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Buying from a supplier online—€”What to watch out for

by David Dayton

With the information coming out about the resignation of the CEO and COO of Alibaba, the online sourcing world should have just become a little better informed. Sourcing online, while more convenient than physical factory visits, is easily as risky—€”if not more—€”as meeting suppliers face to face at a traditional trade show.

But we are all still going to be looking online for new suppliers. So what can you do to protect yourself if you cannot fly over to China to investigate every potential supplier that you come in contact with? A bare-bones online sourcing experience should look something like this:

  1. Search only for suppliers that have been verified by a third party outside of the website that hosts their information.
  2. Pay for background information and document confirmation for any potential supplier before you make any commitments or pay any deposits.
  3. In contracts with your supplier, include mandatory 3PQC visits during production and before the balance of payment is made at the completion of the project.
  4. Have a third-party inspection company test your products to confirm quality and components.
  5. Confirm and verify container loading information to see that what you have ordered, tested and checked is indeed what you are being shipped.

All of this might sound like a lot of time and money to be spending on orders that "can just be ordered" online—€”and you would be right. It is a lot of time and money, but it is less money than losing a 30 deposit deposit or more. And it is less time than finding a completely new supplier and starting all over again. So how do you know if you should really be paying for all of these additional services? Here are some clues that your potential supplier may not be on the up and up.

  1. They will not provide copies of licenses or documentation upon request.
  2. They do not want you to come to their factory.
  3. They ask for cash and provide no guarantee.
  4. They are not easily and consistently available to talk with or meet outside of the online forum where you found them—can they meet you in person in HK or your home country?
  5. They will not/cannot provide you with references or past client referrals.
  6. They provide an oddly large range of either products or services.
  7. They will not allow 3PQC.

If your supplier is not satisfactorily answering any of these questions you need to get either a new supplier or others involved in the process to help protect your investment. Here is how to do it right.

First, use only trusted B2B sites—sites with real third-party verification. One of the problems with sites that offer their "own" verification is that there is a serious incentive for "verification" to become just a step in the registration process, as it was with Alibaba. I have had sales reps from Alibaba in our China office and they told me personally that if I wanted to look like a factory online or if I wanted Gold Supplier status all I had to do was pay for it. It has nothing to do with sales history or even if you have any manufacturing capability at all.

Global Sources, on the other hand, uses the services of First Advantage (formerly Verifyscreening.com) to confirm the accuracy of information provided by suppliers. In addition to basic factory information, Global Sources visits factories on their "verified" list at least twice a year—€”confirming both physical location and that paperwork and facilities match up.

Second, regardless of what site you are using to find suppliers, you should be doing some serious background research before you ever sign a contract or pay any deposit. Typically, you are going to be paying a few points for verification, capacity audits and QC—THIS IS NOT JUST SOMETHING NICE TO DO, IT IS THE BARE MINIMUM to ensure the security of your financial transaction and the quality of your product.

You can buy a background check for a supplier or individual, you can verify tax history, legal history, corporate registration, owners and board members and other vital information about potential suppliers quite easily and for only few hundred US dollars or less, depending on how much you want to know.

There are many professional companies that can get you everything from personal background checks to specific technical audits to QC visits to product testing—€”there really should never be a question about your supplier or your product. Companies that can help you with these services include:

  • Global Sources—€”Verified suppliers
  • glo-bis.com—Individual background and corporate information
  • Bureau Veritas—”Testing services
  • STR—Testing services
  • China Quality Focus—€”QC and audit services
  • CBI Consulting—Investigative services

Third, contractually tie all payments to some sort of third-party verification, QC visit or payment guarantee. Do not pay any money to anyone without a third party backing up the quality of the product and/or securing your payment. This can be done as easily as using Paypal to guarantee your payment. More traditional methods would include withholding final payments until some 3PQ visit(s) has been completed and product has passed inspection.

Another alternative to employing multiple third-party service providers would be to hire a trading company or agent to represent you directly to suppliers in Asia.

You should never be willing to have the same people take your money, verify production quality, confirm production and materials standards, confirm shipping and also set prices and confirm receipt of deposit. You would not do that in the West where legal recourse is actually a legitimate option, so there should be even more reasons not to do it in China.

Use the services that are available to you and be informed about from whom you buy and how you find your suppliers. Let the hard (and expensive) lessons of others be your warning. Due Diligence is a mandatory requirement for any successful sourcing experience.

 


David Dayton is the owner of Silk Road International and currently lives full-time in Shenzhen, China. He speaks English, Thai and Mandarin and has worked in Asia for more than 15 years. You can contact him at This email address is being protected from spambots. You need JavaScript enabled to view it. or at www.silkroadintl.net.

 

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