.
Come time for the goods to depart the factory, the factory says they want their payment but the client figured it was suitable to pay once the goods hit the high seas.
The factory won’t budge and the client isn’t able, for whatever reason, to quickly make the payment in order to hit the shipping date.
Factory departure is delayed, goods don’t hit the port on time, sailing date is missed and shipment leaves late.
Relationship between client and supplier takes a bit of a blow; not to mention you missed your promised delivery date and have to explain that to your client or manager.
Stamp out payment terms way in advance and avoid this.