Establishing Net Terms: The Realities of Buying on Credit from China suppliers
I’m honored to serve as the primary content curator for Global Sources’ knowledge center. I also volunteer to lead the China Sourcing “ask the experts” help desk for Global Sources.
Here is how we answered a question about importing phone accessories from China, but the answer is applicable to just about any businessperson that wants to buy on credit from China, so I decided to blog about the Q&A.
I'm a small importer (less than $100K per year) based in Sri Lanka. I'm doing phone accessories business. Can I get items on credit in China, direct from the factory?
“Net Terms” is another way of saying “buying on credit with the supplier”. In most cases, especially if it is an initial PO (purchase order), China suppliers will rarely offer “net terms” .
Keep in mind that for the Chinese factory, net 30 terms really mean 120 days of project finance”
- 30 days waiting for the raw materials
- 30 days to process the raw materials into finished goods
- 30 days to ship by oceanand
- 30 more days to wait for payment.
It certainly is possible to achieve net terms in China, but it will probably be easier for you to move to better terms with your supplier after both sides have established a working relationship and trust. Be prepared not to have terms during the initial phases of the relationship.
Great Payment Terms Could Mean Big Danger
And if a Chinese supplier offers “net terms” on an initial order, it could be a scam to get you to transfer funds for tooling (that doesn’t exist) or trick you into paying for some other related fees like shipping and customs clearance (on an order that may not exist). It really happens, just check out this Indian buyer that got a load of bricks shipped to him from China: https://www.supplierblacklist.com/2015/08/28/tianjin-oufute-technology-co-ltd-2/ !
Be very careful! Use verified suppliers and due your due diligence. If you are a small buyer with no ability to pay reasonable terms, you may not find any (legit) suppliers in China willing to work with you.
Don’t be surprised if a supplier asks for 100% payment in advance. Realize this is negotiable, just as you wouldn’t necessarily accept the first offer of price without a negotiation. I have found that “30-40-30 terms” are often an acceptable middle ground on payment terms, fair to both parties.
Related Content: Net/Credit Terms with Chinese Suppliers
For more information, here are a few blog posts I have written on the subject of supplier payments:
- https://www.psschina.com/china-business-blog/protect-your-interests-how-to-safely-pay-suppliers-in-china/
- https://www.chinasourcinginfo.org/2011/11/01/problems-with-companies-accepting-credit-cards-in-china/
- https://www.chinasourcinginfo.org/2012/11/20/paypal-how-to-protect-myself-as-a-buyer/
For more Information
Based on your question, I think you would be an ideal candidate to benefit from taking 15 minutes to watch this tutorial I put together:
If you are interested, reach out to me via https://www.asiabridgelaw.com/resources/ and I’ll hook you up with the free access codes to watch this tutorial.
Glad to help!
ABL Blog: Sr. Editor and Primary Content Creator: Michael J. Bellamy
Originally from Upstate New York, Mike moved to Asia in 1993 and is a China business advisor to both Fortune 500 companies and small businesses. Recognized as an expert on doing business in China, he has been interviewed by WSJ, CNBC, FT & Bloomberg.
A featured presenter on China issues at seminars, trade shows and corporate events across the globe.
Learn more about Mike and AsiaBridge Law at
https://www.asiabridgelaw.com/business-advisory-services/
Mike is the author of “The Essential Reference Guide to China Sourcing”
(available on Amazon).