East African importers effectively choose between three instruments when paying Chinese suppliers: a bank letter of credit, a USD telegraphic transfer, or a direct RMB transfer through a documented payment service. They differ sharply in cost, speed, protection and — critically — in what Chinese factories will accept for SME-sized orders.
- LCs offer the strongest formal protection but cost 1–3%+ in fees and suit orders from roughly USD 50,000 up.
- USD TT is the traditional default: familiar but slow (2–5 days), double-converted, and protection-free once sent.
- Documented RMB transfers settle in the supplier's own currency in 1–2 days with beneficiary verification before funds move.
- Most Chinese factories quietly prefer RMB: no FX conversion on their side, faster booking, often a 2–4% better price for you.
- Whatever the instrument, protection ultimately comes from sequencing: verified beneficiary, inspection before balance, papers that match.
The three instruments in one table
| Criterion | Letter of credit | USD TT (SWIFT) | Documented RMB transfer |
|---|---|---|---|
| Typical all-in cost | 1–3%+ in bank fees both ends | Wire fees USD 25–65 + two FX spreads | Posted rate + service margin; one conversion |
| Speed to supplier | Days to open; pays against documents | 2–5 business days | Commonly 1–2 business days |
| Protection | Bank pays only against compliant documents | None after send | Beneficiary verified pre-send; documented trail |
| Supplier acceptance (SME orders) | Often resisted — banks, paperwork | Universal but conversion-laden | Increasingly preferred |
| Sensible order size | ≈ USD 50,000+ | Any | Small to mid-size sweet spot |
No single instrument wins every column — the question is which column binds for your order size and supplier relationship.
When a letter of credit earns its fees
An LC turns payment into a documentary transaction: your bank pays the supplier's bank only when shipping documents comply exactly with agreed terms. For large, one-off orders with untested counterparties — machinery, a container of branded goods — that formality is worth 1–3% and the paperwork.
Its weaknesses at SME scale are practical: Chinese factories dislike LC paperwork for modest orders, discrepancy fees punish sloppy documents, and opening lines requires bank facilities many growing importers do not yet have.
The honest economics of a USD wire
TT feels simple, but walk the money: shillings convert to dollars at your bank's spread, cross SWIFT with fees at both ends and sometimes a correspondent in the middle, then the factory converts dollars to yuan at their bank's spread. Two conversions, two spreads, several days — and zero recourse from the moment you press send.
The hidden line is the second spread: the factory prices your 'good' USD quote knowing they will pay it. Surveys of supplier pricing behaviour consistently show RMB-settled quotes coming in a few percent under USD quotes for exactly this reason.
What a documented RMB transfer changes
Settling in the supplier's own currency removes their conversion entirely and shifts the process to one posted rate on your side. A documented service adds the controls a raw wire lacks: the beneficiary's corporate identity is verified against the invoice before funds move, the payment is tracked end to end, and invoice, rate and receipt live in one file.
For the typical East African order — USD 2,000 to 40,000 equivalent, repeat suppliers, deposit-and-balance structure — this combination of speed, price and pre-payment verification usually dominates. Reserve LCs for the rare large exposures; use documented RMB rails for the weekly reality; keep USD TT for counterparties who genuinely cannot receive RMB.
Frequently asked questions
Is escrow (e.g. Alibaba Trade Assurance) a fourth option?
For platform orders, yes — funds are held until you confirm shipment terms. Its limits: platform-defined dispute rules, coverage capped to the platform order, and no help for the majority of factory deals concluded off-platform.
Can I combine instruments?
Commonly done: an LC or larger verified deposit for a first large order, then documented RMB transfers for repeats once trust is built. Sequencing beats any single instrument.
Why do factories prefer RMB if USD is 'king'?
Because their costs are in yuan. USD receipts must be converted under China's FX administration with spread and delay; RMB arrives ready to book. Preference follows accounting, not sentiment.
SilkBridge helps importers in Kenya, Uganda and Tanzania pay Chinese suppliers in RMB — documented, reviewed in Nairobi, and tracked to payout.
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