This company (who became our client when asking us for help), unfortunately, paid a large downpayment on goods which, over a year later, haven’t been shipped. Are they being scammed or is something else going on? Let’s look at the situation and our suggestions on how to improve it or avoid it in future.
“We’ve already paid for our goods, but, after over a year, our supplier in China still won’t ship them! What can we do?”
The client paid a 70% deposit for their products to their Chinese supplier’s Hong kong bank account and the supplier They didn’t sign a manufacturing contract with the supplier and took their word when they agreed to ship the products within 30 days of payment. Now, over a year later, there is still no sign of any goods being shipped.
During the initial days after they paid the deposit, they requested to perform a third-party inspection at the factory, however, this was refused on the grounds of COVID restrictions within the business that prohibited any external visitors.
During the first few overdue months, the supplier kept extending the shipping time giving a different reason each time the date was extended.
Now it’s been more than 1 year after the deposit was paid, and the supplier is not returning any calls or emails and has gone offline.
Can Sofeast help to inspect the goods and get them shipped as soon as possible?
There are several key problems in this case…
I see several issues here based on the information provided:
- Wiring 70% in advance is never a good idea, in our experience. The supplier was also paid into a bank account in Hong Kong, not to their bank account in China (is this even their company’s bank account, or is it a personal account?).
- There is no contract, and even worse you worked on the basis of their pro forma invoice and their conditions (which of course don’t include any penalties for late shipment).
- They delayed for a year and are now at the point where they stopped responding.
- I see it’s a lot of money. Unfortunately, there is little anybody (even a local lawyer) can do here, in my understanding. I am not sure if they think they can just scam you, if the components are now more expensive and they’d lose money on the deal, if they are tired of you pushing them continuously, or if they are simply sick and they will respond later…
Here’s what we managed to find out from the supplier.
We did manage to get hold of the supplier to ask them some questions about this case and here is what happened:
- The supplier told us the goods are ready and it makes no sense to do a video call because they already sent videos of all finished products to the client over six months ago.
- He claimed that the client accused him unfairly of refusing to ship the products.
- He also told us that the client had arranged for a third-party inspection agency to inspect the goods without notifying him in advance. On the day they arrived, he was on a business trip so nobody received the inspector. He then called the inspector and asked them to return on the following day, but they didn’t go back and instead reported to the client that no factory exists.
- We then asked if a Sofeast inspector could go and visit the factory and check the production process and any products that are being manufactured.
- The supplier refused and claimed that he owed his raw material supplier money and that all goods in his factory were mortgaged to them and that they’d locked up the factory and taken away the key. So even if we went there we still couldn’t see the goods or perform on-site factory checks.
- The only thing he agreed to discuss with us was that he needs our help to persuade the client to pay the money owed to the raw material supplier in order for them to release the keys.
- After that, Sofeast would then be able to arrange an inspection.
We don’t know how much of that is actually true, but it doesn’t sound good and is very suspicious.
What should this client do?
So here it looks like it makes little sense to spend money on arranging another visit to the factory as it won’t be possible to access it or the products. We believe there is a high chance that we won’t be allowed in. At best, it might be possible to catch someone outside and ask them some questions if they’ll speak to us.
We also really don’t recommend paying even more money to the supplier to help pay for his ‘debts to the raw material supplier’ before he lets the inspectors come, see the goods and talk to the factory where the goods are being stored. This is not your responsibility and he should never have asked that ‘favor’ of you. We can’t even say for sure if the situation between him and his raw materials supplier is true.
On our side, we recommend this case be taken to business lawyers who are experienced in Chinese cases (either based in your country or in China itself) and some legal advice obtained. This is now a legal issue as we have not been able to arrange or gain access to the supplier’s factory to check the goods or his production facility and products which have been paid for are being held without permission.
How can YOU avoid this situation?
Dealing with Chinese suppliers has always been and will remain to be the case where you have to follow a set procedure where you take nothing for granted and you mitigate all risks where possible.
In this case, problems have occurred with this supplier because the client was unlucky enough to source an unreliable one.
When selecting a supplier, it is always advantageous to carry out due diligence and carry out some background checks in order to assure that you can work with a supplier who is more trustworthy than in this case. Here are some solutions we recommend:
- New Supplier / Factory Identification – our supply chain management experts source suitable suppliers based on your needs.
- Combined Due Diligence Checks – this is a combination of off-site reviews to check the supplier’s trustworthiness and on-site factory audits to check that the supplier is capable of delivering on their promises. It includes the Legal Records Check (LRC), Bank Account Verification (BAV), and Certificates and Reports Verification (CRV) which will give you peace of mind that you’re dealing with a legitimate business and not sending money to an untrustworthy bank account (i.e. not the company’s account).
When you have selected your supplier, get an enforceable contract written up and signed by both parties. You may benefit from speaking with a lawyer about this, but we have written about it here, too.
Always carry out factory audits, this goes for both new suppliers as well as suppliers you have been working with for years. For longer-term relationships you have with suppliers, it is always good to visit them on a regular basis, say once or twice a year. This builds trust in both parties as well as that personal relationship which makes communication easier.
Payment terms and making payments
Expect to pay no more than 30% upfront for anything you order. Purchasing terms are generally negotiable, but typically you might pay 30% with your purchase order, another 50% once the products have been completed, and make the final payment before shipping.
Always pay directly to the company’s bank account if doing a wire transfer. Be wary of bank accounts that you are not familiar with or are in other areas, such as Hong Kong. Read more about wire transfers here: How to Pay Chinese Suppliers by T/T Payment (Bank Wire Transfer).
Always get your products or goods inspected once they are finished, we suggest you tie this into the second payment. Once your products or goods have been inspected and you have agreed with the report, you can pay the second amount due.
For additional security, you can get the final shipment inspected as it is loaded into containers to ensure what you have ordered and paid for is being sent to you.
A final thought…
Remember, just because you have been doing business with a supplier for a long time does not mean they can ever be 100% trusted, especially if you have never visited them personally.
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:
- Read this FREE eBook: How To Find A Manufacturer In China: 10 Verification Steps
- Vetting Chinese suppliers podcast seriess – These episodes cover the basics and best practices that you need to assess a potential new supplier and get the peace of mind you need that they’re a good fit for you. It includes weeding out bad fits, auditing, evaluating their capabilities, due diligence, and more.
- How To Find Trustworthy Chinese Suppliers?
- If all else fails and you need to switch to a new supplier, read this FREE eBook: How To Switch To A New Chinese Manufacturer And/Or Develop A Backup Supplier