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What to do when supplier breaks the contract and blackmails your deposit

Chinese supplier ignored the contract and holding my order hostage.

Tom writes:

Hi Mike,

We met at your Global Sources conference in Hong Kong.

One of the criteria for safe trading, as you mentioned, was to have the red stamp/chop, to make it legally binding. This is something I have.

My problem is that the Chines supplier has not sent the goods and now request I increase my order from a sample quantity order to 100 units. I am loathe to throw good money after bad, and no longer wish to deal with this company.

They offered to refund my money, and when I reluctantly accepted this option, at the time of truth, they refused to send me my money.

Can you help in any way Mike? I look forward to your comments

 

What's your leverage?  Is the seller real?

What’s your leverage? Is the seller real?

In short, it’s hard to know for sure without doing some research, but I am worried the seller is a scam and isn’t a formal company. As we talked about at the conference, the following red flags jump out at me when looking at the proforma invoice you have with this supplier:

  1. the bank account is a personal account, not a company
  2. address appears to be in a residential building
  3. an official chop has Chinese characters and sometimes English translation, but rarely English only as on your document.

I would suggest the following:

Don’t let them know you suspect anything, find some excuse to delay your formal feedback until you have a chance to better understand the situation. Don’t pay any more funds until you figure out the truth!

Get some basic due diligence (cost a few 100 USD via www.SourcingServiceCenter.com) to determine if the factory is real or not.

If real company-  you are in luck, you have leverage, legal recourse and a demand letter could be issued IF needed.

If fake company-  it is possible to engage the local police to get your money back, and if their address, name and contact # is legit, there is a chance the police could grab them before they disappear.

BUT, coordinating the police requires a lot of paperwork and face to face coordination on the ground in China. That means you would need to come here or engage a representative (like the lawyers I work w that www.AsiaBridgeLaw.com).  While they are very affordable and the process would be a fraction of the costs back home, as your total order value with this suppliers is not large, it may not make economic sense to put good money after bad.

BTW, if it turns out that the seller is bad, please list them to www.SupplierBlacklist.com and warn other buyers.

For your reference, here are some resources relating to your situation:

Video 8: Avoiding Scams

Safe Payments = Safe Sourcing

http://www.youtube.com/channel/UCcwz0GCzDE4hmXRRJEyjcrA

Let me know if this email helps.

Question answered by Mike Bellamy

Founder of the PassageMaker Group of companies & business lecturer at the China Sourcing Academy



Mike Bellamy

Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). Author of “The Essential Reference Guide to China Sourcing” and founder of PassageMaker Sourcing Solutions. Mike is co-founder of CSA, the China Sourcing Academy.


4 thoughts on “What to do when supplier breaks the contract and blackmails your deposit

  1. Luz Soriano

    Good afternoon, I´m from Mexico City, and works for a company call Mexte Group. We want to buy different goods from China,mainly due the owner is from China. Nevertheless he tell me about this risks.

    I read the article , and I want to learn more, when I will buy a good for a company. I glad to learn with you.
    Thank you

  2. Mike

    Hi Gina,
    Thanks for your comments to my blog. I have a couple of ideas for you. If you need help w due diligence on bank accounts and corporate info, check out these services: http://www.asiabridgelaw.com/due-diligence/ in particular- the “corporate assessment” service and/or the “red flag assessment”. And if you don’t get anywhere in your negotiations w the seller, you may want to consult a lawyer. I’m on the board of advisors at http://www.AsiaBridgeLaw.com and can recommend them with confidence for your dispute resolution support.

    Let me know how things work out.
    Good luck to you.
    -Mike

  3. Gina

    We are company from Czech Republic which has already cooperated with producers in YUNHE for wooden toys over 25 years. Last year we had been there in YUNHE county, ZHEJIANG province to search new suppliers according to the magazine made by YUNHE wooden association. We got this magazine in HK toys fair in 2017. During the visit last year, we visited so called biggest producer in YUNHE, namely XINYUN GROUP. After that, we start cooperation. We made deposit of 30% to them by the early of Nov. and then we got notice from them that they changed bank details. We were required to make the balance payment before the shipment, so we paid it according to the contract which we got. Now they claimed that they did not receive the balance payment and could not send cargos to the port. We found we were cheated finally. My boss called their manager and he admitted to send partial cargos to us with values same as deposit. Now we would like to search your help on how to verify the bank details being correct or not? We paid deposit to their account in HSBC in HK, during communication, we were informed that they’ve changed to bank details with another company name and account No. but still in HSBC in HK. They claimed that they received the deposit and not receive the balance payment. We have no idea how to resolve this situation.

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