I’m catching up here on a good post entitled When Sourcing in China. Cash = Control on the All Roads blog. I wanted to write something about the relationship between payments and quality, but I don’t think I can write it more clearly than this:
For those who are sourcing in China, it really is important to understand that as long as you “owe” your supplier money, you are still in the position of power. You can change an order size more easily, you can demand a 3rd party audit, and if the QC process shows a red flag you can return product much more easily. Because until you are 100% paid up, the supplier at some level will be at a loss, and that is power.
In watching buyers in China for the last 5 years now, where I am often surprised is just how easily that is lost. That the basic understanding of the power of money is lost on some who will structure their deal in such a way that they lose all ability to return items that are not up to spec. That rather than quality control in China, and then have the ability to fix it on site, many will find themselves with a container full of junk that is unreturnable.
So, a couple quick lessons in global sourcing. Make sure your goods are up to spec before they leave the country (because there is little you can do once they hit your dock), and never cash your supplier out until your final audit has been performed….
I have nothing to add… It’s pretty clear. In other words: as long as you owe money to your supplier, that is your supplier’s problem and you are in a position of strength.
Unfortunately it is not that simple for importers who have given many orders to a supplier (and who have to pay deposits for future production, when current production hasn’t been approved for shipment yet). They should try to avoid such situations, but it is not always easy. At least they should be aware of the risks.
My next two posts will be about the most common methods of payment in international trade: