Suggestion: Watch the 10 minutes video tutorial before reading this article
Since Alibaba launched it’s Trade Assurance program in 2014, we’ve received countless questions about what it is, and how it can help importers reduce risk.
So, we decided to take a closer look, and uncover what the Trade Assurance is, and how it can protect start ups and small to medium sized businesses, buying from manufacturers in Mainland China. As we did that, we also found out that the Trade Assurance is only as ‘assuring’ as you make it to be.
How the process works
Below follows an overview of the Alibaba Trade Assurance process.
Step 1: Place 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 payment: Credit Card or Telegraphic Transfer
ONLY use the designated account
Trade Assurance protects you in 2 ways:
A. If the goods are not shipped on time (as specified in agreement)
B. If the products are not matching the specifications (as stated in the agreement)
This video from Alibaba shows what the interface looks like:
What is Alibaba’s Trade Assurance Program?
The Alibaba Trade Assurance Program is meant to add an extra layer of security to overseas buyers of goods, primarily, from Chinese suppliers. As such, the Trade Assurance allows the buyer to receive a refund, if any of the following occurs:
- The shipment is delayed, beyond the specified shipping date
- The manufactured items are not compliant with the provided quality requirements
We’ll get back to these later, but let’s stick to the basics for now. 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.
What importers should also notice, is that the Trade Assurance only covers transactions that are first registered through the Alibaba checkout system, following a payment to the bank account specified by Alibaba.
For obvious reasons, Alibaba is not offering any Trade Assurance on payments made to private, or offshore, accounts. That said, the transaction is still not made ‘within’ Alibaba, but, for example, by Telegraphic Transfer.
How can Alibaba’s Trade Assurance Benefit My Business?
The Trade Assurance allows overseas buyers to, with relative ease, 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 a deposit payment, this program is indeed filling a desperately needed gap. Especially for orders not large enough to make a supplier accept a Letter of Credit payment.
Don’t Expect Compensation Without Clearly Defined 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 issue 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 will 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. If you fail to properly specify clear quality requirements, you cannot claim a refund later on.
For obvious reasons, Alibaba will not issue a refund, simply because an item is non-compliant with your imaginary definition of what makes ‘good quality’. Indeed, there’s no universal definition of good quality.
Luckily, 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.”
As such, Alibaba will appoint a Quality Inspection company, to approve, or reject, the order entirely based on industry standards, for example ISO and ASTM standards.
That said, compliance with a standard is not necessarily the same thing as ‘good quality’. Let’s say you’re importing children’s clothing, you may want to include the following quality specifications:
- 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, no matter how small, 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 batch – entirely 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 (e.g. CE marking).
Thus, the Trade Assurance is a tool, but certainly not a guarantee for a ‘successful delivery’.
What at first may seem like a simple transaction, now require that you confirm the following, way before you even think about placing an order:
- How shall we define product specifications for our product/s?
- Is the supplier able to comply with these product specifications, and how can this be verified??
- Which product standards and regulations apply to my product/s, in our target market/s?
- 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 Compensation
As previously mentioned, Alibaba appoints a quality inspection company to verify that the products are manufactured in compliance with 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 will first review the contract, and then compare it to the quality inspection report, to determine if the supplier failed to comply.
Assuming they did fail, Alibaba may now refund the payment – or, if the payment exceeds the limit, refund the amount covered by the Trade Assurance, set for the specific supplier.
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.
Other Articles About Alibaba.com
- Sourcing & Vetting Suppliers on Alibaba Using Available Data
- Alibaba Suppliers – The 3 Biggest Myths and Misconceptions
- Alibaba Supplier Scams – 3 Common Types & How you Avoid Them
- Alibaba Gold Suppliers: A Beginners Guide
This article is provided only for informational purposes only and neither the author nor any companies and/or service providers mentioned in this text makes 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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