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Which is the safest payment method to use in transactions with China?

It depends. Different payment methods have different levels of risk. In general, letters of credit are a relatively safe option, but in fact the safest payment method depends on the nature of your relationship with your partner.

If you are a European SME selling to China, the safest option will be to request an advance payment before the goods are actually shipped; the problem is that your Chinese buyer will not be very willing to do so as this option is the riskiest for them. The second-best option would be the letter of credit (l/c) – a document issued by the importer’s bank guaranteeing full remission of the transaction amount; the problem is that the bank would charge a percentage of the transaction amount, and that the process is very formal and requires a high degree of attention when drafting the terms of the transaction. If you are selling to a long-term and trustworthy partner, then documentary collections would be an interesting option as they are less formal and flexible; while you will definitely want to avoid open account payment methods. The entire process, however, is reversed if you are a European SME importing from China: your safest option would be an open account, followed by a documentary collection and then a letter of credit; you definitely need to avoid paying in advance.

At the EU SME Centre, we receive, on a weekly basis, emails from European SMEs which fell victims of scams by Chinese sellers/buyers. In nearly the totality of cases, scams can be avoided by taking very simple steps to conduct due diligence on the company: practical tips to avoid such scams and to minimise risks will be provided in specific FAQs in the “Legal and disputes” section.