Two models, three kinds of remittance methods to Chinese manufacturers
Have you ever encountered that different Chinese manufacturers require different ways of remittance, some require payment of US dollars, some require payment of RMB, some require payment of private accounts, and some require payment of public accounts. Which are the most advantageous to us? What’s the payment method? How to operate in essence?
From the point of view of Malaysia, our payment methods are divided into: Bank TT, Letter of credit (LC), Remittance through a transportation company, or Money changer remittance, a variety of remittance methods. Which one is the most suitable for me? What about?
First we must know the two most commonly used remittance models
Direct Exchange – Transferred directly from Malaysia to China in the name of own company
This model is generally a relatively large-scale import. The import documents are imported by their own company and can have import records. If the company is to deal with SIRIM, MITI and other issues must be dealt with in this mode.
However, if for some industries, there may be many suppliers, and the purchases are all small and varied, it is not appropriate to use this method to send money.
Gathering – One-time collection of other companies through third parties
This model is generally remittance to the forwarder first, and then the forwarder collects all the customer’s money in one go to China. This model is currently the most widely used method. The reason is that when freight forwarders collect all the people’s one-time remittances, they can save some bank charges. Plus, banks generally give more favourable exchange rates to freight forwarders.
This approach will be more flexible, and some manufacturers require them to pay RMB to their personal accounts. This requires the use of this model to send money.
Here we take a look at the three most commonly used remittance methods
- S. Dollar TT
This method is mostly used in relatively large amounts of transactions. Generally speaking, transactions in full containers (FCL) will be traded in U.S. dollars. Of course, under certain circumstances, small amount transactions will also be useful for U.S. dollar transactions.
Let us first study why manufacturers will require US dollars to trade. For several reasons, the first and most common reason is that they have to handle export tax rebates in China. The export tax rebates must be made with international remittances (usually US dollars). Successfully handle tax rebates, export tax rebates can allow manufacturers to get back up to 17% of the subsidy, so they will require us to trade with the US dollar. We now roughly understand the starting point of the manufacturers, then we use Malaysian point of view, the advantages and disadvantages of using US dollars for remittances. Standing in the current international exchange rate market, remittances in RMB will undoubtedly be one of the best ways to reduce the currency loss. Therefore, we must understand what the manufacturers are asking us to do to transfer US dollars if they are to export. If there is a tax refund, then there is no other way. We must remit the US dollars to them according to their requirements, otherwise they will not get back 17% of the export tax rebate. In another case, suppliers are accustomed to exporting. They do not know that we can actually remit (RMB) Yuan to their personal accounts, so they will initially ask us to send in U.S. dollars.
So we have to learn to speak with manufacturers about our requirements. We can directly ask them, “Can I directly remit RMB to your private account?” Some manufacturers will welcome this type of remittance because they do not have to do export tax rebates. Remittances to their private accounts will save a lot of trouble.
2. RMB exchange accounting
Before we start this topic, we must understand what is the difference between the public ledger and the private account. The public ledger is the company account (company account) and must pay VAT. A private account is a personal account that can avoid VAT.
Then there are two kinds of public accounts, one is a multi-currency account, which means that foreigners do TT (telegraphic transfer) into their accounts from foreign countries; the other is the domestic RMB account, that is in China. The bank’s money transfer. So how do we tell which type of account the manufacturer gives us? Very simple, when we and the factory take the bank account, the bank account given by the manufacturer is a lot of information, such as the following:
HSBC Business Direct Account Name: HK xxxxxx Electronic Co., Limited
HSBC Business Direct Account Number: 5×1-8xxxxxx-8xx
Beneficiary Bank Name: HSBC Hong Kong
SWIFT Address: HSBCHKHHHKH(for telegraphic transfers)
Beneficiary Bank address: 1 Queen s Road Central, Hong Kong
This is a foreign currency account. We must get a TT (telegraphic transfer) from a bank in Malaysia or other countries to get it. In addition, the domestic RMB account number is as follows:
Account Name: XXXXXXX Co., Ltd.
6xx6 1xx6 8xx4 3xx4
Minsheng Bank Shenzhen Hongxun Branch
This is the domestic RMB account, and it will use China’s domestic bank exchange RMB.(RMB)
3. RMB to pay the private account
In China, it has become a very common practice for private transactions in business activities. Many Malaysians refuse this practice because they feel that they are insecure. After all, Malaysia has never used this method to trade. So don’t be surprised when the manufacturer asks you to send money into his private account. This is a very common thing.
According to the data, almost 70% of Malaysian importers and Chinese manufacturers are paying for private accounts when they purchase. How do we pay to their private accounts?
If we use the TT (telegraphic transfer) of the Bank of Malaysia to transfer to the private account of the manufacturer, we will generally use the “collection” method for remittance. That is, we will send money through the forwarder and the freight forwarding will collect our horse. The currency was remitted to China in one go, and was converted into RMB, and was transferred to the manufacturer’s private account with a Chinese bank account.
Many people also choose to open a private account with a Chinese bank, and then let the forwarder directly transfer the RMB to their account. Then they operate their own funds to the manufacturers. This process can refer to how to open private accounts in the four major banks in China. – The CIEF has a detailed explanation of how to open an account.
To sum up:
Each company’s operation is different. Find a remittance method that suits your company, and then try to use the same remittance method for all manufacturers to operate, so that in our own Purchasing department, or account department can better communicate with.
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