Before placing an order with Chinese lingerie suppliers, there are several critical details you need to handle and agree upon with the supplier. Ensuring the supplier doesn’t disclose your product and business information, timely delivery of products, controlling defect rates at low levels, and securing the best payment terms and methods are crucial.
Proforma Invoice
When you decide to place an order, the first thing to request from the supplier is a Proforma Invoice (PI). This preliminary bill describes all product and pricing information and often serves as a sales contract, as most suppliers do not provide a formal contract. If you and the supplier do not have a solid sales contract, include everything you need to ensure terms that will get you products on time.
So when you receive a PI, ensure it includes the product prices based on the trade terms, quantities per item, sizes, and weights of products, colors, materials used, packaging solutions, and more.
In addition to product descriptions, the PI will also include the supplier’s banking details, payment terms, and the validity period of the prices, as exchange rates between the USD and RMB constantly fluctuate.
Upon reviewing the PI, if the supplier receives your deposit payment, they will help prepare materials and begin production. The delivery time starts from the day they receive the deposit.
Once production is complete, the supplier will issue a Commercial Invoice (CI), which is the final version of the PI. After verifying the costs, you pay the balance based on the invoice amount, and the supplier assists with shipping the products.
This invoice will also be used for import and export clearance purposes, so ensure the amount on the invoice matches what you paid. Attempting to present a lower invoice value to pay less import duty isn’t worth the legal risks.
Delivery Time and Lead Time
Delivery time is the time required from placing your order to when the products are ready for shipment. Before placing an order, confirm this again with the supplier to prevent last-minute changes to their production schedule. By default, delivery time isn’t explicitly stated in the PI, which can cause issues.
If you have urgent deadlines and cannot afford any production delays, do not just inform the supplier verbally of your delivery time requirements. It’s wise to formalize your agreement within the PI. Penalty clauses are essential to specify compensation amounts if they fail to complete production by the agreed time. Failure to detail these penalty clauses leaves you with no compensation if they only have delivery times.
Then let’s talk about the delivery time, the time needed for the goods you purchased to arrive where you want them. If you need urgent transport to arrive on a specific date, you will need to contact suppliers or shipping companies if you use your freight agents.
In practical business, the primary purpose of signing a time-limited delivery agreement is to motivate suppliers to meet the final deadline. Only if you can hold the supplier responsible can the time-limited delivery agreement be effective, otherwise, it will be an empty commitment. Because litigation is challenging in China, especially when ordering small orders.
So my advice is, for suppliers who have cooperated with you in the past, you can limit them by stopping future cooperation if they delay and refuse compensation. For new suppliers, the wise thing is to retain some payment balance until you receive the products on time, even if it is not easy to persuade suppliers to accept this payment.
Quality Requirements & Substandard Solutions
As long as the defect rate is kept below acceptable levels, some substandard products are okay.
Different products have different defect rates, and for most low-value regular products, a 5% defect rate is acceptable. So if you are concerned about quality, you should confirm acceptable defect rates with the supplier before placing an order.
If the defect rate is higher than expected, you have three options:
– Request a complete batch of products to be reproduced, and then re-inspected;
– Hire staff to select defective items and request replacements, at the supplier’s expense;
– Only ask for compensation.
Therefore, before placing an order, it is best to clarify your defect resolution options and compensation requirements with the supplier.
Payment Methods
Most Chinese suppliers only accept USD payments because it is the most stable currency. Common methods for sending USD to China are wire transfers, Western Union, PayPal, and letters of credit.
Wire Transfer
Wire transfer, also known as T/T, bank transfer, you need to go to the bank or visit their website to arrange payment. Depending on the country and bank where the funds are sent, it takes 1 to 7 business days for the funds to arrive.
The transfer fee for each payment ranges from $20 to $50, regardless of the amount sent. Try using third-party wire transfer services, such as www.veem.com, www.transferwise.com, if you cannot send funds through the website of your bank.
Western Union
Western Union is suitable for sending amounts of $5,000 or less when you cannot send money to China directly through your bank account.
Both wire transfers and Western Union do not have third parties to safeguard transactions. That is to say, if the supplier does not ship the product to you or provides poor-quality products, you cannot recover the funds. That is why you should verify the supplier before sending funds to them.
PayPal
PayPal is an effective way to ensure transaction security, but it costs about 4%, which is a significant expense for orders exceeding $3,000. Not all Chinese suppliers accept PayPal payments because they fear buyer fraud, such as requesting a refund after receiving the product.
PayPal requires tracking records to determine whether the goods have been delivered. If you must use non-tracked shipping methods by sea or air, most Chinese suppliers will not accept PayPal. Therefore, if you are purchasing from Alibaba suppliers, you can place orders through Trade Assurance to minimize risks.
Furthermore, if you wish to pay by credit card, you can use PayPal or Alibaba Trade Assurance, as wire transfers or Western Union does not accept credit cards.
Letter of Credit
A letter of credit is not suitable for most newcomers to the import-export business. The way it works is that you do not need to pay the supplier in advance; your bank guarantees that once the goods are shipped or arrive at the port of destination, the supplier will receive payment.
This payment method resolves trust issues between buyers and sellers and can also help buyers reduce cash flow pressures because they do not need to pay any amount to let the supplier start production.
Payment Terms
Payment terms are crucial for rapidly growing businesses because better terms can significantly help cash flow. Trade business is essentially like investing in a batch of products, waiting for weeks or months for manufacturing, transportation, and sales, you will get more funds from profits, and you will still need to invest to buy more products.
So once your business is on track, continuous cash flow will be essential. This is why many smart buyers are trying to negotiate better payment terms with suppliers. Here are the main terms of payment.
30% deposit, 70% balance before shipment
Most Chinese suppliers accept such payment terms: 30% deposit to start production, and 70% balance to pay before Chinese goods leave. Manufacture usually takes a month, and sea shipping from China to the United States takes 30 to 40 days. This means that you need to pay a lot of money in advance one to two months before selling any products.
30% deposit, 70% on presentation of the bill of lading
The most common practice is to request a 30% deposit to start production and 70% balance for the bill of lading. This means you don’t have to pay the balance until the goods arrive at the port of your country. After you pay the balance, the supplier will give you the bill of lading, and then you can take it to customs to collect your goods.
No deposit, full payment on presentation of the bill of lading
If you have a very good relationship with the supplier, you do not need to pay any deposit to start production, just pay the balance on the bill of lading.
O/A payment
Is it possible to pay after receiving the product, or even pay within 15 or 30 days after receiving the product? Yes, this is called O/A payment, usually used by many large retailers. You might wonder how the supplier ensures that the buyer will pay after receiving the product.
It works like this: for most O/A payments, the supplier buys export insurance for each order through an insurance company, such as the China Export Credit Insurance Company. If the buyer deliberately does not pay or goes bankrupt, the supplier will receive compensation of 80% to 90% of the order value, and the buyer will have bad credit.
Before agreeing to O/A payments, insurance companies will check the buyer’s business background and give the buyer a certain credit limit. They guarantee that as long as the order amount is less than the credit limit, the supplier will receive payment.
So not all Chinese suppliers accept the above delayed payment terms, depending on the supplier and product category.