You’re planning to manufacture a product in China, and a new supplier asks you to pay an initial sample charge. At this stage, you’re focused on ensuring the manufacturer understands your product specifications and quality standards, and the initial sample is an important step in that process.
But if you think of the initial sample only as a means of checking product conformity, you’re missing an opportunity to vet this potential supplier more fully. Indeed, you can use the sample charge as a quick and affordable way to verify the supplier’s identity.
Now, before I continue, I should stress that you must not rely on one method alone to verify a supplier’s identity. For one, you should ask for a copy of the supplier’s business registration and check that the company name and address match the contact information you’ve received from them. The most dubious of would-be suppliers will not reply to your request, which means you can immediately scratch those suppliers from your list of candidates.
Another way to verify the supplier’s physical location is to have your courier pick up the initial sample from their factory. If they send it to you, you’ll have no way of knowing where it came from. But if you ask Fedex or DHL or TNT to pick it up from their building, you can match the collection address to the address on the business registration.
So, after a series of emails, you’ve whittled your initial list down to 2-3 prospects. Depending on your budget, you might ask each manufacturer to produce a sample. Here’s where you use the sample charge to further verify the supplier’s identity.
When invoicing you for the initial sample, a Chinese manufacturer will oftentimes ask you to pay by Western Union or PayPal, because the transaction cost for sending and receiving small sums can be significantly less than a bank transfer. Certainly it makes economic sense to use either of these payment methods, but it’s a wasted opportunity.
Instead, you should insist on paying a new supplier’s initial sample charge by bank transfer. Why? It’s simple: when you wire funds into a bank account, you need the beneficiary’s correct legal name and address.
Chinese banks are generally careful to verify the identity of a person or company when opening a new bank account. PayPal does not verify identity as thoroughly as a Chinese bank, and Western Union payments are generally sent to an individual.
When you pay by either of these two methods, the payment is not doing much to help you verify the supplier’s identity. By contrast, you will know exactly with whom you are dealing when you pay by bank transfer.
This tactic can certainly help weed out fraudsters, but that’s not my primary concern. More interesting is what the name and address of the beneficiary can tell you about the supplier.
You might be surprised to learn that the recipient of your funds is NOT the person or company you have been emailing. I’ve seen all kinds of situations, such as where payments are sent to a parent company, a trading company, or even a manager’s personal bank account.
If a manufacturer claims to have hundreds of employees making products for clients all over the world, yet they ask you to make a payment into someone’s personal bank account, you can be sure they are not who they say they are. At this stage you may wish to scratch them off your list of prospects or send an inspector to perform a factory audit.
Personally I won’t do business with a manufacturer that does not have a company bank account. Period. I don’t care what story the salesperson gives me about how the bank account belongs to the owner’s wife and they are using it to avoid paying taxes. It doesn’t matter, I simply don’t want to deal with them.
Yes, it costs more to wire a sample charge by bank, but the extra cost is well worth it. Once you’ve paid the initial sample charge, by all means use Western Union or PayPal to send funds for a second, third or fourth sample. But always insist on paying an initial sample charge by bank transfer.
It’s a simple point, but you’ll learn a lot from using this tactic. Ultimately it’ll help you weed out less-than-ideal suppliers.