Trading with middle size company in China -> payment terms

There are following ways to achieve payment terms with China company:

1. insurance of your account receivable by SINOSURE
-> your partner need to check your balance on SINOSURE. Sinosure is a Chinese company owned by Chinese government. It shall be easy to talk to to them in China. For contacts please refer to http://www.sinosure.com.cn/sinosure/english/English.html. Please be advised, that Sinosure may not have the relevant numbers of your company + may have many wrong information. It is always a good approach to talk to them once you are in China + describe them the position of your company or group. It is also known, that every province has different Sinosure risk management and therefore a help from a side of your partner will be needed. You need to sure, that the country you have headquarter is not blacklisted in a business you do. There are certain business, that have bad history in Sinosure and therefore more time and understanding of your Sinosure contact is needed. Your partner, in case of payment problems from your side will get 70 % of the amount you owe him + it will take up to 2 years for him to get money.

2.  insurance by Euler Hermes.
This is a new thing in China. Euler Hermes, company owned by ALLIANZ got a licence to insure foreign account receivables in 06/2014. Before that date they could not do so. They will be for sure more wise about selecting the partners they would like to work with. But they are talkative all around the world, as they have branches in many countries. Usually country your headquarter is located will be the one giving limit on you for your partner. Even a visit of EH people in your factory / company may be asked. Following my experience, they pay 80% of amount, within 6 months and they are good in enforcing their right to get paid. EH is a good partner, maybe harder to get in.

3. stand-by L/C or Bank guarantee.
Stand-by LC, in meaning of: "My bank will pay the amount of money in case I dont pay on time and my supplier from China presents documents" or Bank guarantee in meaning of "My bank will pay the money to the supplier once I dont pay on time" is not preferable way of getting payment terms from your partner in China. I did make my research and I was able to figure out, that Chinese banks are not ready to finance such a deal. For them it is very hard to understand and work with this risk. Even a nice to issue such a document to your partner, it will even save money, as no multiple LC need to be issued by multiple orders. Your partner will not get financing on behalf of these documents.

4. L/C, multiple drawn-down L/C
L/C in the meaning of: "Once my supplier sends me goods, he issues invoice and my bank will pay on my behalf in XX days" or multiple L/C in meaning of: "Once my supplier sends me good, he issues invoice and partially drawn-downs the L/C" is the best way to talk to your partner in China. His bank will be able to finance him, as TRADE FINANCE is common in China. You may find difficult to add following statement in LC: " Once quality is checked on the side of customer LC will be paid". Again Chinese banks are afraid, that quality expectation is hard to meet + they dont know, if this is not a fake approach from your side not to pay for goods.

Therefore the best is combination of insurance + L/C + some uncovered part by you business partner. It is a lot of negotiation, between you (as general purchase agreement is a must for issuing L/C), between your banks (they need to have limits together) or between you, your partner and insurance company. But decreasing risks is the only way of doing international business.