International Law

The Basics Of Getting Paid When Selling To China.

By Dan

I have a lawyer friend who is always saying "it's incredibly easy to get clients...what's difficult is getting paying clients." The same holds true for selling product to China. The tough part is getting paid. 

If you are going to sell product into China (or anywhere else internationally), you should consider employing the following to increase your chances of not getting stiffed:

1. Secure all of the payment in advance. Sophisticated buyers typically will not accept this unless you put up a performance bond or open a standby letter of credit so that it can get its advance payment back. Note, however, that it can sometimes be difficult for Chinese companies to obtain government approval to make full payment in advance.
2. Conduct due diligence on your buyer.
3. Secure some of the payment in advance. This obviously will not guarantee you full payment, but it is better to lose some as opposed to all from a sale. 
4. Secure a Documentary Letter of Credit. With this, you will be paid when there is documentary evidence you have shipped the product according to the terms and conditions of the letter of credit. Smart buyers typically require an inspection certificate to ensure the product complies with the specifications in the contract or the purchase order. This sort of letter of credit mitigates your risk because your buyer's bank has irrevocably guaranteed to pay upon presentation of the required documents.

  We generally recommend our clients secure this letter of credit from a major (not a tiny)   Chinese bank, such as Bank of China, China Construction Bank, Industrial and   Commercial Bank of China, China Development Bank, and Bank of Communications, or a   branch of a known American, Asian or European bank. WARNING:  We have seen more               than our share of fake letters of credit.

  To encourage exporting, many countries, including the United States, make it fairly easy             and cheap to purchase insurance to cover an improper non payment on the letter of                   credit.

There are all sorts of variations on the above, but these are the basics.

Full post as published by China Law Blog on August 13, 2010 (boomark / email).