What is the usual procedure for importing components from a manufacturer in China and the usual method of payment?
I am starting a electronic kit business for which I need some DC motors with a gearbox. My competitors obviously source their parts from China and therefore, I am forced to source from China as as well if I am to be competitive. I've negotiated a deal with a manufacturer in China, but, I am finding communication difficult. Since this is my first importing deal I would like to understand what a typical procedure is. Many of my questions are not being answered by the company I am dealing with and I hoping to get some insight here.
It's a little easier to answer your question if you can provide a bit more detail on the size of your orders since that invariably plays a part in how you deal with them, and how they deal with you.
Payment terms will normally be FOB via confirmed LCs but interaction really depends on many other variables.
Few things to bear in mind tho:
I suggest you have a look www.alibaba.com for future orders.
There you can chat live with the manufacturer plus you can use their escrow service.
Don't do business with them. Find another supplier.
Ok, let me contextualize my advice. The export-import business is VERY tricky and there are thousands and thousands of so called companies, specially Chinese, which are in it to make a quick buck. You won't be the first legitimate trader fooled by one of the many many many shady Chinese companies.
I have done business with Chinese companies (medium size) and believe me, communication is never easy. Now, if they are not clearly responding to your questions, as a buyer, that is a big red flag to me.
Said this, the most usual method of payment is... well, there is no such a thing. It all depends on the type of goods and, more importantly, the volume. Somebody here already suggested a letter of credit (LC), or documentary credit. Although this is the safest international method of payment, it is expensive (maybe 2% of the total invoice, and you may need intermediary banks and so on) and complicated. If you don't know how to use it, I suggest you talk to a professional about it. Believe me, I know several companies who have lost tens of thousands of $ because they didn´t understand the nature of a letter of credit. Chinese companies usually know how to use them, and they use it to their advantage.
As for the incoterm, FOB, may be common, CIF is also common. And if you don't know what they mean, google them, or even better, talk to the international department of your bank, or the international trade agency of the UK. They can also help you out figure out how to use a letter of credit. In any case, here you have the international rules that govern letters of credits: they are called UCP500. http://www.iccwbo.org/policy/banking/id2434/index.html If you are importing small quantities, you will have to consider other methods of payment: cash in advance (I don't recommend it, specially with Chinese companies that you´ve never done business with, but if you are forced to do it, don't wire the full amount), or documentary drafts (basically, an international check). For a small import like your case, most Chinese companies will try to talk you into cash in advance. Don´t do it unless you have really no other option, and most of the times, there is another option. I would try the check from a reputable bank.
Some may recommend you enter into a contract with the Chinese company, but remember that the contract is only valid if you have the money and time to enforce it in case something goes wrong. If you are a small importer with little resources, a contract will offer very little guarantees. The Chinese notice these things very quickly.
Did you check if you will have to pay tariffs? Are there quotas on those goods or any other non-tariff barriers (certificates of quality and so on).