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We are concerned with sending full payment before receiving our products. What ways can we protect ourselves?

Posted: 2014-06-09

Full Question

We are getting close to making decisions on large quantity and large dollar value transactions with several companies in China. We are concerned with protecting ourselves financially when we send full payment before we receive our products. We are concerned about fraud as well as quality control of the product. What ways can we protect ourselves?

Answer

Put simply, if buyers take the following three actions, they will avoid 90% of the common problems.

ONE: At the supplier selection phase:
Make sure the supplier is legit. "Legit" meaning that it is a real business (not a scam) and "Legit" meaning the seller has the capabilities to produce the given item you want at the quality and lead time you expect.

Here is a detailed look at how to perform this initial due diligence. The good news is that it is affordable and effective: Essential sourcing skills: Supplier Verification
TWO: When you are negotiating payment details, make sure the name on the bank account matches the name on the contract. And that the name on the contract is the "legit" supplier confirmed in step one. The following blog posts explain why this step is so critical:
A small buyer placing orders with Chinese Suppliers: contracts, travel, and other issues
THREE: Link your payments to the supplier's performance. Here are the details:
Payment terms in China
If you don't have time to fly to China for an inspection, engage a 3rd party for a few 100 USD.

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