What is the most common method of payment used in China?

The most common method of payment used to pay sellers in China is a letter of credit or LC for short. A LC or L/C as it is sometimes denoted, is a financial instrument that is used to protect the interests of both the buyer from a foreign country and the seller in China. A bank usually issues an LC on behalf of the buyer. The LC is a kind of proof that the buyer has the money to make the payment to the seller in China once the goods reaches him.

There are normally four parties involved in the payment transaction. The buyer, the buyer’s bank, the seller in China and the seller’s bank in China constitute the four parties involved in the payment transaction. The buyer’s bank is also called the issuing bank since it issues the LC, and the sellers bank in China is know as the advising bank. Once a contract is finalized and the goods are ready for dispatch from China, the issuing bank sends the LC to the seller in China. The seller in China consigns the goods for shipment from China to a carrier. The seller in China then obtains a bill of lading from the carrier as proof. The seller in China then provides the bill of lading to his bank in China and gets his payment. The seller’s bank in China then gets a payment from the issuing bank by producing the bill of lading. The issuing bank then issues the bill of lading to the buyer and gets the payment from him. Finally, the buyer provides the bill of lading to the shipping carrier to take possession of goods.

Although an LC is a safe method of payment, it cannot totally protect a buyer. The buyer needs to check at each point that the buyer complies with the terms before going ahead with the contract. The buyer can use the services of auditing firms to check the seller’s reputation and quality assurance agencies to inspect the goods at every point in order to protect his payment.

The buyer can start small by placing a sample order for goods from China. Since the investment would be low, he can test the proceedings with a small payment. If things proceed well, the buyer can then confidently place a larger order to procure goods from China. Building trust slowly through bigger and bigger orders could ensure safety for the buyer’s payment. The buyer can also use an escrow service to monitor the transaction and to protect the interests of both the buyer and the seller.