China is the biggest exporter in the world and with so many different suppliers and an enormous trading community, paying for Chinese imports can be made clearer, safer and even cheaper by examining different payment methods.
Although the Renminbi (RMB) is the national currency of China, foreign trade is actually done through US Dollars. This is because US Dollars are easier to trade in due to a lot of red tape in dealing with Renminbi when trading in China.
Usual payment terms that are agreed with Chinese suppliers when paying for imports is that a payment will be made before manufacture; for materials and other costs of production, and payment upon delivery.
Some importers base their payment terms on quality assurance of the goods which can be safer. The 30-40-30 rule is applied whereby the importer will pay 30% of the payment before production. After production quality checks are carried out on the packaged goods (usually outsourced) and if satisfied 40% is then paid. The final remaining 30% will then be paid upon arrival of the goods.
However, the exchange rate can have an impact on whatever payment terms agreed. The cost of you paying your supplier could be higher on your next payment due to a fluctuating exchange rate. So how can you try to protect your business from this?
There are a few payment options that can be applied in paying for Chinese imports that can ensure you don’t lose out as much as possible in the exchange rate.
Forward contracts can be used to protect the currency rate you pay for up to 2 years which is ideal for regular payments. On the other hand spot deals can be used to make an immediate payment at the present exchange rate if a payment needs to be done quickly.
RationalFX are a professional foreign currency brokers that offer these services which make paying your Chinese importer easier and cheaper. From offering low transfer fees and better exchange rate than the bank we also offer assistance for the best payment options available for your business.
We at RationalFX are trustworthy FSA authorised foreign exchange brokers and are experienced at transferring money to China. Opening an account with RationalFX is free and will make your payments to China efficient, secure and most of all less costly.