Bank transfer most favored payment method among China exporters
The majority of China exporters prefer receiving payments for their overseas orders via telegraphic transfer (also known as bank transfer), according to Global Sources' latest survey of 70 suppliers.
Practically all respondents accept TT, whereas only 66 percent of participants said their preferred mode of payment is letter of credit.
The last has been declining in popularity over the past few years as concerns over L/C risks continue to grow.
For one, discrepancies are practically unavoidable. Disparities necessitate a waiver from the buyer who might take this opportunity to delay payment if he is low on cash.
Further, credit restraints are making it harder for some issuing banks, usually in Europe and the US, to confirm or even endorse L/Cs.The last two make it difficult for suppliers to use an L/C as collateral in securing bank loans, reducing its appeal among SMEs further.
Considering these factors, the 66 percent favorable response rate that L/C received is noteworthy. "This is more than I thought and it is good news for buyers who want a degree of safety that bank transfers do not allow," said Renaud Anjoran, who writes advice for importers on the Quality Inspection blog
As for TT, the payment method is extremely popular among SMEs with operations largely dependent on a steady inflow of funds. Among respondents that said TT accounted for more than 90 percent of export payments, 61 percent post between $1 million and $5 million in overseas revenue annually. One-fourth earn less than $1 million. Only 6 percent can be considered large, with export sales of $10 million to $20 million.
TT offers suppliers several advantages, including very low bank fees. TT is also the fastest mode of payment with money reaching the supplier’s bank account in just a few days. Some unscrupulous exporters use TT to evade taxes by asking for the payment to be wired to a private bank account, something that is impossible with an L/C.
Some exporters allow a combination of payment modes. In such cases, the deposit can be made through TT and the rest is paid in another way.
With regard to D/P, D/A and open account, these are risky for suppliers as these modes of payment require confidence in a buyer’s sustained flow of business.
As explained by Anjoran, a small importer might have to shop around a long time before finding an exporter willing to work on such terms. A large and established importer can impose deals on his terms more easily because he is “attractive” to many suppliers. Similarly, large exporters are more familiar with overseas markets and with their target customers, and can take a calculated risk by accepting risky payment terms.
Of the 69 respondents that accept TT, more than half said over 80 percent of export transactions are paid via wire transfer. For 22 percent of companies, 61 to 80 percent of revenue comes from TT.
The reverse applies to the other payment types.
Close to 40 percent of surveyed suppliers in the L/C subgroup said L/C transactions represent less than 10 percent of revenue. An almost similar number of respondents said 11 to 30 percent of earnings come from L/Cs.
When accepting L/C, 38 percent of these companies said they ask for at least $50,000 worth of goods. Eight percent set the minimum purchase value at $30,000.
Such steep requirements are becoming common as suppliers grow even more cost and efficiency conscious. Many exporters believe that large orders, particularly those that can be manufactured in batches, can bring down expenditure by as much as 30 percent.
Even so, there are still exporters offering more reasonable ordering terms. L/Cs are accepted by 30 percent of makers for purchases worth at least $10,000.
Still on the supplementary role of non-TT transactions, this is particularly evident in the D/A and D/P subgroup. Nearly two-thirds of suppliers under this classification look to these payment methods to generate less than 10 percent of export sales.
Nevertheless, there is hope for buyers if they are good at motivating potential suppliers to accept their orders even though payment terms are not favorable. Anjoran expects the percentage of suppliers accepting these risky terms to go up.
He added, "Another option for buyers who need to keep leverage in their hands is to pay 20 percent or 30 percent before production starts, 50 percent after a preshipment inspection and the rest after delivery in their country. I also expect this to become more common.