I recently wrote Scams by Chinese suppliers: what to do? because many first-time importers are afraid of falling victim to a scam — paying money upfront to a supplier that deliberately won’t ship the right products, if they ship at all.

I found an excellent list of suggestions in a recent article on the China Law Blog (Anatomy Of A China Scam. Part II. Conclusion And Advice.):

We consulted with several people who have decades of foreign trade business experience and they suggested the following when trading with foreign companies (not just Chinese companies):

– Be very careful when establishing business relationships with a new company. Do as much due diligence as you can. For example, ask for the company’s license and ID card and the passport of the company’s registered legal representative. Send people you trust to do a site investigation of the manufacturing site. Do a site inspection on goods before payment. If ordered material needs legal testing/statutory survey, ask for the scanned report before the shipment.

– Use formal and strict contract terms to protect your interest. A formal contract should be signed and stamped by all parties and include, but not be limited to, the following items:

• Product name
• Product specifications
• Price
• Packaging
• Quantity
• Payment
• Delivery terms
• Quality standards with specified testing methods ( ISO 591-1 or similar)
• Testing terms (before shipment or on receiving)
• Arbitration organization or court if any dispute occurs
• Choice of law
• Penalty on quality discrepancy
• Penalty on quantity discrepancy (more or less clause)

– Letters of credit (L/C) can be difficult when dealing with China. The L/C in this case did not include any terms that would have helped the inks company. It did not provide for any quality control testing before delivery. Be wary of using any template provided by your supplier.

– Know the market price of the material you are seeking to purchase before you purchase it. Do not trust a company that gives you unreasonably low price quotes. If it’s too good to be true, it probably is.

– Consider a small trial order to reduce your risk. The problem with this though is that some scammers will provide you with a good trial and then scam you when you order the full amount.

If I can add something, l’ll say that letters of credit are an excellent way of avoiding scams if you require a passed quality control certificate from an inspection firm you nominate.