Disadvantages of L/C for Chinese companies:
-L/C has it costs: they may have to spend up to 500USD just for the banking formalities, imagine your order is just 10 or 20,000USD, 500USD may mean a big chunk of the profit.

-L/Cs are not good for their working capital. In developped countries, when you have the L/C you may get financing from your bank. It is not always the case in China, where manufacturers most of the time have to take the complete load on their shoulders, or get financing from third parties at higher interests. And it takes time to cash in the L/C after the container is departed.

-If the company is a trading company and doesn't have enough resources, he can't transfer the L/C to the manufacturer. And if he asked the buyer to issue a transferrable L/C, he reveals his identity to the client. And even so, the manufacturer gets the identity of the client, guess what might happen next for future transactions.

-It is true that some Chinese companies are just not proficient enough in international trading, or some of the staff is not really qualified, they are hired just because they can speak english. Otherwise they can negotiate the terms of the L/C with the buyer and even require the L/C to be confirmed by a third party chosen by themselves or suggested by their bank.

Patrick
Newbridge Technologies Limited
Hong Kong
www.newbridgehk.com

Replying to [sixer]:Mostly Chinese posing as sellers are intermediaries, therefore, they want TT to make advances to actual sellers for arranging supplies/ shipments. L/cs have restrictions on shipment times thus put a constraint on seller. However, these days some of the smart Central Banks have enforced prudential rules on the TT receiving banks to report by certain periods if the shipments have been made or otherwise against the TTs received.

Replying to [newbridgebiz]:

I think that the Chinese companies would prefer TT for that what to be insured that the firm will not redeem the ordered goods. And for that what to make the ordered set it is necessary for Chinese company to buy materials and to pay charges on preparation of documents! But I do not consider it correct because " Money should work " and it turns out that the firm buying the goods freezes the certain sum of money which it has sent as TT and long time cannot use it! Earlier when terms of manufacturing of the goods were short it was possible. But now term of manufacturing of the goods from the moment of TT the order of 30-40 days (depends on the ordered goods) and for the buyer it is not favourable. More simple way for the sanction of this question to take TT already then, year the goods on half is ready to shipment, terms of delivery from a set up to a set, and accordingly increase in a turn thus will be reduced.
Or to take TT only on preparation of documents then the sum will be not such significant.

Replying to [sixer]:
Ok, now let's face the facts here, as a seller I would always like to get my money by T/T, this gives me the ability to move on with the order be it production or forwarding...
next, a business man should know better, when to accept to make payment by T/T and when not to.
also T/T is "cash in hand" and L/C is "headache on hand", believe me I have done business in China and been to China many times and often I encountered bad L/C terms and bad customers with L/C's... how ? easy .. if you make an L/C and make a very slight mistake this could render your L/C void or put the seller in jeopardy... to edit this you will lose time and money,, so what do you think ? you still want L/C??
Although this is true , we are faced sometimes with suppliers who will tell you " min. order is 100 or 1000 pcs and payment is by T/T " it is Ok but when the amount is large $$ even if 500$ or more you ask yourself " why should I take the risk if I don't know them ?"
my Advice to you if you are doing business in big bucks $$ , do it by hand, means go down to China , find your supplier and pay by cash or T/T , later you can send him money by T/T in advance or as you both see fit, Quality , time , and hounesty, are things worthy of spending a little more money on them . the subject is way more wild than we think it is but this is just a flash of what it is all about.

Replying to [sixer]:
In my several years of dealing with businesses in China they have all "Shied Away" from any L/C that we have sent and want T/T's.

I personally believe it's because the default clauses we include in our contracts are too close in timing for them to be comfortable with. Their delivery times are far and away from what they state to get the order.

A case in point: We are awaiting a shipment that was supposed to arrive at the end of September, so they said, but as at todays date we are still waiting.

When they were confronted by email, you could see the tears rolling down their checks with sorrow. Only because they were caught out at not delivering on time.

Also with our L/C they do not get the money until the goods are on the ship. But with a T/T the money is in their bank that same day. They dont care then when the shipment leaves.

It costs you money with interest and lack of sales etc., while they are getting interest and it costs them nothing.

I have maintained for a long time that it's about the Chinese businesses asked " And what does Sir Want with this trade?"

Replying to [sixer]:Because many of those companies are mediaters so the prefer to cut their commission ahead of time and pay cash to manufacturers in order to get more discount and make more money.

Replying to [sixer]:The Reasons for china prefering TT is for Various reasons out of which most common is:
1) They want to be 100% assured about payment and do not want to take responsibility for shipment problems.
2) Chinese are very late and very poor in doing documentation there documents maximum number of time do not reach customers bank ontime.
Regards/Sanjay

Replying to [All]:

We should not generalize all companies and factories. I think the answer depends on many different factors. Some of these factors have already been discussed above:

1) Lack of L/C presentation knowledge or simply L/C knowledge. Lack of trained staff to handle L/C related orders.

2) Worry that client will not accept their goods, if they are not good quality wise or if the goods are late, or not according to client's order and they (factory already would have made a substantial invetment in making the goods. This obviously stems from lack of confidence on factory's part) might loose substantial amount on making the goods.

3) Lack of funds to finance the order, Small factory, No license, No cash, so they use the advance t/t deposit to pay the original factory who is actually making the goods for you.

4) Order's amount being too small, charges being considerably high compare to the small order amount.

The following in my opinion are no good excuses for not accepting L/C's.

1) We like to get to know you better, so please send us t/t for your initial orders. That is crap and a lie to hide the factory's insecurities. If they can't work with L/C for a decent amount, go with another supplier / factory, unless you want to do a gamble. I personally, do, but won't recommend it to anyone, since I have been burnt quite a few times.

2) Order amount is too small. I think anything above US$15,000 is decent amount for L/C to be used, and despite what people say, it is not that difficult to do L/C documents, specially, if you have standard set of rules and request your clients to open L/Cs to you, based on those safe standard set of rules.

3) L/C terms are not acceptable or we can't provide such and such documents. Firstly L/C terms are negotiatable, they can always request a client or a new client to send them their (client's) previous L/C copy for checking to make sure, if they can meet those requirements, and if they can't meet those requirements, they can always negotiate for better terms, less strict document requirements, so these are no good excuses.

4) Well, anymore, please do contribute, if you think, I am on the right track.

Well, this is my first contribution, hope, it is useful to Sixer.

Best regards,

Ken.

Replying to [sixer]: Why China prefers TTs /
Reply :

Honestly speaking, L/C remittances, come with acute commercial termination of amicable Order processing procedure.

As for Performance of L/C on the Chinese counterpart suppliers, it appears rather troublesome for some of them, as it has prefix of Bank charges ranging from mere 0.85% to even 1.75% sometimes; besides the L/C amending charges payable by either side.

The L/C terms act as most safe negotiable instruments on behalf of the Buyers; and at the same time , it operates as an alarming Hammer overhead the Suppliers in terms of Quality, Quantity and OEM of products ordered by Buyers.

Owing to 100% language exchange and communication lacuna, and perfect interpretation of performance terms, L/C preferences are losing ground gradually amongst Chinese suppliers, as all the L/Cs are drafted in English languages, and even bear the native vernaculars of Country of its execution; thereby making the supplier, in a state of dilemma mostly.

At this juncture, I would like to tender my suggestion - "for requesting the Hon"ble Govt of China, for establishing a Countrywide network of - kind of Chamber of Commerce in all provinces of China, to - render services to all factories, & even mini suppliers, of the terms of L/c, and speedy order processing being transcripted, and translated into local vernaculars (in a language they can understand and act specifically).

If invited, I am willing to tender my services for establishment of such Chamber of Commerce, to safeguard the interest of all legitimate suppliers and manufacturers in Chiina.

After accomplishment this objective, I do not think , such questions will arise again in future.

With best regards coupled with wishes !

Mr. Sunny Sarraf.
DENZONG.

Replying to [newbridgebiz]:When I open L/C , I bear the banking charges in India and seller bears charges in his country.
Similarly, When I recieve L/C as seller of Website, client opens L/C at his expence.
It is normal practice and such expenses are built in cost.Why fuss?

Sixer