How to Pay a Chinese Supplier Without Losing Money

No payment method removes the risk of paying a Chinese supplier: what changes is which risk each one protects against. The T/T transfer — the standard, nearly always 30% deposit and 70% against shipping documents — only protects you if the money lands in the account of the company that signs the contract. A letter of credit under UCP 600 protects against documentary non-compliance, not against quality. And a platform guarantee covers only what is written in the order, and only if you paid inside the platform.

The rule that prevents most losses: pay the company that signs

The money must reach the bank account of the same company that signs the contract and issues the proforma invoice. Not a personal account, not another company’s, not that of a “representative” in Hong Kong who signs nothing.

A Chinese export company collects into its corporate account, which is tied to its licence and its tax registration. When they ask for a personal account, either the supplier is taking the operation off its books — and you have nobody to claim against — or it is not the company you think it is. Individuals in China also have an annual foreign-currency purchase quota of 50,000 dollars.

Compare three data points before you transfer: the name on the licence, the account holder and the party that signs. A China sourcing agent pays the order into that same account.

Compromised email fraud: the message that changes the bank details

The most expensive fraud in importing is not a fake supplier: it is an email that looks like it comes from the supplier and changes the account number. The FBI groups it as business email compromise, and in its 2024 annual report it recorded 21,442 complaints and 2.77 billion dollars in losses in the United States alone.

• Verify through a channel other than email, by dialling the number you already had, never the one in the message.
• Require a signed amendment to the contract, with the account holder written exactly as the company name.
• Send a small test transfer and confirm by voice that it arrived.
• The bank does not give your money back: the transfer is irreversible, and the real supplier is still entitled to collect its invoice.

T/T transfer: the standard and how the payment is split

The T/T (telegraphic, via SWIFT) transfer is the default method: 30% deposit and 70% against a copy of the bill of lading, with variants such as 30/40/30 on large orders.

What matters less than the percentage is what releases each instalment: the deposit releases the production order, the balance the shipping documents. With 100% before shipment, you are paying for goods nobody has seen.

The deposit is the only money genuinely at risk, because there is no merchandise backing it: negotiate it down and put in writing who bears the bank charges on each side.

Letter of credit (L/C): what it actually protects

A letter of credit is a bank’s undertaking to pay against documents that comply, not against merchandise that works. It is governed by the UCP 600 of the International Chamber of Commerce, whose article 5 states that banks deal with documents and not with the goods, services or performances to which the documents may relate.

That is why it protects against the supplier failing to ship or breaching the terms, and it does not protect against the goods being bad, unless the terms require an inspection certificate from a designated third party. If it is not in the documents, it is not covered.

Chinese factories avoid it: it ties up their credit line, requires a deposit with their bank and pays a month or more after production.

The cost is bank charges — issuance based on the value and on the time the credit stays open, with a minimum per transaction, plus confirmation, amendments and discrepancies — set by each bank. It pays off when the amount exposed is high; on low amounts the minimums weigh more than the percentage.

Platform guarantee: Trade Assurance and equivalents

The platform guarantee covers two things and only two: that the product does not match what was agreed and that it is not shipped on the agreed date. In Alibaba Trade Assurance, the programme’s own page limits it to “product quality” and “shipping date” relative to what was agreed in the online order, requires payment inside the platform — “protection only applies when you pay online through Alibaba.com” — and sets the refund request at 30 days from delivery. Other wholesale marketplaces run similar programmes.

It does not cover differences within manufacturing tolerance, nor delays or customs charges, nor anything you did not write down: it protects what you wrote, not what you assumed. And paying outside the platform destroys the coverage, which is exactly what the supplier proposing to “save the commission” is after.

It is most useful on a first order with a new supplier, with a standard product. With a customised product, judged against a physical sample, invoking it is harder.

Staged payment against an inspection report: the strongest lever

Money you have not yet paid is the only lever that still works after the factory has finished producing. A contract is claimed; an outstanding balance is negotiated. The structure we use: a deposit to start and the balance only after an approved pre-shipment inspection.

Our published prices: at MeliPrep, pre-shipment AQL inspection costs USD 299 per inspector-day, with sampling to ISO 2859-1 (general level II, AQL 2.5 major and 4.0 minor) and an explicit verdict on the lot; during-production inspection, USD 349.

Three rules: acceptance criteria are defined before production, because setting them after seeing the defects turns the inspection into a negotiation; the balance is released against a report with a verdict on the lot, and the supplier knows this before starting; and inspection happens before release, not on arrival, because with the goods in your warehouse, returning them costs more than they are worth.

Escrow and third-party guarantee accounts

An escrow is a third party that holds the money and releases it when a condition is met; the platform guarantee is one, and there are bank guarantee accounts. For the word to mean anything you need to know who holds the money, under which jurisdiction, what event triggers release and who decides whether it happened.

Your agent’s account is not an escrow. Your money sits on its balance sheet and your protection is its solvency, nothing more. See how we protect your money.

Currency: who bears the exchange risk and why the rate must be visible

The contract currency determines who bears the exchange risk. You sell in pesos or reais, the contract is signed in dollars and the factory cost is in yuan: there are two exchange rates and someone carries each one. Contracting in dollars, the peso/dollar risk between order and payment is yours; if the factory quotes in yuan, the dollar/yuan risk is theirs.

If your agent applies a rate in the conversion different from the market rate, the difference is a hidden margin, not a service. Compare it against three documents: the factory invoice in yuan, the receipt for the yuan payment with date and amount, and the rate applied with its source. Divide the yuan paid by the dollars you were charged.

What changes between Mexico and Brazil

Mexico has no exchange controls. You can pay in dollars from any account, with no prior authorisation and without linking the payment to the import: convenient, and also more exposed to email fraud. On the tax side, the Código Fiscal de la Federación requires that expenditures above 2,000 pesos be paid through the financial system to be deductible.

Brazil pays through a foreign-exchange contract with a bank, which asks for a proforma or commercial invoice, the bill of lading and, on advance payments, the documents evidencing the order. IOF is paid on the exchange: transactions destined for the import and export of goods are taxed at zero, while remittances for other categories — agent commission, services — fall under the general rule. That rate rose to 3.5% in 2025 by decree, Congress suspended the increase and the Supremo Tribunal Federal restored its effects on an interim basis: confirm it with your bank on the day you close the exchange.

Comparison table: method, coverage, cost and order size

The residual risk that no method removes

One risk remains that no structure removes: money that leaves before a verifiable event exists. Faced with a supplier that simply does not produce, the letter of credit is the only method that responds well — with no shipment there are no complying documents and the bank does not pay — but only for the part of the amount that sits inside the credit. The T/T deposit falls outside it, which is why it has to be kept small.

• Verify the entity before paying. Documentary supplier verification covers licence, scope, ownership and entity type; an on-site audit adds premises and capacity. We publish both at USD 349 and USD 549.
• Keep the first order small relative to your tolerance for losing it, and keep the deposit inside a structure with a condition.
• Document everything: contract, proforma invoice, specification and sealed sample. It is what gives you a right, if there is one.
• Claiming in China costs in proportion to the amount: for a small order, litigation usually costs more than the loss. And a real factory can also fail through cash flow or a fire: that is not fraud, it is business risk.

Questions worth answering before you transfer

1. Is the account holder exactly the company that signs and invoices?
2. Against what specific event is each instalment of the payment released?
3. Will it accept a pre-shipment inspection as a condition for collecting the balance, with criteria defined before production?
4. If there is a platform guarantee, is the payment made inside the platform and is the delivery date written down?
5. What exchange rate is applied, on what date and from what source, and will I see the receipt for the payment in yuan?
6. Who bears the bank charges on each side, and through what channel other than email would you confirm a change of bank details?

A supplier who answers these with documents can be hired; one who answers with haste and a third party’s account cannot.