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None of these scams are unique to Alibaba.com. On the contrary, Alibaba.com verifies all Gold Suppliers and offers far more supplier data than any other B2B supplier directory.
Alibaba.com is in many aspects the safest way to source products in Asia, as long as you have a risk management process in place.
That said, Alibaba cannot monitor every single email and WeChat conversion between suppliers and buyer’s on its platform. There are rogue employees out there, and hackers breaking into suppliers email accounts.
In this article, I explain how you can avoid 3 different types of scams, and the measures Alibaba has taken in recent years to make their marketplace safer.
Scam 1: Payment Frauds
This type of scam has been on the rise in the last few years. The first time I came across a payment fraud was in late 2011. The principle is simple. The scammer gains access to the supplier’s email account and determines which orders are about to be paid. This is easy as they can monitor email communication and wait for the next purchase order to come in.
Sometimes the perpetrator is also from within the company, often a rogue low-level sales rep looking to cash in big time.
From the supplier sent email box, they download a recently issued Proforma Invoice and make their own versions – with a few tweaks. It looks exactly like the “real” Proforma Invoice – the only slight difference being the bank account details.
Often, this is a bank account located in a different province in Mainland China or in Hong Kong. It’s also increasingly common that these scams originate outside of China.
The supplier doesn’t receive a single dollar and will therefore not ship the products. By the time you realize what happened, the scammer is long gone and almost impossible to track down. If this happens, you can only hope that your insurance got you covered.
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However, it’s easy to avoid this type of scam as they must change both the bank account number and the beneficiary name. As such, you can simply compare the beneficiary name to the company name listed on Alibaba.com. If it differs, then it’s a red flag.
Never pay to a bank account held by a company or individual not matching the company name specified on Alibaba.com.
While quality issues are normally caused by misunderstandings and a genuine lack of attention to detail, some suppliers try to screw their buyer’s over by sending cheaper or defective items instead of what they actually paid for.
This is also more common when dealing with wholesalers and trading companies, compared to manufacturers.
Using cheap and substandard materials
That said, some manufacturers also have their own tricks, which can be more difficult to detect. Instead of making the product according to specification, the factory purchase cheap and substandard materials, hoping that the buyer will not notice. The purpose is to increase their profit margin, while still charging the customer a premium for a higher quality standard.
This is not only a problem from a quality and price perspective but also a product compliance risk.
How to avoid this scam
The only way to ensure that the correct product and quality standard is sent is by first creating a clear product specification that defines the design, materials and (in technical terms) the quality of the product. In addition, make sure that you always book a third party quality inspection before you wire the balance payment.
Further, Alibaba.com strongly encourages buyers to always get their orders quality inspected, a process that’s built into their Trade Assurance program. In addition, you can also book third party quality inspections from their website, even if you’re not using Trade Assurance.
Picture yourself working 10 hours per day, 6 days a week, for less than 600 dollars a month, plus a small commission if you’re lucky.
Wouldn’t you be tempted to divert customer payments to a local, cheaper factory?
I saved this one for last as it’s a combination of the two previous scams.
This is how it works
You email your supplier to tell them that you are ready to place an order. The sales rep on the other end issues the invoice.
However, the payment goes either directly to them, or a completely different factory. The purpose of this scam is to subcontract your orders to a factory that either offers a lower cost, enabling the sales rep to pocket the difference or pays a higher kickback.
Either way, you don’t get what you’re paying for.
How to avoid this scam
First, make sure you only pay a bank account held by the supplier. As mentioned, the bank account beneficiary must match the company name listed on Alibaba.com.
Second, get every single order quality checked before you wire the remaining balance payment.
Alibaba is working hard (and often succeed) to track down fraudulent suppliers
Alibaba.com is a B2B platform allowing Chinese suppliers and international buyers to meet. With millions of listed suppliers (including companies that claim to be a supplier, but are not), it’s impossible for Alibaba.com to monitor them all.
Besides, in many cases, things go wrong, even if the supplier has the best intentions. In fact, the importer is to blame more often than one might think. Many importers assume that if they only tell the supplier to offer products of “the best price and the best quality”, everything will be just fine.
However, there’s no universal definition of “good quality”. I keep saying that in every second article I write, but people still keep making this mistake over and over again.
If you don’t provide your Chinese supplier with clear and well-defined quality requirements, your product is most likely not going to be what you expect. Suppliers are not mind readers, and Alibaba.com cannot be expected to monitor every single email and Skype conversation between a buyer and seller in order to ensure that the products are of ‘good quality’.
What can I do if I fall victim to a supplier scam?
Make sure that you can show that the supplier listed on Alibaba.com, is the perpetrator of the scam. If not, you got nothing on them – and if you don’t, Alibaba can’t act. Assuming that you did your homework and can connect the supplier to the fraud, then you got a case that can be reported to Alibaba.com.
Before you send them anything, you should prepare yourself with the following:
Sales Agreement (if any)
Photos and video showing the defective products
If you can show that the supplier deliberately cheated you, Alibaba can act. It’s in their interest to ensure that buyers are not scammed by suppliers.
However, Alibaba.com is a company and not a government agency. There are limitations to what they can do. If the supplier refuses to cooperate, they can suspend their account. That’s basically how far their power reaches.
In some cases, the threat of being banned from Alibaba is enough to make a supplier compensate a customer. But not always.
Suppliers that are close to bankruptcy are much more likely to scam a customer, and these suppliers couldn’t care less about either their reputation or Alibaba account.
This article is provided only for informational purposes only and neither the author nor any companies and/or service providers mentioned in this text make any representations as to the accuracy, completeness, currentness, suitability, or validity of any information in this article. This article only represents the views of the author and is not endorsed by any company and/or service provider mentioned in this text.
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Co-founder of Asiaimportal (HK) Limited and based in Hong Kong. He has been quoted in and contributed to Bloomberg, SCMP, Alibaba Insights, Globalsources.com, China Chief Executive, Quartz Magazine and more.
Hey there, I’m Fredrik!
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