Suppose the samples you have received from the supplier meet your expectations, and you plan to place a large order. After signing the contract with the supplier, it is time to transfer the funds. There are several methods of transferring money; one of them is a T/T payment. It is often used when the contractor is from China. What is a T/T payment, and what is the risk of this method?
What is a T/T payment?
A T/T payment, or TT for short, telegraphic transfer, or telex transfer, also referred to as wire transfer, is one of the payment methods. Payment by telegraphic transfer is widely accepted all over the world. Put simply, it is a bank transfer, in this case, between the importer’s and the supplier’s banks. Next to an LC (letter of credit, L/C) payment, T/T is one of the most popular payment methods, especially when doing business in Asia.
Making a T/T payment usually comes with high handling fees that vary depending on both parties’ regions and banks. There is also an additional cost if you have to convert currencies, known as a markup to the exchange rate. You need to be also aware of other fees in the sending and receiving bank. The transfer usually takes 1-7 business days.
Risk when paying T/T
International telegraphic transfer is neither the fastest nor the safest method of transferring money.
In the case of T/T payment, only the buyer (importer) takes the risk. A huge disadvantage of this payment method is the lack of countermeasures, like those in the SEPA system, to protect the payer from fraud. There is no secure method for making an international payment, and you should keep this in mind.
For example, the account number to which the transfer is to be made may be substituted. When transferring money to such an account, the importer loses funds as the payment is not related to the order.
How to make a payment by telegraphic transfer?
T/T payment is made from your bank account. You can contact your bank to obtain the form (if not available) and fill in according to the details provided by the supplier. You can also select T/T as your preferred payment method when placing an order on platforms like Alibaba. It is recommended to send a confirmation of payment to the contractor.
Each transfer requires the name of the recipient’s bank, the bank’s SWIFT code, and the recipient’s bank account number. The SWIFT code consists of letters and numbers that identify the institution where the recipient has an account. On the invoice, you can find a BIC (Business Identifier Code), which is, in fact, a code assigned by SWIFT.
When making a T/T payment, you have to choose who bears the additional fees:
- SHA (share) means that the importer pays his bank’s handling fee, and the recipient pays his own
- OUR indicates that the payer (importer) bears the transfer service for both parties
- BEN (beneficiary) charges the recipient (supplier) the required handling fees
You can add details of an intermediary bank in the form, but you must take into account additional costs. The handling fee may be deducted from the transferred funds, and as a result, the recipient receives a reduced amount.
If you have signed a contract with a supplier in China, it is recommended to make a transfer to a corporate account in China. The supplier may provide a personal account number instead of a company’s to avoid taxes. It may also be an attempted fraud.
Reconsider before transferring funds to Hong Kong or Singapore which are famous tax havens. You should also make sure that the bank account number provided is, in fact, the seller’s corporate account. If the account belongs to another company, it is possible that the supplier does not have an export license or is only collecting payments from all buyers in that account. Unfortunately, it is difficult to fight for your rights in these cases if something goes wrong with the order.
If you do not want to get scammed, we recommend that you verify your supplier.
What is the installment plan?
There are several ways to break down payments into tranches (installments). The first tranche is performed before production starts but after the importer obtained a commercial invoice copy. The second tranche is realized when the goods are transported after sending the shipping documents. For example, on Incoterms FOB, the T/T payment can be made in parts: as a deposit and at the time of loading. Usually, it is a 30% deposit and 70% after issuing the Bill of Lading (after loading the goods onto the ship).
Without paying in advance, the chances of starting production are slim. Especially for the first order, the supplier requires a T/T advance payment. Contractors usually use the down payment to get raw materials and manufacture the goods. The sum can be divided into:
- 0/100 (only reliable buyers)
- 100/0 (not recommended, production time is usually extended)
What if the payment gets “lost”?
Transactions can disappear for a while. We present a typical scenario:
- The payer’s bank processes the T/T payment request.
- The recipient’s bank does not register the transferred amount.
- The recipient asks his bank to investigate the matter; the bank does not acknowledge a wire transfer was made.
- The recipient asks the payer to request his bank to investigate the matter.
- The payer’s bank finds the issue and resolves it, the transfer is made to the recipient’s bank, or the first payment is canceled, and a new one is made. In the latter case, the handling fees cannot be refunded.
Payments are often blocked because of typos and misspellings, such as in the name of the recipient’s company. It is not uncommon that the form’s field for address is too small to enter the entire company name, which is long, especially if it is a Chinese company. Depending on the banks’ response time, it may take up to two months to resolve the matter.
When should you make a T/T payment?
The safest option is to make a T/T payment for larger orders only from trusted suppliers. It will reduce unit costs, and the likelihood of fraud is low. Making a telegraphic transfer is a cheaper payment method than a letter of credit, though at the price of the security.
Read more about transferring money to China.