I Think Something is Wrong With My Supplier.

Hello, I purchased five scooters from Yongkang LiXXX Industry & Trade Co., Ltd. It’s been a month and I haven’t received the scooters. I tried calling the company and they ignored my call. Can you tell me if this company is a good company to do business with?

If you have purchased products but the supplier has not given you any information on the status of the order, then I think the answer to your question is, “no, this is not a good company to do business with.”

I am hoping you didn’t make the mistake of paying 100% upfront.  If that is the case, you have little leverage over the supplier.  Always, structure your payment to link up with the supplier’s performance. Pay that final payment AFTER the goods have been inspected by you or a third party.  Here is a series of short videos to walk you through the steps for safe sourcing:

Video 1: Finding Suppliers
Video 2: Evaluating Suppliers
Video 3: Negotiations
Video 4: Project Management and Quality Control
Video 5: Protecting Your Intellectual Property
Video 6: Leveraging Global Sources
Video 7: How to Find and Manage Partners for Logistics
Video 8: Avoiding Scams
Video 9: Returning Defective Products
Video 10: Resolving a Dispute

You have raised two issues in your question.

1.   Is this a legit supplier?

2.   What to do if your supplier has underperformed (or perhaps even scammed you)?

Let’s look at each of these issues one by one:

Topic:  how do I know if my potential supplier is good?

In the China sourcing industry, when we talk about verifying a factory we are generally looking at two aspects:

1.   Due Diligence: Is the company a legitimate business and not a scam or business on the verge of bankruptcy?

2.   Quality Audit: Does the supplier have the ability to produce the products I want to buy?

Type 1: Due Diligence is an investigation of a business prior to signing a contract to ensure the company (supplier) signing the contract is who they say they are. For example, do they really have 1000 employees, 50 million USD exports, own the factory 100%, have happy customers, good financial situation (will not close doors suddenly) and so on.

There are various levels of due diligence a buyer can conduct. Here are four options:

It doesn’t cost any money for you to ask for references from the seller and contact those references.

www.SupplierBlacklist.com is also free and lists bad suppliers.

For a few 100 USD, there are research firms like www.Glo-Bis.com who can work with the PRC government to check for any red flags.

For a few 1000 USD, investigators like www.CBIconsulting.com.cn can go undercover to investigate the seller’s business.

Type Two:  Quality Audit/ Factory Audit

This service is designed to ensure that the supplier has the equipment and experience to make any given product. Audits can be conducted by the buyer, but usually third party experts (like www.AsiaQualityFocus.com at 298 USD ) are hired to do the audit as it is a specialized skill. You wouldn’t ask your sales team to do engineering for example.

In my opinion, doing both due diligence and QC audit is an essential step when sourcing from China. Perhaps I am jaded after living here in China for a long time, but I assume the worst unless proven otherwise. Trust BUT verify.

If you like, I can put you in touch with the representatives of the service providers mentioned above so they can reach out to you and explain how their due diligence and quality audits can protect you.

Topic #2:   I think I have been ripped off, what to do?

The first question to ask yourself is “do you want to save the relationship with this company so that you can do business in the future?”

If the answer is “yes”, then you should consider getting a third party mediation firm involved rather than using a lawyer or a collection agent.  Know that if you engage a lawyer, you are “burning the bridge” and will find it very difficult to reestablish good will.

If you don’t care to ever do business with this supplier again, then I suggest you consider using a lawyer or collection agency.

Unfortunately there is no effective Better Business Bureau in China where you can take your grievances. The embassies and chambers of commerce are overwhelmed. Also, you will find limited support from Chinese government agencies, unless your case has pressure from your government’s agency on the Chinese agency. That pressure can actually work, but is very hard to arrange unless you have high level government contacts back home already. So that leaves you with two remaining options:

Option 1:    Turn issue over to a China based collection agency.

Option 2:    Engage a local lawyer to issue demand letters in Chinese.

I have used both options in the past and there are pros and cons. The advantage of the lawyer I used is that they would work on a set fee to issue demand letters (100’s of USD) and can litigate in China if the demand letters don’t work. Litigation in China is a fraction of the costs of litigation in USA for example. With the lawyer I used the expenses are capped and you don’t have to share the recovered funds with the lawyer. But you still have the pay the lawyer even if you are unable to recover funds.

The advantage of the collection agency is that they are performance based. If their methods don’t recover funds, then you need not pay them. The potential disadvantage is that upon success they retain about 30% of the recovered funds as their service fee and they generally don’t take projects where there is less than 4000 USD involved.

Related Blog Post:  “Resolving a dispute: Demand letters and legal options”  offers some tips on how to issue effective demand letters. It also explains what items you need to have in place for your court case to be successful.

Here are some more ideas:

If you are thinking about placing another order in China, don’t make the same mistake twice.  Ideally you or an appointed agent can do a factory audit (before you place the order) and later do a product inspection to check out the goods in China before final payment is made and before the goods are shipped out. A lot of buyers don’t know that inspection by a reputable third party professional only costs a few 100 USD. Plus due diligence is readily available to buyers who want to check out their Chinese suppliers.

Related Blog Post:  “Tools to Confirm Legitimacy of Supplier” covers both auditing and due diligence.

On final note:

Please warn other buyers about your bad suppliers. Check out: www.SupplierBlackList.com

Hope this email helps.

For your reference, you may want to check out this blog post about buying ATVs, Scooters and other recreational vehicles: How can I tell the real suppliers from the fake ones?

Let me know how things work out for you.

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). He is also the author of, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book) and founder of PassageMaker Sourcing Solutions (www.PSSchina.com )


1 Comment

  1. Krista Salvatore on February 6, 2013 at 3:44 pm

    Thank you for sharing this concern and advice. It is important to really know the companies policy before you buy an item. Warranty is the most important thing to ask.

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