As we have said before, importing from China generates mistrust. On the one hand, we have the understandable concern of fraud. On the other hand, there is the language and cultural barrier, which can pose a communication problem between suppliers and importers.
In this post we are going to focus on the possible frauds that can be committed and that can turn your business dream into a real nightmare when you think about importing products.
Payment fraud
This is one of the biggest concerns an entrepreneur can fear: being cheated out of payment for goods.
In fact, if a businessman has placed a large bet on an order that is a scam, he may be bankrupted.
To illustrate it better, let’s take a possible case. We have placed an order with a supplier and have agreed on an amount to be paid for goods. So far so good.
Now, let’s imagine that after a few weeks the ordered goods do not arrive and we consult the supplier. It informs us that we have not made the payment. How could it happen that we no longer have our money and the supplier has not received it? Very easy, by hacking the contracts hosted in our emails.
Thus, a potential hacker can modify the destinations of transfers, among the most important, the recipient and the headquarters of the provider company. Therefore, it is essential that, at all times, we make sure that the recipient and the city to which the payment is destined is the one we have agreed upon in our digital contract.
Obviously, this fraud can happen when we make payments with companies from any other country. However, it is much easier for us to detect the differences if the location has been modified between European cities, for example, since we have a greater knowledge of the Western world.
The same is not true for Chinese geography and names, which are more difficult for us to understand, and therefore such details can be overlooked. To do this, it is necessary to verify the bank accounts and the legal status of the suppliers beforehand.
We also have to be especially careful with Hong Kong. Many suppliers may invoice through this administrative region to avoid paying certain taxes in China, but in addition, if we have problems with defective material, it is much more difficult to deal with money back. Other countries that should also raise suspicions are Macau and Taiwan.
Increase in commissions
This is another aspect that we discussed in our post on factory auditing. Why is it important to audit at the factory itself? Simply because instead of having entered into a commercial contract with a manufacturer, we could have done so, without realizing it, with a company that acts as an intermediary.
That is to say, we would pay the manufacturer, which is what we really believe we have contracted, plus the intermediary who subcontracts to another manufacturer, being also a risk that the product made does not meet the demand.
This could mean a significant increase between what we pay and what we should be paying, being a very common fraud due to the lack of knowledge of our business contacts in China.
There are other cases that may also be a cause of fraud. For example, the company’s employee asks for an advance and for it to go to his personal account. In the least of problems, this can be a simple commission for your mediation. In the worst case, and if the amount of money is very high, this employee could happen.
Product delivery defects
Another of the most common frauds when importing goods from China is that the merchandise agreed upon is not similar, neither in conditions nor in product.
In view of this, the best thing to do is to have our own agents control the shipment of the goods, as we discuss in this post.
How to avoid fraud?
For all this and to avoid fraud, it is best to formalize commercial agreements with companies that are 100% secure and in which we can place our trust, but it is not easy.
Therefore, the best option is to delegate to a company specialized in exporting and importing to China that offers all the necessary guarantees, that works “on the ground” and that is totally independent when analyzing how safe the Chinese companies to be dealt with are.
Avoiding fraud is a very complicated task, but it is achieved by gathering the right information and paying attention to certain attitudes that should not be considered normal.
For example, we must find out all the information and recognize when it is confusing or not, know the company’s registration or payment conditions -both in quantity and flexibility- that are very abnormal.
In terms of attitude, if, when faced with the proposal to carry out a factory audit, they put up too many obstacles, or even act offended, it is more than enough reason to consider, at the very least, a commercial relationship.