Paying a Chinese supplier: the instruments and their limits
A payment sent to China is very hard to call back. The choice of instrument is therefore made beforehand, not after: three mechanisms coexist, and they protect nothing like the same things.
Updated September 2026
Three instruments, three different protections
People speak of « paying a supplier » as a single act. These are in fact three distinct mechanisms, whose cost and security vary tenfold.
What each instrument triggers and protects against
| Instrument | Payment is triggered | Protects against |
|---|---|---|
| Wire transfer | By you, on the agreed date | Nothing, once sent |
| Letter of credit | On presentation of conforming documents | A shipment that never happened |
| Platform guarantee | On your release, funds held | A departure from the signed contract |
The wire transfer: dominant practice, and its blind spot
The vast majority of orders are settled by bank transfer. It is fast, cheap and accepted everywhere — but a transfer conditions nothing. It leaves, it arrives, and the supplier has the funds, whether the goods are conforming, late or non-existent.
Recourse exists: proceedings before a Chinese court are legally possible. In practice that assumes a contract drafted accordingly, a solvent and identified supplier, and an amount that justifies the outlay. Below that, the loss is final.
What protects is therefore not the instrument but the sequencing: what you pay, and when, relative to the verifiable stages of the order.
The letter of credit: costly, heavy, and the only one that conditions
A documentary credit commits a bank to pay against presentation of conforming documents: bill of lading, commercial invoice, packing list, required certificates. The bank never inspects the goods, only the paperwork. That is both its strength and its limit.
Its strength: the supplier cannot be paid without producing documentary proof of shipment. Its limit: perfect documents can accompany defective goods. A letter of credit protects against the phantom shipment, not against poor quality.
It involves bank charges on both sides, strict formalism — the slightest discrepancy between documents blocks payment — and a lead time to put in place. Below a certain order value, the burden outweighs the benefit.
Platform guarantees: read the exclusions before relying on them
Marketplaces offer an escrow mechanism: funds are held, then released on your approval. Useful, but hedged with restrictions few buyers read before they need them.
- Payment must go through the platform. A transfer made directly to the supplier's account, even for an order placed on the site, is covered by nothing. This is the most frequent trap, and suppliers readily push for the direct transfer, citing lower fees.
- The ceiling is the supplier's, not your order's. Cover is limited to the amount declared on its profile: beyond that, the excess is unprotected.
- The claim window is short, counted from receipt. Once it closes, the file is no longer admissible.
- Only departures from the signed contract are covered: documented late shipment, quality below agreed specification. Whatever was not written into the order is not — and your product being copied by the factory falls under none of these heads.
The bank-details switch fraud
This is the most common fraud in trade with China, and it does not target the naive: it targets live orders, at the exact moment a payment is expected.
The scenario is stable. An email arrives, within the usual thread, from an address almost identical to the contact's. It announces a change of bank account — often an account outside mainland China, in the name of a third company — and explains it by a tax audit or a reorganisation. The transfer goes out, and the factory never receives it.
Only one defence works: verify any change of bank details by voice, on a number you already knew, never on the one given in the message. And treat as suspect, as a matter of principle, any account whose holder is not exactly the supplier's registered company name.
Frequently asked questions
- Does a platform guarantee cover a direct transfer?
No. Only orders settled through the platform's payment system give rise to the guarantee. A transfer made directly to the supplier's bank account is covered by no protection, even where the order was placed on the site. It is the most frequent reason a claim is refused.
- Should I insist on a letter of credit?
Not as a matter of course. A documentary credit conditions payment on the presentation of conforming documents, which protects against a shipment that never happened — but not against defective goods, since the bank checks only the paperwork. It involves charges on both sides and strict formalism. Below a certain amount its burden exceeds its benefit.
- What should I do if a supplier announces a new bank account?
Send nothing before verifying by voice, calling a number you already knew — never the one given in the message announcing the change. An account whose holder does not exactly match the supplier's registered company name, or located outside mainland China for a mainland factory, should be treated as suspect until confirmed.
- What should the balance of an order be tied to?
To a verifiable, dated fact, not to a statement by the supplier. A pre-shipment inspection report, delivery of a copy of the bill of lading, or approval of a production sample are all objectively verifiable triggers. A balance released on a mere announcement that production is finished deprives you of the only leverage you had left.
- Can a Chinese supplier be paid by PayPal?
It is possible for small amounts, usually samples, but the fees make it unsuitable for a production order and many factories refuse it. For ordinary volumes the international bank transfer remains dominant. On a marketplace, only settlement through the platform's own payment system gives rise to its guarantee.
- What does a letter of credit cost?
The cost is split between the two parties and depends on the amount, the duration and the banks involved: opening commission, advising and confirming commissions, document examination fees. Add a lead time to put it in place and a strict formalism, where the slightest discrepancy between documents suspends payment. That is what makes it disproportionate on modest orders and relevant beyond.
- Should I pay in dollars, euros or yuan?
The US dollar remains the reference currency of Chinese international trade, and most quotations are denominated in it. Payment in yuan is possible and sometimes better received by the factory, which then avoids a conversion. The point that matters lies elsewhere: a price in foreign currency puts the exchange risk on you between order and final payment, over an interval that often exceeds three months.
- How do I check a supplier's bank account?
By confirming that the account holder matches exactly the registered company name shown in the contract and on the pro forma invoice. An account in the name of an individual, of a third company, or located outside mainland China for a mainland factory should be confirmed by voice on a number you already knew. This check matters above all when details change mid-order.
- What if a supplier fails to deliver after payment?
Gather every document first: contract, pro forma invoice, proof of transfer, written exchanges. Recourse then depends on the channel used — a claim with the platform if payment passed through it and the claim window is open, proceedings before a Chinese court otherwise. That second route assumes a precisely identified supplier and an amount that justifies the effort.
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