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Source: Quality Inspection Service Quality Inspection Service

6 tips for background checks on Chinese suppliers

Published: 02 Mar 2015 23:57:53 PST

Sourcing New SuppliersI frequently lament about the number of importers who take high risks by not doing any quality control. But the most under-rated tool to reduce risks in China is certainly running a background check on potential suppliers.

I listed 6 tips below, from the easiest to the most advanced and expensive.

1. Choose the right target

Do not waste time searching information about the company mentioned in the salesperson’s signature, or on the trade shows’s booth. They might actually steer you toward another company when time comes for payments.

Ask for the company name and address that will be mentioned on the invoice. Or, better yet, ask for a pro forma invoice (if both parties already have a good idea of the products&pricing) and look at the company name on that document.

2. Spot unscrupulous companies

There are two ways to notice unscrupulous companies.

The first one is to tell potential suppliers that you’ll have their factory audited before any PO is issued, and later their production inspected before any shipment is authorized. Mention it right away, from the first encounter/email. If the supplier refuses it or looks flaky, it is a red flag!

(By the way, 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 one day of work, in the main production areas.)

The second one is to search these databases of the Chinese Supreme Court. Search the Chinese name of their company (in China, not in Hong Kong), and see if you find it there. You will be able to see if they were given a sentence, and if they failed to pay the damages. Unfortunately this is only available in Chinese.

3. Make good use of search engines and B2B directories

Open Google or Bing and search “[company name] + scam”, “[company name] + dishonest”, and a few variations. Importers who got a bad experience often try to leave a trace about it on the web (example here).

While searching the supplier’s company name, you will likely find the profiles they created on several B2B directories. Look at the addresses and phone numbers associated with the supplier’s company. If they are not the same, or if the supplier doesn’t respond when you give him a call, he will have some explaining to do.

If the company has a paying account on a B2B directory, some information on their profile might have been verified by the directory itself:

  • For example, Global Sources checks important data (depending on the amount of the contract) such as start date, number of staff in each department, factory ownership, amount of sales, brand names, and so on.
  • On the contrary, be careful with Alibaba. A “Gold Supplier” status means nothing. Read here about a real-life example of a supplier that was taking advantage of it.

In any case, the general tendency is to show more and more of these data out there, in the open. It contrasts strongly with China’s culture of opacity, and I think it is a very good thing.

With a Google search, you might also see that they participated in trade shows recently. This is a good sign. A booth is an investment to get new customers. And repeated presence in the same trade show is the sign of a company that cultivates relationships with the same customers.

4. A sample request is a good occasion to check two things

If you need to pay for the initial sample charge, insist on wiring money on their company bank account. If they can’t give you that information, they are probably not a serious supplier.

If you need to pay the courier fee for sending the samples, don’t just give your account number to the supplier — instead, ask your courier to pick the samples up. This way, you know the supplier’s address, and you can compare it to the address on their business registration (which you should have asked for beforehand).

5. Background checks, on the cheap

I recently found China Checkup, which provides background check services that correspond to foreign buyers’ needs.

And we also provide this service to some of our clients, as a good complement to factory audits. The price for checking one company is only a few hundred dollars.

Note that the target company is NOT aware that one of their customers is running this type of verification on them. In many cases, though, the customer should be proud of it — it shows they are a serious customer, investing to build a solid and long-term supplier base.

6. Background checks, together with professional advice

If you don’t like DIY solution, a lawyer or accounting firm that works in China can help you. If you are not familiar with Chinese business practices, they can smell inconsistencies or red flags and warn you.

If you are about to place a large order with a new supplier, I highly advise to work with a lawyer, both for due diligence and for drafting an OEM agreement.

Note that, in this case, the supplier knows an investigation is under way. Again, I believe importers should not be apologetic about this.

Any other tips

PS: I will delete comments that are advertising in disguise.

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