8 alarming secrets about the true identity of your Chinese suppliers and trading Companies exposed!
8 Proven authentic and guaranteed Ways to verify that your Chinese Suppliers Are Factories, Not Trading Companies that you MUST know to avoid SCAMMERS and save TONS of TIME and MONEY! (#4 will blow your mind!)
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I’ve seen the ins and outs of dealing with Chinese suppliers and Trading Companies, and I have unfortunately been myself fallen victim of some of their trickery.
I wanted to take the time to write this to make sure that you don’t run into the same problems.
Manufacturing in China comes with a ton of benefits, but it poses some risks too. Securing a manufacturer can be difficult. After all, there are several Chinese scammers that pose as manufacturers simply to take your money and run.
Please do not hesitate to contact us by email: cedric@nexusgroupepc.com or by WhatsApp: +86 15221019907 for further inquiry or if you need quality, professional, reliable, and trustworthy international agents in China to assist you with your procurement from China.
How then do you verify that the Chinese Suppliers you’re dealing with are factories and not trading companies or worse scammers?
Chinese Suppliers and Trading Companies are often confused by importers. When dealing with Chinese suppliers surely prefer to work with factories instead of a trading company or middle man because when working with a factory, your prices are lower (giving you more profit to reinvest in your business) and lead times shorter. Besides, you can make product changes, fixes, and develop new models to stay ahead of the competition.
However, the problem is that almost all Chinese suppliers will tell you that they are factories, including Alibaba suppliers, but in reality, they are trading companies, or worse, they are scammers.
If you want to avoid this pitfall and enjoy all that Chinese manufacturing has to offer, here’s what you should do
1. Check the Business License
Request your supplier to send you his business license.
The most important place to look is at the “Business Scope” in Chinese it is written:经营范围. This is the easiest and most direct way that your provider can not fake. if you cannot read Chinese, Find a friend to translate it or look for a freelance translator online such as Elance.
The business scope can tell you very clearly what the company was set up to do. A factories business scope will usually include words such as “manufacturer, producer, or processor” in Chinese it is written: 制造, 生产, 加工. Usually, a trading company will have other descriptions
A sample of Business license
2. Check Supplier’s MOQ
Factories are often willing to manufacture big orders. Why? It takes the same resources like time and energy to make big orders and small orders. If they do small orders, the factory will lose money. So, they have the minimum order requirement (MOQ) Requirements. Therefore, factories often have higher MOQ than that of the trading company.
If you’re dealing with the factory, you will realize that the minimum order requirement is not negotiable. The trading company is, however, willing to accept a negotiation. You can visit Alibaba to have an idea about MOQs.
For example, you need a supplier to supply you with 10,000 sqm floor tiles; you can test the supplier to see if he is willing to sell 300 sqm tiles for a start and tell him you will make a bigger order in the future if the quality is good. If it is a factory, the expected reply is no since its MOQ will not be less than 3,000 sqm.
But a trading company can accept small orders. Therefore, the MOQ is considered as one of the main elements when conducting supplier verification
3. Go through the products’ catalog
A factory usually is specialized in in one type of product or various varieties. So If you find that there are many types of products listed in your supplier’s catalog, then it’s more likely that you are working with a trading company.
For example, a factory specialized in gypsum boards will have only gypsum boards in his catalog but with many varieties, such as fireproof gypsum boards, waterproof gypsum board, moisture-proof gypsum boards etc..
However, some other gypsum board’s suppliers, besides their main products will have PVC wall panels, Floor tiles that they do not produce themselves but these are supplied by other smaller factories.
This company’s PVC wall panels or Floor tiles prices will be higher than other trading company’s prices. So they are a gypsum board factory producer only while others will probably be only trading companies.
4. Check the Value Added Tax (VAT) Invoice
This is probably the best mean to check if your supplier is a trading company or a factory. How? Well, the Chinese government offers a refund for many types of exports to boost manufacturing and export activity, and to be able to enjoy the refunds, you need a 17% VAT invoice. The catch is only factories in China can issue 17% VAT invoice.
You can then request your supplier to issue you a 17% VAT invoice arguing that you want to apply for export drawback. If the supplier refuses or hesitates to reply to you, he is likely to be a trading company or a very small-scale factory or even worse a scammer.
But in the event he does issue the VAT invoice, make sure you ask for a clear picture of the invoice, and then check carefully the company name on it. Make sure the name on the invoice matches the name of the supplier on his business license, if yes, then it must be a factory.
A sample of VAT Invoice
5. Check the Factory Auditing Reports
You can ask the supplier if they have supplied products for big companies like Walmart, and require them to send you the factory auditing report.
If they refuse or hesitate, then they probably are trading companies. If they send you the factory auditing report, you need to check the company name on the report. If it’s the same name as the one on their Business License, they must be a factory.
6. Ask for a Copy of the ISO-9001 Certification
Trading companies generally do not need ISO 9001 Certification. By asking a copy of this document, you must be aware that they are easy to fake. So you should be prepared to verify the validity of the document. However, most companies who have this certification are factories.
It is also worth to point out that some trading companies can have this certification. The good thing is they are only specialized in one product category and they have a strong relationship with their factories. Working with them will be that much different than if you are working with factories, even on price.
7. Check the Supplier’s Location
in China, products are manufactured in unique and specific industrial areas. The reason for this is that those industrial areas have a complete supply chain for all the parts needed to manufacture the product. Producing the same product in any other cities will be more complicated and will incur higher cost.
For example, Foshan in China is the city for home furniture, if your home furniture’s supplier is not located in Foshan, he is likely to be a trading company. Another example is Electronic products. Most electronic products are produced mainly in Guangdong province, especially in Shenzhen.
Because this city has the complete supply chain for all electronic components, such as the PCB, the screens, wires…etc. The factory only needs to design the carcass and packaging, then assemble all the pieces together. Producing electronic products in other cities will be more complicated and more expensive than in Shenzhen or other Guangdong cities, so the factories are not likely to be located elsewhere.
You also need to verify the actual location of a factory using google map or Baidu map, factories are mostly located in specific industrial zones in the outskirt of cities, however, if the supplier address is located in the city center or main street of a big city like Guangzhou, Shanghai or Shenzhen, then it’s most likely a trading company, not a factory.
8. Ask a Technical Question
Ask an appropriate technical question about your product (what are the closest machining limits you can hold? What type of equipment do you use to measure this feature?). If your contact does not reply within a few hours (depending on how you communicate), chances are very high they are not the actual manufacturer.
Characteristics of a supplier that intends to cheat.
Prices Cheaper Than Normal.
The most common. It is possible that you have already compared prices from many suppliers in your sector, and have an average price. If any supplier offers you prices that are below 20% -30% of this average, you suspect.
Deepen the supplier’s research, following the steps we have defined in this article. Value your professionalism and keep in mind some of the key factors that define a good Chinese supplier.
Some suppliers know the procedures followed by importers who have no experience. They take advantage of it for their profit, with pre-established tools and procedures.
CONCLUSION:
There are many ways to verify a Chinese supplier. But there is one that really works very well. This is to visit your supplier directly in China.
If our goal is to start in China with small businesses, or you simply there is no budget to conduct a business trip to China, we highly recommend you to hire a reliable and professional agent in China such as Nexus Group EPC or a 3rd party inspection company
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Thank you very much for your comment, we truly appreciate. Please do not hesitate to contact us by email: cedric@nexusgroupepc.com or by whatsapp: +86 15221019907 for further inquiry or if you need any assistance. Have a nice day :).
Thank you very much for your comment, we truly appreciate it. Please do not hesitate to contact us by email: cedric@nexusgroupepc.com or by whatsapp: +86 15221019907 for further inquiry or if you need any assistance. Have a nice day :).
Hello, we truly appreciate your comment. Please do not hesitate to contact us by email: cedric@nexusgroupepc.com or by WhatsApp: +86 15221019907 for further inquiry or if you need any assistance, we will be more than happy to help and bring you more value. Have a nice day. 🙂
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