Due to the unique advantages of the supply market in China, many foreign companies have been sourcing from Chinese factories. Ever since God created different languages, there has been a possibility of trade disputes between companies from different countries. Therefore, next time before dealing with your Chinese partners, you should carefully consider these two questions: How to trade safely with your Chinese Partners? And how to protect your interests when disputes arise?
Instead of answering the questions aforementioned, take a self-check with the following questions first:
- Are you still trading with Chinese Partners without verifying them?
- Are you still trading with Chinese Partners with one page orders or even proforma invoices?
- Are you still trading with Chinese Partners based on luck?
- Have you ever suffered the following risks when trade with Chinese Companies?
- Delay of production and delivery time
- No shipment or false shipment after payment
- Full payment is required before shipment
- The product is not compliant with the order
- Goods don’t have markings or certificates
- Wrong packaging
- Payment made to the wrong account
When disputes arising out of the performance of relevant orders or proforma invoices, there’s no chance to successfully negotiate and win the dispute with the supplier due to:
- The company isn't legitimately registered
- The company's operations are abnormal
- The company is not a manufacturer but a one-man trading company
- The company is closing, and it wasn’t able to fulfill your order
- The company has been involved in scams or has court cases/financial problems
- The bank account belongs to someone else
A lot of overseas clients which are mainly buyers have complained to me about Chinese factories sending the wrong type of goods, shorting the weight or amount of goods, or just refusing to send the goods even when they have received the deposit in full, claiming that they do not trust the buyer and want the full amount. If you have met the same situation and/or you want to avoid such risks and protect your transactions safety, the following tips will be helpful for you.
- Doing necessary background checks
Doing due diligence is a must before trading with your Chinese Partner. Before you send money over to your supplier, you should always ask for their business license and get a lawyer or even just a Chinese friend to check their company online. If there are existing lawsuits or scams /financial problems, or if the company is brand new, you should think twice before doing business with them.
- A proper Purchase Contract is essential
Another thing that I notice about overseas buyers is that they do not have a proper contract with the Chinese seller. They either have only a 1-page contract, or just a proforma invoice, even only email arrangements. It is a very dangerous practice as you do not have any sort of protection when a legal dispute arises. So, what is a proper Contract under Chinese Law? A proper contract requires essential transaction terms with clear definitions, which will help avoid later misunderstanding and protect you from a legal dispute. For example, unlike Common Law, China does not have a law states that the losing party pays for attorney’s fees. So even when you win the lawsuit, you lose out on attorney's fees. Therefore, a proper purchase contract shall have a clause that says the attorney's fees are paid by the losing party. Secondly, add a contract breach penalty clause as well to cover time and energy lost. An arbitration clause is advised for your consideration, as English can be used in arbitration. Besides, arbitration is also much faster than going to court, as there are no appeals. A proper contract may never come in handy, but it can become useful once, and in this one problematic situation, you will want to have it.
- Online transactions via a reliable third platform
A lot of overseas companies find their supplier on Alibaba, and decide not to use the platform to buy products when offered a discount. The seller or factory will tell you that both of you can avoid hefty taxes and platform fees, and it is a win-win for both parties, but this is usually a trap. If you stick to the platform, they escrow the money and it will not be actually sent over to the seller when you press the dispute button. This at least gives some form of protection to buyers when there is something fishy going on. A third-party platform usually identify qualified supplier for the potential buyers. Thus online transactions through a reliable third platform with qualified supplier may at least avoid fraud.
- Avoid common traps
How to avoid common traps? The best way to avoid trouble down the road would definitely be to come over to China to meet with your supplier before dealing with them, and hiring a lawyer to draft up a bilingual contract that protects your legal interests fully. The most cost-effective choice is to hiring an attorney to do due diligence before you decide to trade with them. Such a cost is really nothing when compared with the time, energy and money wasted on battling it out in court. If you are a middleman procuring goods for companies in your country, you lose your client if you are unable to send them what they want on time, not to mention possible penalties for breach of contract. If you are buying construction or chemical raw material like steel and GPPS, your whole project or production just gets delayed for at least a month because you have to look for another seller to ship over what you want.
