From time to time, a reader who has received unacceptable products asks me how they can force a Chinese supplier to refund an order.
My response is usually “forget it, and do things right on your next order (make sure you read about best practices)”.
There are four very important things to keep in mind when you buy from Asian developing countries:
1. Pre-production samples are not indicative of average quality
Your supplier might show you nice samples, and pretend that they come from a past production of that factory. Do not think that’s what you will receive.
Even if that’s true, who knows if they were the nicest pieces out of a batch that counted 90% defectives? Don’t forget, most assembly & finishing operations are done by hand in low-labor-cost countries.
2. After you have paid, you have no more leverage with your supplier
What will a supplier tell you if you complain about their product quality/performance, after the order was shipped and paid in full? They will probably promise to give you a discount on your next orders. But do you really want to give them more orders?
If you want to avoid bad surprises, you should check product quality (and probably also the production status) in the factory, before shipment.
The details depend on your mode of payment:
- If you pay by bank wire, make sure you confirm quality before you transfer the remainder.
- If you pay by letter of credit, don’t forget to include a third-party inspection company’s certificate in the list of required documents.
3. It is pointless to start thinking about litigation/arbitration after production
Did you know that a purchase order is not a contract? Actually, it will often protect the seller in a court of law, not the buyer.
Did you know that countries such as China do not apply judgements from American courts? If you need to take legal action against a company that owns assets only in China, you’d better have a contract that is enforceable in that country (and that was properly chopped by that company).
If you need a contract, go and see a specialized lawyer and ask for an enforceable OEM agreement. Before you wire your deposit/open your letter of credit, not after.
4. Qualifying a supplier is necessary, and so is monitoring production
Yesterday, an Australian importer told me she had received unsellable products, and she has not checked quality before shipment “because it was a Gold Supplier”.
As I wrote before, suppliers pay to get a “gold” status on Alibaba, and it means nothing for the importer. The sad truth is that nobody certifies the past performance history of a supplier in China or Vietnam or India. It is entirely up to each buyer to pay for his due diligence… or to take huge risks.
The solution is simple, but it takes the importer money and/or time:
- Asking for customer references, paying for background checks, and auditing factories is the solution for qualifying a supplier.
- Being present in the factory or sending third-party inspectors is the solution for monitoring production.
Does it make sense?