How a company can send money to a supplier in China

China remains the main purchasing destination for Russian companies, and paying a Chinese supplier is still one of the most common import problems. The money gets through, but the route has to be prepared in advance: the beneficiary’s bank checks payments from Russia more strictly than a few years ago, and this applies even to yuan.

What a Chinese bank checks

The supplier’s bank looks at more than the amount. It assesses the deal as a whole:

• who is paying and which country the money came from;
• which banks the payment passed through;
• whether a real trade deal of the supplier stands behind the payment;
• what the goods are and whether they fall into groups subject to export restrictions;
• whether the payment data match the contract and the invoice.

If the bank has doubts, it requests documents from the supplier, holds the money pending a review or returns it to the sender. A return is the worst outcome for an importer: the shipment falls through, and part of the amount is lost on the reverse conversion.

Yuan or dollar

Chinese suppliers invoice in yuan (CNY) or US dollars (USD), less often in euros. You have to pay in the currency stated in the contract and the invoice. It cannot be changed unilaterally: the beneficiary’s bank checks the payment against the documents. If you want to switch to yuan, agree this with the supplier and sign a supplementary agreement.

Yuan is usually simpler. Within China, yuan payments go through the national CNAPS system, and cross-border yuan settlements go through CIPS. A dollar payment passes through correspondent banks, and any of them may have questions. But yuan does not ensure that the payment goes through either: the bank still checks the sender and the route. More about these systems in the article “China’s payment systems”.

It is also worth knowing about the two yuan rates. Inside China the CNY rate applies; outside China, the offshore yuan, CNH, is traded. They are close but not equal, and on a large amount the difference is noticeable.

What methods there are

A direct transfer from a Russian bank is possible, but not always. Not every Russian bank sends payments to China, not every Chinese bank accepts them, and the timing is hard to predict.

Opening an account at a Chinese bank is difficult for a Russian company: the bank checks the owners and the business, and a resident must notify the Russian tax authority that it has opened an account abroad. For most importers, this route makes sense only with a steady, large turnover with China.

A transfer through an agent under an agency agreement works differently. You pay in roubles in Russia, and the agent sends foreign currency to the supplier from its foreign company. For the Chinese bank, this is a payment from a company in a third country with clear documents. If the beneficiary’s bank accepts money only from a specific payer, the agent may engage a sub-agent. With us, this is possible only with the client’s consent.

Payment purpose

The payment purpose is the first thing the bank reads, and it must match the contract and the invoice. It usually states:

• the contract number and date;
• the invoice number;
• a short name of the goods or service in English;
• the nature of the payment: prepayment, payment on shipment, final settlement.

Vague wording like “payment against invoice” raises questions. A mistake in the invoice number can also stop the payment. The payment purpose is written in Latin characters and in English: transliterated Russian words mean nothing to the beneficiary’s bank.

Documents and bank details

A payment to China usually requires:

• the contract with the Chinese supplier and the specification, if there is one;
• an invoice with the currency, amount and payment purpose;
• bank details: company name, bank and branch, SWIFT code, CNAPS code for yuan, account number;
• your company’s details sheet.

Check the beneficiary’s name. A Chinese company has an English name for foreign trade documents and a Chinese name in the register. The English name must match exactly in the contract, the invoice and the bank details, down to the punctuation.

If the goods belong to groups subject to enhanced checks, such as equipment or electronics, the beneficiary’s bank may ask for more: a description of the goods, photos, certificates or a letter explaining what the goods are being bought for. It is better to collect such documents before the payment, not after the bank asks for them.

Common mistakes

Many returns are caused not by sanctions but by small details in the documents:

• the supplier asks for payment to another company’s account, for example a trading firm in Hong Kong, and the contract says nothing about it;
• the supplier’s manager sends the details of a personal account or an e-wallet;
• the payment amount does not match the invoice because of fees deducted along the way;
• the contract states one currency and the invoice another;
• a yuan payment is sent to the account number the supplier gave for dollars.

If payment has to go to a third party, this is set out in the contract or a supplementary agreement before the payment. Otherwise questions will come from both the beneficiary’s bank and the currency control department of your own bank.

Russian law sets no upper limit on the amount of a payment under a foreign trade contract. The limits are set by banks: internal limits, review rules, the conditions of a specific route.

How a payment to China goes through the VEDmost network

For a payment to China, we select an agent from our pool whose route to the relevant beneficiary bank works right now, and compare the terms. Before the roubles are debited, we fix the agent, currency, rate and fee in the payment order; the execution term is written in the agency agreement. If you need a guarantee, the roubles wait in a special escrow account at a Russian bank until the foreign currency has gone to the supplier. This scheme is available on request and carries an additional fee. We check the bank details and the payment purpose before you sign the agency agreement: if the route cannot be built, we will decline before any money is transferred.

More about this destination on the “Invoice payments to China” page, and about the service itself on the “Invoice payments” page.