What is a Purchase Order and Proforma Invoice?

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purchase order

Importers issue Purchase Orders (PO) as a formal procedure to state their intention to buy certain products, according to the terms specified in the PO. The supplier should then counter by issuing a Proforma Invoice (PI), stating their intention to sell the products to you according to the terms stated in the PI.

While this may sound like an outdated formality, understanding the Purchase Order and Proforma Invoice issuing process can help avoid severe misunderstandings – leading to quality issues, receiving the wrong product, or delays.

Overview

  • What is a Purchase Order?
  • What do I need to include in my Purchase Order?
  • How do I submit the purchase order to the factory?
  • Do I need to submit a Purchase Order before each production run?
  • Why do I need a Proforma Invoice from the factory?
  • What kind of information should the Proforma Invoice include?
  • How do I avoid payment fraud?
  • What is the difference between a Proforma Invoice and a Commercial Invoice?
  • Can I use the Proforma Invoice as proof of importation value?

Sample Documents

In addition, we also provide sample invoice documents:

  • Purchase Order Sample
  • Proforma Invoice Sample
  • Commercial Invoice Sample

Continue reading What is a Purchase Order and Proforma Invoice?

Warranties & Refunds When Buying From China: A Complete Guide

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Product Warranty

Product warranties and refunds are essentially non-existent when importing goods from China, and many other countries. In this guide, we explain why this is the case. We go into detail on why some warranties are not actually warranties, and why your supplier may not be able to provide a refund even if they want to.

Further, we also explain other – and more realistic – ways to get compensation from your supplier. More specifically, this often takes place in terms of repairs, remakes, or spare parts. Continue reading Warranties & Refunds When Buying From China: A Complete Guide

Permits and Licenses When Importing from Asia: A Complete Guide

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Licenses and permits

Importing certain types of products requires that you first obtain a permit or license. Failing to obtain the necessary permits and licenses can be disastrous, as it can result in your cargo being seized by the customs authorities.

Keep reading, and learn what you must know about import permits and licenses in the European Union, United States, Australia, and many other countries.

Continue reading Permits and Licenses When Importing from Asia: A Complete Guide

Do NDAs Work When Importing from China?

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NDA in China

Many Ecommerce business owners are, rightfully, worried about their suppliers duplicating their products. For many, a Non-Disclosure Agreement (NDA) seems to the logical method to prevent suppliers from ever making replicas.

It makes sense in theory. Make your supplier sign an NDA, and you go perpetual exclusive rights for that power bank or handbag you plan to sell on Amazon.

The reality is, as you will learn in this article, very different.

What is the purpose an NDA?

An NDA is a confidentiality agreement that is meant to prevent, for example, manufacturers from disclosing product information. This may include the following:

  • Design drawings
  • Technical drawings
  • Bill of materials
  • Artwork
  • Software

In theory, an NDA prevents a supplier from using your product specifications to manufacture products, or share them with other companies. The NDA also sets penalties, in case the supplier would fail to comply with the terms.

In addition, an NDA can be set to be terminated after a certain time, or when a milestone (i.e., the product is officially launched) has been reached.

When dealing with Chinese manufacturers, however, things are not that straightforward. Continue reading Do NDAs Work When Importing from China?

Exclusivity Agreements with Chinese Suppliers: A Complete Guide

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Exclusivity agreement

An Exclusivity Agreement grants a company with the right to be the only importer and seller of certain products.

The purpose is to prevent other buyers from importing the same product, and compete with the buyer on their home turf. Or, prevent the supplier from doing the same thing.

In this article, I will explain how such contracts work, and why they rarely make sense for most businesses looking to import products from China.

1. Does the Manufacturer even own the product design and IP?

Most suppliers are not actively developing new and unique product designs. Many factories have their own brands these days, mainly for the purpose of selling on Taobao or Tmall.

However, in most cases, such products are relatively generic, and largely based on their customers OEM designs. Most suppliers simply don’t have any Intellectual Property to speak of, and therefore, an Exclusivity agreement is a non-starter.

If you intend to buy a private label product, or create your own OEM product, an exclusivity contract is also irrelevant.

Keep in mind that not any product can be patented or protected. In order to patent or protect a product, the following criteria must be fulfilled:

a. The product design must be new

b. The product design must be unique

c. The product must have a new and unique function Continue reading Exclusivity Agreements with Chinese Suppliers: A Complete Guide

Do Sales Contracts Work When Importing from China?

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Supplier Sales Contract

Most quality issues are the result of misunderstandings. A Sales contract, can prevent those misunderstandings from occurring in the first place.

In my opinion, the sales contract is the most important mechanism of the entire importing and product development process.

But do Chinese suppliers really care about sales contracts – and how do you make them follow the terms?

And, can you draft a contract on your own?

These, and many other, questions, will be answered in this comprehensive guide on sales contracts for startups and other small businesses importing products from China.

1. Make sure to include these terms in your sales contract

TermComment
ManufacturerThe manufacturer name, business license number and address must be defined. This entity is ultimately responsible.
SellerMany suppliers use companies in Hong Kong to receive the payment. This company shall be defined as the seller.
Product SpecificationsList all product specifications and attachments. Don’t leave any product information out of the sales contract. If it’s not in the contract, you cannot demand a remake from the supplier.
Defect listWrite a definition of defective product (i.e., mold or scratches), and an accepted defect rate.
Compliance RequirementsList all applicable product safety standards and regulations, to which the product must be compliant.
PenaltiesDefine penalties that apply if the supplier fail to pass the quality inspection and/or compliance testing.
Product PackagingSpecify the product packaging design, dimensions and materials
Export PackagingSpecify the export packaging type, dimensions and materials (i.e., freight pallets).
Quality Control / Testing TermsWrite the quality inspection and lab testing terms
Payment TermsNormally, the buyer pay a 30% deposit, and ties the remaining 70% to the quality control and lab test result.
Shipping TermsDefine mode of transportation, incoterms and more
Bank Account DetailsList all account details of the seller
Late Delivery ClausePenalties for delayed production

2. Communicate your design and quality requirements to avoid misunderstandings

Continue reading Do Sales Contracts Work When Importing from China?

Do I Need a Registered Company to Import Products?

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company registration

This is one of the most common questions we receive from our customers. Read more, to learn when you should register a company, to import commercial products from abroad.

We also explain why you can start the process, and even contact suppliers, before the incorporating a company.

So, can I import products as an individual for commercial purposes?

Yes, you don’t need to register a company to import products. At least not in most markets.

As such, individuals can import products from abroad, and have the cargo cleared through customs. All taxes, such as import duties and VAT, can also be paid directly by the individual.

In the United States, each citizen (and companies) has a tax ID, which in most cases is sufficient.

In the European Union, all importers – both companies and individuals – must apply for an EORI number. The application can, in most countries, be made online, and is free.

However, while importing products without a registered company is possible, there are many benefits to importing goods as a company – rather than as an individual. Continue reading Do I Need a Registered Company to Import Products?

Importing Brand Name Products from China. Shortcut or Dead End?

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brand name products

Why bother with creating your own brand when you can free ride on one that’s already well established? Many naive importers assumes that importing brand name products from China is a short cut to success. It couldn’t be further away from the truth. In this article we explain why it’s no possible and how an attempt to import branded products can ruin your business.

You’re not going to outsmart Steve Jobs

We receive countless inquiries every weeks from small businesses looking for anything from Apple iPhones and iPads to Sandisk Memory Sticks and brand name apparel. While many of these products are manufactured in China, large corporations like Apple maintains tight grip on their Supply Chain. Continue reading Importing Brand Name Products from China. Shortcut or Dead End?