Qualifying suppliers: Initial supplier due dilligence

There are quite a number of good China suppliers offering new and innovative products or offering their manufacturing services. You'll increase the odds of finding good suppliers by sourcing through reputable channels like trade shows or web sites that physically visit and verify that suppliers are real (like Global Sources verified suppliers). Nevertheless, it is good practice to conduct some due diligence on the supplier, and overseas buyers are sometimes surprised to learn of the many tools available to do this.

If you are pursing a different sourcing strategy, and choose to source western branded products from a China trading company, your risk level goes way up. In almost all cases, you'll be dealing with either unauthorized distributors, or fake products. Buyer beware. More on this later.

To conduct initial due dilligence on a supplier, there are two key steps you'll take. First, you'll want to authenticate that the company is real. Second, you'll validate that the person you're speaking to represents the company. Later steps in the due diligence process include factory audits and product inpsections which won't be covered in this article; although there are other warning signs to watch out for which we will discuss.

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. (ICP sample report )-ICP is a freshly investigated 15-25 page report contains extensive reference, history, recent developments, patents and trademarks, etc. on the Chinese company. The content is verified and references are checked.
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

ii. Check if the company has its own website. If so, go to a site like whois.com and check how long the domain has been owned and when it expires. Fraudsters are more likely to have more recently registered domains with a registration period of only 1 year, in order to have low cost disposable registrations.

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.

3. Other areas to watch for:
a) Supplier offers to sell western branded or 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 many stories of people ordering five iPods and getting three dirty sneakers delivered. Buyer beware.

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.

Search Verified Suppliers on Global Sources Popular Searches:  China Golf Cars, China Helmet, China Lace, China Chess Global Sources - Comprehensive search results and verified suppliers

Readers have left 2 comments.

 1. President
Guest User, Unregistered

I purchased an Elecar roadster from china and the shipping agent sent me a used product with lots of rust.
Who do I complain to to put this agent out of business?
Respectfully,

Robert Casavant - President
Casco Sales & Service
r3cas@yahoo.com
772 214 6136

 Posted 2008-01-09 21:59:41

 2. Managing Director
Louise Kern, Unregistered

VERY useful article, and thanks for listing us here!
Any chance I can get you to link to our exclusive report, the International Company Profile, which we created for our contract with the US Dept. of Commerce as their source for reports on Chinese companies? This is the report people order the most from us to verify Chinese companies.
Right now you show two of the same basic report samples - maybe you could change one to the ICP? The link's on our site, www.glo-bis.com.
Thanks again for listing us!

 Posted 2009-02-24 19:46:42

Add a comment
Name :
Title :
E-mail :
Website :
Comment(s) :	[quote=Guest User]I purchased an Elecar roadster from china and the shipping agent sent me a used product with lots of rust. Who do I complain to to put this agent out of business? Respectfully, Robert Casavant - President Casco Sales & Service r3cas@yahoo.com 772 214 6136[/quote]
Verify :
	There are how many letters in the word SPAM ?

J! Reactions 1.09.04 • Professional Site License
Copyright © 2006 S. A. DeCaro