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One of the most common ways to pay a Chinese supplier is to make a China T/T Payment, but it is not a method that comes without risk.
We regularly see cases where Chinese suppliers request payments to individual accounts, third parties, offshore accounts and offshore entities, rather than to their own Mainland Chinese corporate bank accounts.
Before sending a China T/T payment, pause and take a moment to make these 4 simple checks - they will help you ensure your payment is really going to the correct Mainland China entity.
The acronym T/T stands for "Telegraphic Transfer" and is an international bank wire transfer usually made through the SWIFT system.
In this article we are talking about telegraphic transfer payments made by foreign businesses to companies based in Mainland China.
Before sending a China T/T payment to your Chinese supplier it is important to make yourself aware of some potential pitfalls.
We have seen numerous cases where supposed Mainland China companies have requested T/T payments to be sent to individuals, third parties and entities registered offshore.
More often than not, the reasons for this are not disclosed and the Chinese companies are far from transparent about what is going on.
Following the four checks outlined in this article will help ensure that your payment is really going to the Mainland China-registered entity that you are dealing with.
Follow these 4 simple checks to make sure your payment is really going to the Mainland China company you are dealing with:
When you are sending money to a Chinese company you want to make sure you are making payment to their corporate account, not the account of an individual.
How to tell:
View the provided banking details and check if the payee is an individual or a company. If you are not familiar with Chinese names here are some examples:
Avoid making any China T/T payments to individual accounts wherever possible.
You have been dealing with one Chinese company, but when it comes to making payment you are asked to make payment to another company. Unfortunately this happens quite regularly for a wide range of reasons and is certainly something to be very cautious about.
How to tell:
Carefully confirm that the name of the company provided as the payee on the bank details is identical to the name of the company you have been dealing with.
Here are some places where the company will have previously given their name - it is worth checking each and every one:
Are they all the same? If not, why not? Ask! Any differences can be very significant and do need to be clarified.
The issue of Chinese company English names is rather complicated and there are circumstances where it is understandable that a Chinese company may have presented their English name in different formats.
On the one hand it is important to remember that in China only names in Chinese are official, however the company does need to provide an English name in order to use the SWIFT system.
If the payee company name ends in the text "Limited" rather than the usual abbreviation "Ltd.", the China T/T payment recipient is quite likely to be a Hong Kong-registered entity. It is quite common for Mainland China companies to operate a Hong Kong trading company and this article explains some of the reasons for this.
If you are dealing with a Mainland China company you should be making your T/T payment to their Mainland China bank account.
How to tell:
The China T/T payment bank details you have been provided with will specify the name of the bank and the address of their branch which the funds are to be sent to.
This may sound obvious but it is worth emphasizing: Mainland China companies should be requesting payment to their bank accounts which are held with Mainland China banks and located in Mainland China.
In the vast majority of cases these accounts should be held at a branch which is in the same province as the company itself is registered in. I.e. if the company is registered in Shanghai they should be providing the address of a bank in Shanghai, not in Beijing or Hong Kong.
Another thing to consider is the name of the bank. Although many Mainland China banks also have operations in Hong Kong, they are named slightly differently and often have the text "Hong Kong" or "Asia" in brackets at the end of their name.
If you are being asked to make payment to a bank account outside of Mainland China you are almost certainly not making payment directly to the Mainland Chinese company.
Even if the last 3 checks come back positive you still need to watch out for offshore accounts held in Mainland China.
How to tell:
So you're confident you are dealing with the correct company's Mainland China corporate account, that should be fine right? Not so fast!
Look closely at the bank account number you have been given. Usually it should contain only numbers and be 19 digits long.
However, if the account number has a 3-letter prefix (usually "OSA"), it is an offshore account.
Another way to tell is that as far as we are aware there are only 4 Mainland China banks which offer "OSA" offshore accounts and each has a dedicated SWIFT code for their offshore banking unit.
|Chinese Bank||Offshore Banking Introduction||Offshore Banking Unit SWIFT Code|
|Bank of Communications||Link||COMMCN3XOBU|
|China Merchants Bank||Link||CMBCCNBS008|
|Ping An Bank||Link (Chinese language only)||SZDBCNBSOSA|
|Shanghai Pudong Development Bank||Link||SPDBCNSHOSA|
What is happening here?
If a Mainland China company is requesting payment to these kinds of offshore bank accounts, you are actually making payment to an offshore company - not the Mainland China entity you thought you were paying.
This is how it works: a Chinese individual/company establishes an offshore company and gives it an official English name (and sometimes a Chinese name too) which is identical to their Mainland China business That offshore entity then registers an offshore account with a Mainland China bank.
In situations like this the entity you are making payment to is often registered in a "tax haven" such as the British Virgin Islands or the Cayman Islands.
Why is this a problem? Because you need to have recourse with the Chinese company if & when things go wrong.
Here is a quote from this excellent article on the China Law Blog:
Before contracting with anyone, you should do your due diligence and make sure the party you are paying is not a shell entity or a sourcing company with little or no assets.
If you are being asked to make a China T/T payment to this type of account it should raise some alarm bells, and you are absolutely entitled to ask some hard questions.
If you have received a request for payment from a Chinese company and are in any doubt it is always worth performing a verification.
Our China company verification service can help you identify China T/T payment issues such as covered in this article - simply upload the invoice in question when submitting an order and we will review for you.
This glossary identifies the different Chinese company registration status terms that appear on official Mainland China company records.
If you are trying to find out if a Chinese company's registration has been revoked, cancelled or rescinded we hope the terms in this glossary will be useful to you.
Keep reading to find out about the various Chinese terms used to describe a company's registration status and get our English translations.
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Read this article to learn about China's push for international rail cargo and find our which countries have already received freight trains from China.
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