You come across a Chinese supplier online. The organization looks all right. There’s potential for a business opportunity that could really take off. BUT there are many scams, fakes, and just plain bad suppliers out there to watch out for. So how do you make sure you’re doing business with a legitimate supplier who you can trust?
Don’t worry, you’re not alone. Most of the businesses interviewed in this survey conducted by Global Sources said that verifying suppliers is the biggest problem they face when importing products from China.
When you’re verifying a potential supplier you are essentially looking at these two aspects:
- Does the supplier have the ability to produce the products you want to buy?
- Is the company a legitimate business with good reputation and not a scam or business on the verge of bankruptcy?
This article offers simple and effective strategies to answer these two questions, let's get started.
1. Use search engines & B2B directories
On top of checking out the supplier’s website, go through all their policies (returns, damages, backorders), and make sure they have their contact information and physical address posted on their site.
Open Google or Bing and search “[company name] + scam”, “[company name] + dishonest”, and a few variations. Other distributors and retailers who had a bad experience with suppliers often try to leave a trace about it on the web.
These places are a great start to look through reviews, get references and ask questions, but beware of members who are simply trying to self promote. For example, useful information to look out for would include: how long the supplier has been in operations (it’s good to do business with a supplier who has been in the market for at least 2-3 years).
Also, many B2B marketplaces usually offer verification services such as this one provided by Alibaba, so it makes your life a lot easier when it comes to determining if you can trust a particular supplier or not. Similarly, Global Sources checks important data of suppliers such as the start date, number of staff in each department, factory ownership, amount of sales, brand names, and so on.
Furthermore, with Google search, you might also come across information such as whether a supplier has participated in trade shows recently, which is a good sign. Renting a booth and attending trade shows can be seen as an investment in gaining new customers. Repeated presence in trade shows also means that the supplier is earnest in cultivating relationships with customers.
2. Make a phone call
In order to avoid being traced by law enforcement authorities, most scammers do not provide genuine registration information online. For example, they will provide a false company address, telephone number and fax number, or persuade buyers to contact them by mobile phone only.
Therefore, you should make a phone call by the supplier’s telephone, not mobile phone, and ask for the company registration number and business license number while you’re at it. An alarm should sound off in your mind if a supplier only has a mobile number and not a telephone number. Normally, legitimate businesses will use a land line telephone instead of mobile phone number. In China, it is possible for people to buy hundreds of mobile phone numbers if they like, without any restriction or limitation. This is why scammers always use mobile phone numbers instead of landline telephones.
Also, a standard Chinese landline will look like this – 86 10 3333 3333. “86” is the country code of China, “10” (or another 2 digit number) the area code, and “3333 3333” the telephone number. Thus, you can do some basic check on the location of the telephone number using the area code.
3. Check business licenses
Legal companies in China have to register with the Chinese government authorities and obtain a unique company registration number. If your supplier is unable to provide you a unique company registration number, it's risky to continue dealing with them. To verify the registration number, you need to visit their local administrative government website or contact their local Bureau of Industry Commerce.
4. Ask for references
Don’t be shy about that. To verify the supplier’s financial credit worthiness, ask for their bank’s reference letters. To check up on the supplier’s track record in producing top-quality items, ask for their previous customers for reference.
5. Get a sample
Even if you have to pay for it. We’re trying to rule out as many points of doubt and areas of ambiguities as we can. When you have a sample in your hands, you can check the quality to ensure the product is exactly what you are looking for.
Also, if you have to pay for the initial sample charge, insist on wiring money to your potential supplier’s company bank account. If they can’t provide you with that information, they are probably not serious about doing business.
Moreover, you can refer to the supplier’s Audit Reports (if available) for an independent onsite report of their manufacturing and trading capability.
6. Money matters
While we're on the topic of money, when it comes to payment, tell your potential suppliers that you want to get your products picked up by your local agent in China from their address, and that he will pay cash on delivery. See if they allow for it. Scammers will never agree to it but real legit suppliers will.
In addition, TT, Western Union, and Money Gram are the most common mode of payment in China, but good suppliers accept Paypal as well. Always be cautious of using untraceable wire service transfers with suppliers you do not know – these are highly risky and susceptible to fraud.
7. Conduct factory audits (or at least pretend to)
Tell potential suppliers that you’ll have their factory audited before any Purchase Order is issued, and later their production inspected before any shipment is authorized. Mention it right away in your first encounter or email. If the supplier refuses or looks flaky, it’s a red flag!
Factory audits are the right tool to verify a supplier’s claims about their production capability. Most quality control firms, and some sourcing agents, can audit a factory based on a checklist that corresponds to your needs. Prices range from 300 to 900 USD for a day of work in the main production areas.
8. Make good use of databases
Search through this database of the Chinese Supreme Court. Type in the Chinese name of your supplier and see if you find it there. You will be able to find out if they have been given a sentence and if they failed to pay damages. Unfortunately, this site is available only in Chinese. However, a Chinese contact or your Chinese sourcing agent would be able to help you with this step.
9. Background checks, on the cheap
You can order a report from third party authentication services such as GloBIS, where their business credit report service will provide information on your potential supplier, including legal representatives, shareholders, business scope, financial records of the last three years and many more.
You can also try China Checkup, which offers very similar services and cater them more specifically for foreign buyers’ needs.
10. Visit the company or factory in person
This is the best way to verify your suppliers – you can’t know much about an organization unless you visit it. You can also discuss your products, prices, quality inspection, and delivery time face to face. However, it would be impossible for you to go visit every potential supplier you have in mind, so go through the earlier steps outlined in this article, and narrow down your selections before making the decision to visit their office or factory in person.
The best way to reduce fraud (regardless if you’re trading online or offline) is for buyers and sellers to conduct proper due diligence and research before entering any transaction. Be meticulous with this verification process and you will know if your potential supplier can be trusted, have fun and good luck!