Reasons to sign contracts with Chinese suppliers

Import from China or any other Asian country is a risky and complex process. However, signing a contract may be the antidote to the potential errors and problems that exist when importing from China. This article presents some reasons why sign and seal a contract with your provider can make a big difference in your bottom line.

Reason 1: Clarity regarding product specifications, which can prevent disastrous misunderstandings

Misunderstandings between the supplier and the importer related to materials, design, components, colors and other product specifications, are the most common reasons why quality problems arise when importing from China. I list some of the reasons below:

  • Important product specifications are easily lost in translation by marketers/sales persons when you communicate through email or Skype.
  • It is common for sales agents to confirm orders that the provider does not have the capability to manufacture. For example, the use of certain materials, components, colors, sizes or CE / FCC certification. You probably have contact with a sales agent who, after discussing the prices with you, confirms the order. But, unlike engineers, vendors (in China) often lack a good understanding of the products.
  • If your country and / or market requires that your product meets a standard such as CE or RoHS, you must specify this requirement in advance. If your provider is not aware of this requirement before starting production, then your product will be manufactured without complying with these standards. Never assume that the provider will meet these standards just because you are an American or European buyer.
  • In a sales agreement, all product specifications as colors, materials, components, dimensions, etc. should be listed. They must be specific, to expedite the supplier’s management. You can also add descriptions of graphics, printing logos, color samples and photocopies of samples to make it even clearer. This is the best way to minimize the risk of misunderstanding with your Chinese supplier.

Reason 2: Terms of compensation in case of default make your provider think twice before taking a shortcut

It is common for suppliers in China to make great promises in terms of price and quality of products in order to get your order, but take shortcuts during production using materials and / or cheap and low quality components. The key to avoiding this problem is to make the provider know that they risk losing a lot of money if they try to deceive you. Your contract should include the following:

  • Specify that defects and damage will not be accepted.
  • How a damaged or defective product will be offset (by refund, replacement or repair) and within what term.
  • The provider will not receive payment until the rest of the batch pass quality inspection and product testing.
  • The supplier must refund the deposit if the quality inspection and / or product testing fails.

By adding clear terms of compensation, you are making your provider know that any breach exposes it to great risk. However, this only works if you retain the remaining payment until quality control and product testing have been performed. Never make the full payment of the order before production is done or you will have no power over your provider if there is a dispute.

Your provider should be clear from the beginning that you intend to make an inspection and testing of products before making final payment. Some suppliers will quote higher prices or even withdraw from the negotiation, because they base their prices on products that can not pass the tests or for some other reason do not meet the requirements.

Reason 3: Avoid delays

Your contract should include a clause for “delayed delivery” as XX days after it is activated counting from the day of the initial deposit. A specific amount of money (about 1% of the total order value) will be deducted from the final payment on a daily basis until the order is ready for delivery.

 

Reason 4: Send the message that you take the business seriously

If you are not serious about your business, why should the supplier be? China has been open for business for several decades and many export companies in eastern and southern China are accustomed to signing agreements with new buyers. If you try to give “freedom” to your provider not putting a contract on the table, then you will look like a disorganized buyer, and can expect to be treated as such.

Summary

Why put your bike on lock if the thief can cut it anyway? Because it is more likely that the thief stealing the bicycle prefers someone else who do not want to take so much trouble. A well-written contract can offer the following:

  • Minimizes risk due to misunderstanding.
  • The supplier will think twice before trying to take shortcuts, trick or reduce quality.
  • It is possible to establish a framework for how to handle disputes and compensation.
  • Avoids delays.
  • Makes yourself look like a serious buyer.

Need to get your carefully drafted contract translated into Chinese? Contact us at info@ybdtranslations.com now!


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