How to Claim Compensation from a Supplier? | Disputes With Chinese Suppliers Q&A (Volume 18)

Let’s say that for some reason your order from an overseas supplier, specifically one in China as we’ll focus on here, is completely unsatisfactory. You may wish to claim some form of compensation from them…but how is this done? Here’s a real situation faced by a Sofeast customer (any identifying details have been removed, as usual).

 

Question: How do we claim compensation from our Chinese supplier?

Our order turned out to be a total disaster and we need to reclaim at least some of the costs. Our original manufacturing contract was with an agent who is based in China.

 

Answer:

If you have a legally enforceable manufacturing contract/agreement with your supplier, you should follow this process:

1. Quantify the damages and money lost, based on data, in a clear way, and point to the clause in the agreement that covers this. 
2. Request compensation from the supplier (not as a discount on future work, since that means they might do a really bad job in the future, such as paying little attention to quality or using the cheapest possible materials, in order to claw back some of the costs).
3. If they refuse, have a lawyer send them a demand letter (but after that the supplier will probably be in shock and will not want to do any further business with you).
4. If they still don’t cooperate, the lawyer can go into litigation/arbitration, based on what is mentioned in the agreement. I hope the agreement was written specifically for manufacturing in China, otherwise it may be hard to enforce (you will usually work with a law firm that is experienced with Chinese law to create the agreement).

There are a few points to consider here:

• First, email this correspondence clearly and request the supplier to respond to each point in turn.
• Second, use professional language and don’t ‘tell off’ your supplier, this will almost certainly make it harder to work together to come to an agreement as Chinese people in particular don’t respond well to anger.
• Third, unfortunately, if the agreement was with an agent, there is a risk that they stop responding and they just fold their company and use another company to carry on with business. In this case, it may benefit you to deal directly with a factory in future.

*****

Do you find yourself in a difficult situation with a Chinese supplier? Let us know and we might answer your questions in a post like this! Contact us here.

---

 

Other helpful content

You may also find these posts and podcast episodes helpful in this case:

• What are trading companies?
• Good and Bad Methods of Communication with your Chinese Supplier [Podcast]
• We may be able to help you create a manufacturing and NNN agreement of your own or at least point you in the direction of a law firm that can assist you. Let us know if you’d like to talk about that by clicking here.

You can also read our entire ongoing series of posts about disputes with Chinese suppliers here.

 

Disclaimer

Here at Sofeast, we are not lawyers. What we wrote above is based only on our understanding of the legal requirements. We do not present this information as a basis for you to make decisions, and we do not accept any liability if you do so. Consider consulting a lawyer before making legal decisions.