Best Practices To Verify China Suppliers

When importing from China, a key risk-management step for importers is to verify their suppliers. This will not only help them pick a supplier who is up to the task of producing or procuring their goods in the quality and quantity that is required, it will also save them the grief of ending up with fraudulent or unscrupulous vendors. Supplier verification should ideally be part of the process of shortlisting a supplier rather than being left till after you have picked one. If you are looking at a list of potential Chinese suppliers, asking yourself these questions can help guide you through the verification process:

• Are these suppliers who they claim to be?

• Are they manufacturers or trading companies?
• Do they have experience and expertise in producing the type of goods I need?
• Do they have the production capacity for my order?
• Can they meet the quality and safety standards I require?
• Are they financially stable?  

• Is their communication satisfactory?  

The right price is a powerful attraction, but it shouldn’t be your only deciding factor when finding a supplier in China. Rather, your focus should be on working with a supplier you can build a long-term relationship with. In this article, we’ll walk you through the process of verifying and shortlisting suppliers in China, based on best practices recommended by industry insiders.

Manufacturer or trading company?

This is an important question, given that many importers prefer manufacturers over trading companies. A trading company buys goods from the original manufacturer and sells them. You might face a situation where your China supplier claims to be a manufacturer when they are in fact a trading company. This can be disastrous if you need high-precision, custom-made goods. How can you tell the two apart? The following steps to verifying and shortlisting suppliers in China will deal with this issue as well.        

Step 1: Does the supplier exist?          

This is the first thing to check as an importer. Here’s the information you should ask a potential China supplier to furnish and why:    

• Supplier/company name, phone and fax numbers, official email address, factory address: You need these details to cross-check with other sources, that we will discuss later in the article. Start by calling the official number and writing to the official email address to check if they exist and if you get a response.        
• Bank account details: Ask the supplier for their bank account number, beneficiary name, and bank location. Now, check if the beneficiary name matches the supplier/company name. Many China suppliers have bank accounts in Hong Kong. This could mean two things – a) the supplier is not the manufacturer, or b) the supplier is the manufacturer but has their account in Hong Kong because its financial transaction rules are easier than those in China. By verifying the supplier’s bank details early on, you can avert payment frauds at a later date.                
• Website/online profiles/social media: In today’s digitised world, a supplier’s web reputation speaks volumes. Check their website to verify contact details, go through their product catalogue, and read customer reviews. Do the same with their social media accounts. Many China suppliers put up profiles on popular business-to-business (B2B) platforms such as Alibaba. You can double check these.              
• Customer reviews/buyer references: Ask your supplier for buyer references, preferably from your own market. While Chinese suppliers tend to be hesitant about furnishing references, willingness to do so is a point in their favour.        

Step 2: Does the supplier have production capacity?

They say the Chinese don’t like to say no. This usually stems from the cultural concept of Miànzi, which means to save face. Driven by Miànzi or by an eagerness to win a business deal, a Chinese supplier might accept an order they are incapable of fulfilling. Hence, it is essential that importers vet the supplier’s production capacity, experience and expertise. Be sure to check the following:              

• Year of establishment: Find out how long the supplier has been in business. You might not want to entrust your order to a supplier who's been in business for barely a year or two.      
• Turnover: This gives you a fair idea of the supplier’s financial stability. After all, you don’t want to partner with a vendor whose business might go belly-up any time.    
• Minimum order quantity (MOQ): Few Chinese suppliers work without an MOQ, which is the minimum number of products they are willing to produce and sell at a time. If you need to buy 10,000 leather shoes, the supplier must have the capacity to produce that number at a time. The MOQ is also a good indicator of whether a supplier is a manufacturer or trading company. Factories usually quote larger MOQs than trading companies. If the supplier is willing to drastically lower their MOQ, they are probably a reseller.

To know more about Chinese suppliers’ and MOQs, click here.

Step 3: Do a document check

Here are the documents you need to check:

1. Business licence: All registered businesses in China have business licences. The business licence carries crucial information about suppliers, including their business scope. This is a description of the supplier’s activities and an indicator of whether they are a manufacturer or reseller. The words ‘production’ and ‘assembly’ indicate a manufacturer while ‘wholesale’ and ‘distribution’ point to a trading company. The business scope also details the products the supplier deals in. Manufacturers tend to have fewer products that are usually of the same category while resellers have a large number of varied products. A business licence comes with a QR code that is linked to a government website where you can double-check the supplier’s details. A point to remember: business licences in China are in the local language, so you’ll need help on this front.  

2. Certificates: A good way of checking supplier credibility is by going through their certificates. A quality management certificate (ISO 9001) means the supplier meets certain statutory and regulatory requirements and has passed an audit for the same. A social compliance certificate indicates a safe and ethical workplace. An environmental certificate shows their processes don’t harm the environment. For both the social compliance and environmental certificates, suppliers must pass professional audits. As a potential buyer, you can have the supplier audited by a third-party agency or request the supplier for a copy of a certificate based on an earlier audit. Some products (IT equipment, auto parts, electric goods) require a mandatory product certificate called a China Compulsory Certification (CCC) mark, which signifies that their products meet national safety standards. Similarly, specific goods (food items, medical devices) imported into the US and European Union from China require Food and Drug Administration (FDA) certification and Conformité Européenne (CE) marking, respectively.  

3. Value-added Tax (VAT) invoice: In order to avail of government rebates on VAT paid on inputs, Chinese suppliers must issue a VAT invoice. The importer can request their supplier for a copy of their VAT invoice, which is proof that the supplier is a legitimate entity.              

4. Product catalogue: Factories in China specialise in one or a few products. Like experience, expertise counts when making high-precision, customised goods. If the supplier’s product catalogue has a wide variety of products with little in common, they are most likely a trading company.

Read our guide to quality control and inspections in China here.

Step 4: Locate and audit

The location of your China supplier can be an eye-opener, considering the country’s system of industrial clusters – cities and regions dedicated to producing only a specific type of product. Let’s say, you want to buy socks. Your supplier should ideally be located in Zhuji in Zhejiang province, famously known as China’s ‘sock capital’. The city is not only the world’s largest sock production base, it also has the best supply chain processes in place to produce and ship your goods. If the supplier’s address is in a faraway region, they are in all likelihood a trading company.

Once you are close to shortlisting a supplier, a physical audit of their factory comes highly recommended. You could take the next flight out to China, or do the next best thing – hire a third-party agency or a China sourcing agent to do the leg work for you, for a fee of course. A physical visit is a foolproof way of verifying a supplier. It tells you if the supplier really exists, if they are a manufacturer or reseller, and if they have the experience, expertise, and equipment to fulfil your order.                    

Also read our guide to avoiding China supplier scams here.

Other useful tips

• Check the Cantonfair exhibitors’ list to see if a potential supplier participates in China’s largest trade fair. Trade fair participation indicates international trade experience    
• Double-check a supplier’s business licence on Alibaba and other B2B platforms, which authenticate the business licences of listed suppliers who have a paid membership. On Alibaba, you’ll find the relevant details under TrustPass
• If a potential supplier is a poor communicator, move on to the next

• Request a sample before you firm up a deal
• Addresses aren’t the most reliable way of verifying suppliers. Many small suppliers tend to work out of rented spaces. They may not update their registered address when they move to another place. Some also have workshops and offices in different localities and cities. Try to do more due diligence before rejecting a supplier because their addresses don’t match.