Part 9: Importing from China

Importing from China: The Essential Guide to Trade Finance from China.

Today you will learn:

- The standard cash flow scenario for businesses importing from China.

- What a practical example of that looks like.

- What trade finance options are available to redress you cash flow balance.

We will start by looking at a cash flow example when buying in China using standard payment terms. What is much more exciting though is we will finish by giving you a free guide detailing how to buy on credit from China. 

Finding your balance

In theory importing from China looks great and can be very profitable, but like anything good it is not without significant challenges. There are many reasons why businesses succeed or fail when importing from China. In the fail category it is not only things like poor communication, quality or standards - in our experience one of the top problems faced by importers is cash flow. Cash flow is also a key area to balance and some companies just don't get it right. In China, "balance" is a word that is used over and over in every aspect of life. It should be a keyword in your business too, and finding your cash flow balance will open the door to growing your business.

The Standard Scenario Problem

Standard payment terms mean that the importer can often be left with negative cash flow for a period of 6 months and more. Let's take a quick look at an example of the problems with a standard scenario. You place an order with a supplier for USD 100,000 worth of product. As standard the supplier will request 30% deposit on order placement but it is also not unusual for a 50% deposit request. Even if it is you should be able to negotiate 30%. So… 

Day 1: Minus 30K

For production times more often than not you will be working off a 30 day lead time. This is how long it will take to produce your goods. Of course again there are exceptions: for smaller items you may get a lead time to 14-20 days or for something like textiles it could be 45 or even 60 days. Let's stay standard and work with 30 days. 

Day 31: Still down 30K

All going well your goods will ship out of a port in China probably 40 days after you make a deposit since realistically you will be dealing with a couple of "lost days" due to banking, product inspection and awaiting your sailing date. Wherever you are in the world your shipping time will vary slightly but again, taking that stock standard scenario work with 30 days.  

Day 40: Still down 30K plus some expenses

The 70% balance term is most likely to be payment due upon the supplier presenting you with a copy of the bill of lading document. This document importantly tells you the date of when your goods are on board the ship. It can be issued a couple of days after this happens and then you are due to pay the balance. In reality you don't really have to pay until the ship is about 7 days from your port to enable you to get a telex release of the original bill of lading. You must have this to clear customs. In the interest of being organized let's say you pay in the middle, i.e. 15 days after the ship sails. 

Day 55: Minus 100K and some change no doubt

Let's say your goods dock Day 70 and you get them to your location by Day 75, it's time to start getting them out the door to your valued customers. At this point you really want to be getting some cash back in your pocket. Is it that easy? We have to assume that for some long term clients you offer a measure of credit. 

Day 75: Still down 100K+

If you're offering some leeway to your clients then it is most likely to be a standard 30 days. We haven't even spoke about the fact that half or more of the stock is just that and could be in your warehouse for 60-90 days.  At best on Day 75 you're getting some cash back in, but sticking to the standard scenario you're probably looking at Day 105+ when you start balancing the books. 

The outcome of the standard scenario can look like this:

Day 105+: Down 100K+ but starting to get some cash back in.

Day 165 – 195: Finally clearing all stock and being paid so that you end up with a profit. 

So what are much better alternative for me?

Many experienced businesses importing from China are using one or more of the following for credit buying from China:

- Sinosure

- Factory Supply Agreements

- One Touch via Alibaba

- China EXIM Bank

- International Trade Finance Co.'s

- Logistics Companies

Comments

Andrew Torres

I had a very bad experience when I imported some goods from China. I couldn't track the good for almost 6 months, and such experience was really stressful. After reading your article, I have a better understanding of what truly happened.

David Mureithi

Doing business with China, you need to have the correct knowledge. In your article, you explain well the basics on how to import goods from China. Good article and very helpful. Thanks for sharing.

Era Leon

Thanks for the informative article! It's really interesting knowing these kinds of things. I've learned a lot from just reading.

Mickey Luseka

Very nice post. I've always wanted to know the procedure of importing goods from China.

Lovely Marfil

Doing business is sure a tough thing. You need to do a lot of auditing works and other business stuff. You also need to always have a back up just in case. I hope your imports get successful.

Jenny Dy

Import is not that easy when it comes to business. There should be enough capital and trust with your business partners. Otherwise, everything will go down the drain.

Odim David

Negative cash flow can be distressing. Where it happens for a long time like 6 months like make life difficult for a manager dealing with small capital. Now, I know what to advice people who worry about a negative cash flow problem when importing from China.

carrie miller

I find it hesitant doing business in China. Thinking of how many fake items are coming from them. But this information makes me think to learn how to trust sometimes.

Mia Batoy

This is a very good article for people who want to do business with China.Thank you for giving us insights on what to expect and providing an alternative when we try to Import from China.

Kevin Jonson

Why is the lead time for textiles longer? I thought the advantage of China production is that it is faster and cheaper?

Joseph Richards

thats an eye opener for anyone who would be new to a bussiness and had to import. 3 months is a long time to wait to start making an income (and thats not even caught up with the expense in the first place) so you would really need to have some cash set aside to be safe to even begin.

Neema Wanj

Great article, detailing step by step process to import from China. Without the right information, a process that could have taken you one month, might end up taking months and huge financial losses. Thanks for enlightening us.

Jessica Norton

This article was so insightful... Thank you for sharing such detailed information. I had never come across such a complete cash flow overview, from day 1 to day 195 and, to be honest, had never thought on these terms myself (as a beginner in business, I tend to be so optimistic and think everything will be running on a 30 day spam). This really opened up my eyes and I am definitely going to look for additional information on credit buying from China.

John Meursault

Looks like you will need to have a considerable amount of working capital to make this success. I guess that also means a decent short-term interest-bearing account to park that capital.

Angelo Bugay

It just shows that you have to work hard to earn money. The more you want to earn the hard it may get. Having enough knowledge in your business will also help you not to fail.

Brian Marima

I like how you've broken down the financial aspect of importing goods from China. Very handy especially for businesses looking to import goods from China for the first time.

K dORITO

Anyone should have enough knowledge on something before investing on it. Money doesn't go falling from the clouds above though.

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