A T/T payment is a common way to pay Chinese suppliers, but what is this payment type, how to make one, and what FAQs do importers have about the process? In addition, when you’re ready to pay a supplier, what kinds of payment terms might you negotiate with them?
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What is a T/T payment?
T/T payment stands for ‘Telegraphic Transfer.’ In other words, an international wire of funds from the buyer’s bank to the seller’s bank.
When a Chinese supplier asks for a T/T payment, what they really mean is they want a wire transfer. (Technically, a T/T payment is not exactly the same as a wire transfer through the SWIFT system, but the vast majority of people think of them as the same thing.)
A wire transfer based on SWIFT is the most common payment method in international trade with Asian countries. It typically takes 3-5 working days to clear, and generally costs between 25 and 50 USD, depending on your agreement with the commercial department in your bank.
How to make a T/T payment?
Contact the commercial department of your bank, tell them you need to wire (for example) 25,000 USD to a company in China, and they will generally give you a form to fill out. If you do T/T payments frequently, your bank probably has an ‘internet banking’ application that will save you time.
Your supplier will probably send you a pro forma invoice that includes their bank account information. I strongly suggest you ask for that information earlier (as part of your pre-qualification of a potential supplier). Many buyers have been scammed by hackers who send invoices with their own bank account information…
I shot a short video that shows how to fill out a T/T payment application form:
After you have done this, take a screenshot, or get a digital copy, and send it to your supplier.
Important tips:
- Make sure to avoid any misspelling, which might cause the payment instruction to be held in limbo for weeks!
- You will need to write the company name in English, not in Chinese. Don’t try to do your own translation job, even if your written Chinese is excellent! It has to match exactly the English name that is registered in the seller’s bank records.
- If the company name is too long, keep writing it in the “address 1” field. This is sometimes mentioned on the T/T payment forms of banks that work a lot with China:
What is the most common payment term requested by Chinese suppliers?
The most common payment method is a bank wire that works this way:
- You have the supplier develop sample(s) until you are confident they know exactly what you want.
- You send a 30% deposit (by T/T payment) before production starts.
- Your supplier (the manufacturer & exporter) purchases the components and/or materials and arranges the production
- You work with a quality assurance firm to inspect product quality (this is optional but usually a good idea).
- You send the remaining 70% (by T/T payment) before shipment.
- The supplier ships the goods and sends you the documents by express courier.
In graphical form, it looks like this:
What is another common, and better, payment term?
It is quite similar, except for the end of the process.
- Once the supplier confirms the goods are ready, send an inspector to check quality (again, not a must, but highly advised)
- If quality is OK, release the goods (allow the goods to be shipped out) — this works best if you purchased under FOB terms
- Once the goods are on the ship, the supplier gets the Bill of Lading (B/L), and sends you a copy of it
- If the product name, quantity, etc. are all fine on the bill of lading, you send the final payment to the supplier
- Once the supplier receives the payment, they send you the original B/L
It looks like this:
Why is it better?
- The buyer knows the goods have been shipped out before paying the remainder.
- The supplier knows the buyer can only take possession of the goods after the original bill of lading has been sent.
Can you negotiate this term? If you insist on it from the very start, and if your suppliers are motivated to work with you, probably yes. If you come out as a beginner and your orders are very small, probably not.
How to negotiate better payment terms?
There are various ways you might be able to negotiate for payment of some (or all) of the amount after shipment.
- Your company is well established and famous — think Apple or Disney. The risk of the buyer’s company defaulting is much lower. You can work work with relatively large manufacturers, who have facilities to finance their working capital easily. And the seller wants to boast about that prestigious customer in order to get more business, so they usually want to make an effort.
- You have a buying office in China — having a strong presence in-country does help. A supplier that hasn’t been paid in time can visit you and take different measures to push you for faster payment (especially if your China office signs contracts with them), so they feel there are at lower risk. From our experience, when we help our clients by paying their suppliers, we can often negotiate 0% deposit and 100% after shipment, at end of month with the suppliers.
How to get help from a financial institution?
There are two ways financial institutions (some banks, but also certain fintech startups) can help you:
- You can arrange financing of your suppliers — as the buyer, if you have a healthy balance sheet and you purchase regularly from a certain supplier, you can work with a financial institution that will advance a good chunk of the money to your supplier, while you can pay later (in some cases, 90 days after shipment!) This used to be only possible for large companies, but recently I heard of options for smaller companies.
- You can borrow money for a certain time period, to finance your orders. This type of loan is often granted by the same financial institutions I mentioned in the previous point.
Contact me if you need more information about making a T/T payment. We don’t provide this service, but we can probably point you in the right direction.
Frequently Asked Questions
Tips and tricks about the T/T payment process
Frequent issues
About negotiations
*Editor’s note: This post was originally published in 2012, and has since been updated to include new information and formatting.
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