For foreign trade exports, foreign merchants usually pay for goods in U.S. dollars, so exporters must first open a foreign currency (U.S. dollar) account at the bank. After the account is opened, the bank will give us a document commonly known as the “remittance path”, which records our account name and other bank information. After the “remittance path” is passed on to foreign merchants, they can remit U.S. dollars.
The simplest way to receive payment in foreign trade is direct wire transfer by foreign merchants, called T/T.
Telegraphic transfer (T/T)
That is, foreign merchants directly remit the payment to the exporter’s bank account. When to remit the payment is negotiated by both parties. It is generally customary to ask foreign merchants to wire part of the payment as an advance payment after signing the contract, so that there is a basic guarantee for exporters. After shipment, the exporter obtains the bill of lading from the freight forwarder, notifies the foreign merchant to wire the balance by email, fax or phone, and delivers the full set of foreign trade documents including the bill of lading to the foreign merchant through international express (such as DHL, FedEx, UPS, TNT, etc.) after receiving the payment, and the transaction is completed.
The bank will charge a handling fee for T/T remittance. If it is a small amount of remittance, such as less than 1,000 US dollars, the formal T/T is not cost-effective, and the handling fee will deduct tens of US dollars. For small amounts of payment, sample fees, etc., you may wish to use a private credit card (a dual-currency credit card that can receive US dollars). In addition, exporters who often have small transactions can also use online payment such as Moneybookers, Paypal, or Western Union remittance.
T/T remittance is very safe for exporters. The documents will be sent only after receiving the money (sometimes to avoid delays, the order can be released based on the faxed remittance certificate issued by the bank when the foreign merchant handles the remittance, but there is a little risk, after all, the faxed bank certificate is easy to forge). Therefore, foreign merchants agree to use T/T to pay advance payments and pay the balance against the bill of lading, which is a sign of sincerity. Because T/T is very disadvantageous to foreign merchants. First, there is the pressure of accumulated funds due to advance payments, and secondly, there is the worry that the exporter will not send the bill in time after receiving the payment. Especially when the buyer and seller are not familiar with each other, foreign merchants are more worried.
For foreign merchants, a more reliable method is for the exporter to arrange shipment first, and then entrust the bank to “hand over the money and the bill at the same time”. The term is called payment against documents, or D/P for short.