By Sheena on September 22,2016

Payment Options Feasible in Yiwu Market

For the first-time buyers, importing from Yiwu market seems a little bit daunting. Language barriers, worries of falling into traps, and insufficient knowledge about trade process make those newbies even more nervous. Goods and money are two critical factors during the international trade. Just simply put, the trade is the exchange process of goods and money. Thus, payment is a crucial and major part in the international business. In order to achieve a pleasant and successful transaction, both parties shall reach mutual agreement on how and in which terms the payment should be made. In the meanwhile, the buyer need to make sure these terms are specifically stipulated on sales contract or proforma invoice. 
 
Yiwu market emerged as the world’s largest small commodities wholesale center about 30 years earlier. With the time changing, the market is continuously upgraded, so is the payment method. From the original O/A to the application of L/C, we can see a picture of the upgrading market. Today, we are going to introduce main most prevailing payment methods in Yiwu market, and analyze each type respectively. 
 
1. Open Account
An open account transaction is a sale where the goods are shipped and delivered before payment is due, called O/A. That allows the buyer to honor the invoice in 30 to 90days after having received goods and necessary documents together. 
 
Obviously, this option is the best for the buyer but it also means the highest risk for the seller. Thus, in order to get it balanced, normally a third party of insurance company will get involved. For instance, Sinosure will do a credit research on the buyer and decide the credit limit that the seller is qualified to obtain. They always recommend that in written note like “Based on your financial status, a certain credit amount will be allowed, for instance, an annual credit limit of US$1,000,000”. 

 

ADVANTAGES

RISKS

BUYER

Ÿ Great flexibility in cash flow;
Ÿ Control over goods prior to payment

Ÿ Possibly high price quoted by the seller

SELLER

ŸEnhance partnership with valuable clients

Ÿ No control over the goods or payment;

Ÿ The buyers delay or even refusal to pay

Ÿ Payment blocked due to political events in buyer's country;

 
 
2. Letter of Credit
A Letter of Credit (L/C) is a document issued by a bank at the buyer’s request, assuring that the buyer will make payment within a specified period of time, provided that certain terms and conditions stated in the L/C have been met through the presentation of all required documents.
 
Below picture shows the procedures of L/C to give you a better idea.
 
 
 
Types of Letter of Credits

Revocable L/C

 Permits amendments and cancellations anytime by the issuing bank; rarely used due to its unacceptability to the seller;

 

Irrevocable L/C

only allows change or cancellation by the issuing bank after application by the buyer and approval by the beneficiary; most commonly used

 

Confirmed L/C

payment guaranteed by a confirming bank; higher cost

 

Unconfirmed L/C

only guaranteed by the issuing bank; most commonly used.

 

L/C At Sight

payable when documentation presented and verified.

 

Deferred L/C

 payment to be paid after a specified period from 30 to 120 days.

  

  
  
 
L/C plays an indispensable role in international trade. It enjoys various advantages over other methods. 

 

ADVANTAGES

RISKS

BUYER

Ÿ To minimize the risks in not receiving the goods ordered by verifying documents comply with terms and conditions of the L/C
Ÿ To Control the time period for shipping of the goods
Ÿ To avoid or reduce pre-payment

Ÿ Banks only check documents; not goods;
Ÿ Higher cost due to bank charges;

SELLER

Ÿ Payment guaranteed by bank's creditworthiness;
Ÿ To reduce production risk if the buy changes or cancels his order;
Ÿ The buyer will not be able to refuse to pay due to a complaint about the goods

Ÿ Strict restriction on the documents;
Ÿ Exposed to risk of Force majeure or failure of the issuing bank

 
 
3 Telegraphic Transfer
Telegraphic transfer (T/T) is a method of electronic funds transfer from one bank account to another bank account. It's a fast and reliable way for you to make international payments almost anywhere in the world. To safely make a T/T payment, the buyer need to ensure to get correct beneficiary details. The main details are as below

Beneficiary Name

 

Beneficiary Add

 

Bank Name

 

Bank Add

 

Swift/ BIC Code

 

Bank Account

 
You need to input these details correctly, or the receiving bank will return the money, which might cause double handling charges and have influence on the shipment schedule.
 

 

ADVANTAGES

RISKS

BUYER

Ÿ Fast transfer
Ÿ Low cost

Ÿ No guarantee of shipment or quality of goods;
Ÿ No Flexibility of funds

SELLER

Ÿ Control over payment;

Ÿ None

Besides bank transfer, you may also use Western Union, MoneyGram and Paypal; it’s fast, convenient and very suitable for paying sample fees and small order amount.
 
 
 

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