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Most suppliers you find are authentic, especially those sourced through reputable channels like trade shows, or web sites that physically visit and verify that suppliers are real. However, there is no downside to conducting some level of due diligence, and overseas buyers are sometimes surprised to learn that a range of tools is at their disposal.
If you find yourself in a situation where you need to conduct some due dilligence on a supplier, a number of services are available to help assist the process. At the most preliminary stage, you'll be authenticating that the company is real and then validating that the person you're speaking to represents the company. Additional steps in the due diligence process include factory audits andproduct inpsections which won't be covered in this article.
1. Authenticate the company is real.
a) Purchase a credit check report from a credit check agency. This will confirm the company is a legally registered company.
i. Verify Screening Solutions supports online ordering of credit reports for Hong Kong (about US$90) and China (about US$130) companies.
ii. Total Credit Management Hong Kong supports online ordering of credit reports for China and Hong Kong companies.
iii. EC Trust provides registration information checks and credit appraisals. There is no online ordering, so you’ll have to contact them via e-mail. EC Trust covers only the mainland China market and offers the least expensive reports.
iv. Globis (sample): offers several types of research reports on Chinese Companies (through their business partners), ranging from a US$36 company snapshot without any credit information (sample) which includes business registration information to customized in-depth reports that they will quote a price for.
v. D&B Asia (sample): offers online ordering of more detailed credit check reports on Hong Kong (US$250, sample) and China (US$550) companies from here; it takes 8 days for the reports to be completed.
b) Researching an industry:
i. PIERS provides a subscription database (about US$550 per month for import data) of companies whose products have been imported into the United States Keep in mind that the exporter is often a trading company or Import/Export corporation, not the manufacturer or supplier.
ii. Go Business provides Hong Kong export data.
iii. Goodwill China provides China Export data.
c) Look up the suppliers details in a free online credit database.
i. D&B DUNS number: Find a company search box is currently on the home page at http://www.dnb.com/us/. D&B doesn’t have many Chinese companies in its database yet, so finding a company and confirming its address is good (you can see addresses for free, full reports cost about US$149). If the supplier isn’t listed there, that’s not necessarily a bad sign.
d) Do some research on the Internet, checking yourself.
i. Review the results of a Google search on the following phrases:
1. company name + scam
2. company name + fraud
3. company name + fraudulent
4. e-mail address + scam
5. e-mail address + fraud
6. e-mail address + fraudulent
7. phone number + scam
8. phone number + fraud
9. phone number + fraudulent
10. contact person name + scam
11. contact person name + fraud
12. contact person name + fraudulent
e) Request to schedule a factory visit.
Tell the company you will be traveling and would like to pick up the goods in person (or you have a friend that will pick up the goods in person). If you don’t hear back from them, they are likely fraudulent.
f) Ask for and receive verifiable references.
If a supplier can't provide at least one verifiable reference, you’ll want to exercise more caution.
2. Verify the person you are speaking to represents the company.
a) Independently find a phone number for the company (possibly using one of the above methods) and call that number and ask to speak with your contact.
This helps ensure that the person you are speaking with actually represents the company you are working for. (Note that you should use this practice when someone calls you from your bank or credit card company. Get their name and then call the company’s main line, asking for that person directly. If you find them, great. If not, someone was misrepresenting themselves.
3. Other areas to watch for:
a) Supplier offers to sell trademarked products.
Brand owners control their distribution channels well; if you can’t get their products from a distributor in the United States, it is unlikely you can get them from a distributor in China. In all likelihood the products are either counterfeit or don’t exist. You can always ask the seller if they are an authorized distributor and check with the brand owner in the United States whether the seller is an authorized distributor. There are too many stories of people ordering five iPods, at best, getting three dirty sneakers delivered.
b) Supplier requests payment by Western Union only.
While Western Union provides a great service, it is very difficult to confirm and/or track down the person that received the funds, hence scammers like Western Union. With a bank account, at least you can (in theory) get details on the owner of the account as part of a prosecution. Most experienced suppliers do the majority of their financial transactions by wire transfer; if a supplier only accepts Western Union, they unlikely to be an experienced exporter and more likely to be fraudulent.
c) Supplier requests payment to a bank account that appears different than the company account or company name.
In most cases, this will actually be a legitimate request. The supplier may be operating under a new legal entity; his account may not yet be set up to accept foreign currency, etc. To protect itself, one western company that has been confronted with this issue several times asks the supplier sign and chop a letter saying that they are requesting the funds be sent to another account, and that the supplier will treat payment to that account as payment to themselves. Another Western company says they ask both the business owner and the bank account owner to sign and chop such a letter.
d) Free e-mail addresses.
This one gets mixed feedback. Some buyers don’t like dealing with suppliers that have free e-mail addresses. Others recognize that legitimate suppliers use free e-mail addresses because they have better access to their e-mails. A free e-mail doesn’t, by itself, indicate that a supplier is fraudulent.
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