The first time I sent real money ($2,500+) to a supplier in China, it was definitely a bit scary.
I used PayPal to order samples & place my first small-quantity order. After the product had been selling for a while & I felt like it was validated, it was time to place a "real" order that would need to be paid via wire transfer.
PayPal was a breeze to use, because it's known for offering reliable buyer protection. The downside is that they charge around a 4% fee to use it.
Wire transfers, or "T/T" as many Chinese sales agents call it, is an alternative solution to transfer money initiated from bank to bank, where the fee is typically flat rate (my bank charges me $40 per wire).
This article will cover some of the pros & cons of the various ways you can make international payment for inventory.
Money Transfer Methods
You'll have to decide between transfering the money via wire transfer or PayPal (or AliPay, which also works if the supplier prefers that).
Wire Transfer (T/T)
- PRO: This is the MOST COMMON method of transfering money, & is the expected method for sending payment
- PRO: Banks typically charge a flat fee for the transfer (not a %). My bank charges $40 per wire
- CON: No buyer protection
- CON: Takes up to 10 days for recipient to get the money (in my experience, on average, it takes 1-3 days)
PayPal
- PRO: Ease of use
- PRO: Offers security for buyers (at a cost though, becuase again, this is priced into the transfer fees at a flat rate)
- CON: This is not commonly used
- CON: There is a flat rate fee of around 4% charged to the recipient of the funds, which they will add to your total cost (if they accept PayPal - not everyone will)
Alibaba Secure Payment
- PRO: Ease of use
- PRO: Offers buyer security as the money is held in escrow until you approve the order
- CON: Can only be used if the supplier is pre-approved on Alibaba.
- CON: There is a fee of 5% charged to the supplier, which you can bet they will pass on to you
Deciding on Payment Amount
Most suppliers give you the option of paying 30% of the order cost up front, and the remaining 70% after the goods are produced. You can request that they send you proof of the production before paying, and they'll likely send you pictures.
I typically do the 30/70 split on the first order, and then pay 100% of up front there on, unless the order cost exceeds ~$15,000+.
100% Cost
- PRO: Only 1 transaction fee
- CON: If you're sending money to a scammer (INCREDIBLY rare if you follow our method for finding suppliers - I have NEVER been scammed)
- I might typically use this method if I've already worked with this supplier & the amount is under ~$15,000
30% / 70%
- PRO: You are protected as a buyer - if you are sending money to a scammer, they would receive 30% of the final amount instead of 100%
- CON: You pay multiple transaction fees
- I might typically use this method if it's my first time paying a supplier OR the amount exceeds $15,000
Money Transfer Methods to AVOID
Western Union
* AVOID WESTERN UNION * Higher risk of getting scammed than the alternatives with less protection.
Letters of credit (L/C's)
There's too much paperwork involved for this to be a long-term solution.
