Are you looking for tips on how to deal with suppliers? If you are asking the same question, then this blog is for you!
There are 3 types of verification services that we need to consider if you doubt the reliability of the company.
These type of due diligence are very affordable and effective when doing business in China.
1. Due Diligence on the Seller
Is the seller a real business with real assets? In other words, make sure they are not a scam or fake company. And if they are a real company, who is the owner and are they financially stable? Are they likely to be around long enough to accept your deposit and run production or are they going bankrupt and could disappear with your money and not ship the goods?
Suggested service: Corporate Assessment (CA): Stability, Reputation & Assets of a Chinese company.
2. Due Diligence on the Deal
Are the terms of the transaction reasonable or does the deal expose you to potential problems down the road?
Suggested service: Red Flag Assessment (RFA): Risk, Scams & Fraud in a given.
Note: Why evaluate both the deal itself as well as the seller?
a. Danger One: A legit business issues you a bad deal.
b. Danger Two: A scam/fake/unlicensed business issues you what appears to be a fair deal.
A legit company could issue unfair terms of trade in your particular deal, it is important to evaluate both the company and the given transaction.
3. Quality System Audit
Assuming the seller passes the above Due Diligence, if you are purchasing a new-to-market product or something that the supplier hasn’t produced before, then you also want to be very sure that the supplier has the production experience, equipment, and workforce to actually make your specific product at the agreed lead time. Just because a supplier has a big factory or says they have been in business for a long time, doesn’t mean that they have experience with the raw materials and production methods needed for your product. A quality audit, also called a factory audit, will not only check the quality system, but the auditor can look into the issue of workplace safety and other social compliance issues if those things are important for you.
How to deal with suppliers about defective goods and partial shipment?
Regardless of what they say in email, you need to have it backed up in writing under a bilingual contract and you also want to do an independent inspection. One of the readers asked some questions on how to deal with suppliers and gave some scenario below:
When 2 suppliers were asked about their return/replacement policy for defective goods, the suppliers replied as follows:
Supplier no. 1: Add a quantity equal to 1 % of the total order qty to cover any defective goods. For example, if the total order quantity is 1,000 pcs, then the total quantity to be delivered is 10,010 pcs (1,000 pcs x 1% + 1,000 pcs).
Supplier no. 2: Replace the defective goods in the next order.
If you are having the same situation and questioning how to deal with the suppliers? Here is a blog post I wrote that would help answer your questions:
The supplier can deliver 5,000 pcs in 45 days, However, I want a partial delivery of 1,000 pcs. only in 30 days. As per supplier, I need to pay the full amount of the order before the partial delivery.
Question: How to deal with suppliers when delivering a partial quantity of the order without paying for the full amount of the order?
Speaking of due diligence above and protecting yourself. Here are two more tips:
a.Get yourself some good bilingual contracts. This will not only protect you but also show the supplier that you are a professional buyer. They will show more respect and less likely to try to sneak stuff past you. Here is a short video tutorial I did on contracts.
b.Don’t forget about the pre-shipment inspection. The quality audit of the factory may show that the supplier has the potential to make the given product, but it’s still essential to do a final check to make sure that what goes out the door is what you wanted. For example, say somebody is buying red umbrellas and the due diligence shows the seller is a legit manufacturer of umbrellas. But the factory manager has a bad day and prints blue umbrellas by mistake. The pre-shipment inspection would catch that. Also, keep in mind that you can state in the contract that should the inspection fail, the supplier is responsible for the cost of the inspection as well a penalty for missed lead-times. So you can see how the due diligence, auditing, inspections, and contracts all work together to protect you.
If you like the idea above on how to deal with suppliers and would benefit from a whole book of tips for finding and managing supplier, check out “the essential reference guide to China sourcing” that I wrote a few years ago. You can check it out on Amazon.
Once you get your contracts and due diligence out of the way. I’d be happy to introduce some quality control auditors and inspectors. The above points are general tips. I’d be happy to help with your negotiations, but I’d need to know a lot more about your situation so I could help with the details. Check out the business advisory services if you’d like advisory support.
Business Advisor at AsiaBridge Law