Reliable exporters: find them and meet them

Full Question

We are a UK-based online retailer that frequently works with Chinese suppliers

I have managed to get myself into a sticky situation with what seems to be a fraudulent Chinese supplier based in Shenzhen and was wondering if you could advise me on what direction to go. I will summarize the chain of events

1. Met supplier, “Zhou” on Monday, 8th October

2. Agreed to purchase goods (Micro SD cards), received pro forma from Zhou and paid a substantial amount (over US$10,000) via a direct bank transfer to the company's bank account with HSBC Hong Kong

3. Zhou contacted us on Thursday the 11th to say the funds had been received.

4. Zhou contact us on Friday the 12th saying that there was an issue as the market price had risen and that he would confirm this on Monday.

5. On Monday we requested a full refund citing that at the new market price, the deal is no longer financially viable. He became very shady, stopped responding to messages and generally started ignoring us.

6. After several days of intermittent conversation, with him refusing to return the funds, we contacted a supplier that we have worked quite closely with for some time, who has since helped us contact Zhou.

7. On Tuesday night she went to Zhou's office in Shenzhen with a police friend of hers, stating that she was a colleague of ours based in Hong Kong, requesting that the funds be returned immediately. The police have taken down his personal information.

8. On Wednesday the 17th, Zhou agreed that he would ship the goods as per the pro forma and would supply us with DHL tracking information within 24 hours.

9. I have received no contact from him as of today. Several hours ago we received a text from Zhou saying, No Money, No shipment.

10. It is quite apparent that he is trying to scam us and is looking to buy time through a means of different ways of delaying us.

11. Whilst our other supplier has been very helpful; contacting him, going to his office, getting the police involved and being our point of contact, I feel if we really want to get our money back something else needs to be done.

It's been recommended that I fly out to HK / Shenzhen and deal with the Police directly. I expect things will get done a lot quicker with me on the ground there.

We have kept all the correspondence between ourselves and Zhou.

I realize I have made some poor / naive mistakes here and would massively appreciate any advice as to how to resolve this. (Contacting a Chinese lawyer, Shenzhen police, flying out there myself?) Many thanks in advance.

Answer

Sorry to learn of your nightmare SD card supplier.

I have potential good news for you.

Assuming you have a clear record of payment, AND assuming the bank account name matches contract/PO(Purchase Orders) matches supplier name, AND assuming the seller has assets... then, if I were in your shoes, I would explore two options:

1. Turn over to a China-based collection agency.

2. Engage a local lawyer to issue demand letters in Chinese.

I have used both options in the past and there are pros and cons. The advantage of the lawyer I used is that they would work on a set fee to issue demand letters (hundreds of US dollars) and can litigate in China if the demand letters don't work. Litigation is thousands of US dollars rather than tens of thousands in China for typical cases like the one you describe. So the expenses are capped and you don't have to share the recovered funds with the lawyer. But you still have the pay the lawyer, even if you are unable to recover funds.

The advantage of the collection agency I used is that they are performance based. If their methods don't recover funds, then you need not pay them. The potential disadvantage is that upon success they retain about 30% of the recovered funds as their service fee. As you are dealing with a supplier that owes to the tune of US$10,000, I think you are better off with the collection agency.

A few other points:

1. Consider engaging a sourcing agent to help you find more reliable suppliers.

2. Don't forget that you can have a 3rd party inspection agent visit the supplier before they ship goods and before you make that final payment to confirm the product is legit.

Here are some short videos that explain more, ones in bold are highly relevant to your situation:

Video1: Finding suppliers
Video2: Evaluating suppliers
Video3: Negotiations
Video4: Project management and quality control
Video5: Protecting your intellectual property
Video6: Leveraging Global Sources
Video7: How to find and manage partners for logistics services
Video8: Avoiding Scams
Video9: Returning defective merchandise to China
Video10: Resolving a dispute