Supplier didn't ship the order and kept our deposit. What to do?

Full Question We had placed an order worth USD 34.000 for Paper Bags with a supplier near Qingdao, China. As per the agreed terms, we paid 20% advance (USD 6,800) and another USD 16,000 when they sent the first shipment. But as it turned out, they forged the documents and shipped lesser quantity than they claimed. They have about USD 22,000 of ours and are now demanding that we pay the balance USD 12,000 before they will finish production.

They had promised to finish production of goods by March 30, but this was not the case when I visited their factory in the first week of April 2015 to check on the goods; instead they demanded that we pay the balance amount.

We fear that there’s no guarantee we will get our goods if we pay the balance. We don’t trust the supplier and would like to recover our money. What would you recommend we do?

Answer Thanks for contacting me. I have a couple of options for you.

1. If you wish to get the order shipped with this supplier, but reduce your risk, you could consider linking the supplier’s performance to your payment. For example, pay the supplier AFTER the goods have been inspected (by a 3rd party) but BEFORE the goods ship out of China. This inspection could take place at the factory if a random inspection is sufficient, or 100% inspection could take place at a 3rd party venue (like my warehouse in China for example) if you wanted a very close inspection. It would also be wise if you had a team representing you on the ground in China to help mediate and explain to the supplier how the above solutions would benefit both parties.
2. If you have already given up on the supplier due to their poor performance, then here are two ideas:
   1. List them on www.SupplierBlackList.com and expose them to the world and help other buyers avoid this bad supplier.
   2. Consider issuing a demand letter from a Chinese lawyer to show them you are serious about getting your money back as they messed up the order and caused you substantial financial loss.