To Prevent Supplier Fraud: When it's new, Check It Out!

In the cases we are dealing with for our clients from Europe and North America, 80% are trade-related scams. In fact, every few weeks someone sends us email to ask for legal assistance because his/her supplier in China failed to deliver orders or delivered wrong goods by intention or goods of poor quality.

Oftentimes, by only checking the basic information of that supplier, I can tell that it is an shoddy entity, even though it is licensed. Taking one case for example, I saw the picture of factory they put on their called webpage was made to the faked supplier’s company name by Photo Shop.

The problem is, usually our clients choose to believe them as suppliers for business, without making any pre-inspection or the basically due diligence. When scammers claim failure of delivery and ask for more payments for proceeding, foreign buyers are driven into a dilemma.

Here is a case and lawyer’s report of that supplier. You can always take it as reference when considering order to new supplier in China:

Last year, One of my client from Canada got in contact with a chemical company in province Shandong of China, and placed an order with value of 200 thousand dollars. Payment method was 30% in advance by T/T with balance of payment by T/T upon receipt of goods. What really happened was this: the supplier did send all documents including B/L as required by contract to my client after receiving the advance payment (30%), so the client thought that there would be no problem with the deliver, and that he only needed to wait for goods’ arrival. However, goods never arrived and his “supplier” explained that the ship had suffered big loss due to huge storm on the sea, and that for that reason they would need 50% of payment before arranging new shipment. In order to have the goods shipped, my client did make the T/T to them, but after that the so-called supplier was not in touch anymore.

These are some important points to be detected during your communication with new suppliers:

1.       By checking out that chemical company, we found that it is registered since one year ago whit location in an very old building instead of a famous factory as they claimed on their website. (They sure have very beautiful site photos on website, cause by using Photo Shop they can add whichever pictures they want.)

All those companies are not willing to be visited, so they don’t tell out their office address easily, and even on the phone they are on the alert of being probed or inspected.

2.       For chemical industry, may supplier scam cases are found in the province of Shandong, Hebei and Henan. I am not saying that other places are absolutely safe for trading chemical products, but these places are worthy much more attention comparatively. 

3.       Be very careful if the supplier is using different company name on documents or to receive payment.

Lawyer's suggestions:

1.       Insist in using an L/C for full payment if the value of the transaction is significant and the supplier is an unfamiliar one. As alternative in case that the supplier doesn’t accept full payment by L/C, a reasonable down payment in advance by T/T/ with balance by L/C.

2.       You should always make a due diligence before buying from new suppliers. You can either contact a local lawyer to do it with few cost, or at least conduct some searches on the internet. We have met so many fraud victims regretting no having done it. We strongly suggest: check your new suppliers out for safe!