• Alibaba Trade Assurance Explained: A Complete Guide

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    Planning to pay your supplier via Alibaba Trade Assurance? In this guide, we explain what the Trade Assurance is, and how you can ensure that it works to your benefit. The key to success when using this payment service is understanding its terms and conditions.

    This is covered:

    • What is Alibaba Trade Assurance?
    • How does Alibaba Trade Assurance protect buyers?
    • How do I pay through the Alibaba Trade Assurance platform?
    • Can I trust Alibaba Trade Assurance?
    • Which payment methods are available for Trade Assurance?
    • How much are the Trade Assurance fees?
    • Does Trade Assurance enable me to return products I am satisfied with?
    • Can all Alibaba suppliers offer Trade Assurance payments?

    What is Alibaba Trade Assurance?

    The Alibaba Trade Assurance is a payment and buyer protection service meant to add an extra layer of security when paying suppliers in China. Alibaba acts as a middleman between the buyer and the seller. As such, the buyer transfers the funds upon placing an order to a designated Alibaba bank account with the Singapore City Bank.

    Alibaba then releases the funds once the goods have passed a quality check and been shipped on or before the set deadline.

    However, the money is refunded to the buyer if the following occurs:

    1. The shipment is delayed, beyond the specified shipping date

    2. The manufactured items are not compliant with the provided quality requirements

    In a way, the process has some similarities with how a letter of credits function, but is at the same time very different.

    How does Alibaba Trade Assurance protect buyers?

    There is no ‘refund’ or “chargeback’ mechanism in place when writing money directly to a suppliers bank account. Alibaba is bridging that gap by acting as a middleman between the buyer and seller.

    Alibaba website

    How do I pay through the Alibaba Trade Assurance platform?

    Below follows an overview of the Alibaba Trade Assurance process.

    Step 1: Place your order through Trade Assurance

    Step 2: Use Alibaba Trade Center (Under My Alibaba) to communicate with the supplier

    Step 3: Create Purchase Contract on Alibaba.com

    This contract is only valid for the products. Trade Assurance doesn’t cover any warranties, replacements or other services agreed upon between the Alibaba supplier and the buyer.

    Step 4: Confirm contract

    Step 5: Make the payment: Credit Card or Telegraphic Transfer

    ONLY pay to the designated bank account in Singapore

    Trade Assurance protects you in 2 ways:

    A. If the goods are not shipped on time (as specified in the agreement)

    B. If the products are not matching the specifications (as stated in the agreement)

    Provide clear product specifications and quality requirements

    Clearly, Alibaba cannot offer a refund entirely based on the buyer’s request. What if the buyer is at fault, and not the supplier? After all, Alibaba.com generates revenue through membership fees, paid by companies listed as Gold Suppliers.

    The truth is that very often, quality issues are caused by disorganized buyers, rather than suppliers.

    As you enter the Trade Assurance checkout, you will be required to first specify the shipping date, and confirm if the order shall comply with “the quality requirements agreed in the purchase contract”.

    After the order is confirmed, the supplier should then upload a contract, still on Alibaba.com, which specifies the quality requirements, set for the order. This is also where things get a bit complicated. You cannot claim a refund later on If you fail to properly specify clear quality requirements.

    For obvious reasons, Alibaba cannot issue a refund, simply because an item is non-compliant with your imaginary definition of what makes ‘good quality’.

    Pre-shipment quality inspections

    Alibaba is very clear on how they deal with situations when quality is not detailed in terms of technical specifications:

    “What if the agreed quality requirements are not clear?

    If your agreed quality requirements are not clear and are not quantifiable and actionable, in case of a dispute we will adopt a third-party inspection company’s recommendation of industry standards as a basis for determination.”

    However, it’s up to you as the buyer to book a quality inspection via one of Alibaba’s quality control partners.

    How to define your product specification

    There is no such thing as ‘good quality’. If you ask me, you should not even use the term ‘good quality’ with suppliers, as this can mean different things depending on who you ask. Instead, it’s critical to define product quality in technical terms.

    Example: Children’s Clothing

    • Fabric: Organic cotton, 200 gsm
    • Fabric Color: Pantone 1935 D
    • Design: As specified in design_draft_a.pdf attachment
    • Dimensions: As specified in design_draft_dimensions.pdf
    • Care label: As specified in label_b.pdf attachment
    • Zipper. YKK
    • California Prop 65 Compliant: Yes
    • REACH (EU) Compliant: Yes
    • CPSIA (US) Compliant: Yes

    If you leave a “gap” in your specification, no matter how small or seemingly insignificant, you are exposed to severe quality issues. Alibaba will certainly not act against a supplier if you fail to provide clear specifications.

    Instead, they will request the QC inspector to arbitrarily approve or reject the production run based on ‘general quality standards’.

    These are certainly not covering specific material and component quality requirements. Nor are they covering compliance with applicable substance regulations (e.g. REACH and California Prop 65) and labeling requirements, such as CE marking.

    Checklist

    What at first may seem like a simple transaction, now require that you confirm the following before you even think about placing an order:

    1. How shall we define product specifications for our product/s?

    2. Is the supplier able to comply with these product specifications, and how can this be verified?

    3. Which product standards and regulations apply to my product/s, in our target market/s?

    4. Is the supplier able to ensure compliance, and do they have a verifiable track record of previous compliance?

    It’s only when these questions are answered, that you, and the supplier, can draft the contract, which in turn is used by Alibaba as a reference.

    As long as you manage to clearly define your quality requirements, using established technical terms and definitions, the Trade Assurance is indeed vastly reducing your risks.

    Dispute resolution and refunds

    As mentioned, Alibaba appoints a quality inspection company to verify that the products are manufactured according to the specified quality requirements.

    If the quality inspector rejects the batch, the buyer is notified, and can then file a dispute on Alibaba.com. Counting from this date, the supplier has 15 days to resolve the dispute, or Alibaba will get involved.

    If it goes to the point where Alibaba is forced to interfere, they first review the contract and then compare it to the quality inspection report to determine if the supplier failed to comply.

    Assuming the supplier did fail to match your specifications, Alibaba may now refund the payment.

    Why Alibaba may reject a refund

    That said, Alibaba.com cannot issue a refund in any of the following cases:

    1. You failed to provide clear product specifications

    2. You did not book a quality inspection when placing the order

    3. You discovered quality issues only after the shipment arrived in your country

    It should be clear to anyone that Alibaba cannot offer unconditional refunds simply because the buyer says so.

    Can I trust Alibaba Trade Assurance?

    The Trade Assurance allows overseas buyers to claim a refund from a supplier that either fails to ship on or before the set shipping date or fails to ensure compliance with all specified quality requirements.

    Considering that it’s very hard, even impossible, to successfully claim a refund of deposit payment, this program is indeed filling a much-needed gap.  That said, Alibaba Trade Assurance is not offering insurance, warranty or unconditional refunds.

    Which payment methods are available for Trade Assurance?

    When using the Trade Assurance service, you pay to Alibaba instead of directly to the supplier.

    Here is an overview of the different payment options:

    • Telegraphic transfer to Singapore City Bank
    • Credit card
    • Western Union
    • Alibaba Pay Later
    • Alibaba Online Payment
    • Boleto

    How much are the Trade Assurance fees?

    The Trade Assurance service is free to use. However, the following transaction fees apply depending on the payment method:

    • Credit card: 2.95% of the order value
    • Telegraphic transfer: US$30 – US$50
    • Western Union: US$4.9 – US$45
    • Alibaba Pay Later: Free (US only)

    Does Trade Assurance enable me to return products I am satisfied with?

    No. Trade Assurance disputes can only be filed if the quality control clearly shows that the supplier has failed to match your defined quality requirements. However, the supplier has already received the funds by the time you receive the products.

    By then it’s too late for Alibaba to act. Keep in mind that the Trade Assurance is neither meant as nor meant to be a replacement for proper business insurance.

    Can all Alibaba suppliers offer Trade Assurance payments?

    The Trade Assurance program is only offered to Alibaba Gold Suppliers that meet certain criteria.

    Thus, Trade Assurance is not offered when buying from all suppliers. Currently, the number of suppliers offering this is somewhat limited but almost certain to grow rapidly in the coming months.

    The amount, covered by the Trade Assurance, is also limited, and often ranging between US$10,000 to US$30,000. That said, it is often enough to cover the initial deposit order, which is mostly set at 30% of the total, FOB, order value.

    Before, there was also a minimum transaction amount, set at US$1,000. However, as of 2015, this is no longer the case, as the minimum order amount has been removed.

    Further, the Trade Assurance only covers transactions that are first registered through the Alibaba checkout system, following payment to the bank account specified by Alibaba.

    For obvious reasons, Alibaba is not offering any Trade Assurance on payments made outside of the Trade Assurance system. As such, any transaction to a non-Alibaba held account is not covered.

    Summary

    The Trade Assurance is a great feature, empowering buyers to claim compensation if the supplier has evidently failed to comply with the buyers (clearly stated) requirements.

    This is certain to make Chinese suppliers think twice, before using cheap and substandard materials and components or using other strategies to improve their profit margins, by reducing quality.

    That said, Alibaba cannot act without clearly defined product specifications.

    Certainly, they will not issue a refund, simply because a product batch is not matching a buyer envisions quality requirements.

    Therefore, the Trade Assurance shall be considered a tool, but not a mechanism capable of reducing all risks involved, when importing from China, and other countries in Asia.

    It’s still your job to do the groundwork, and work your way through the product development process, no matter how much time it may take.

    Disclaimer

    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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