How to Return Goods to Your Chinese Factory

Suggestion: Watch the 10 minutes video tutorial before reading this article

You just received a new batch. You did everything right, including clear product spec sheets and a pre-shipment inspection. And still, the supplier manages to mess up your order.

Sometimes, quality issues slip through, and you need to know how to deal with situations that involve returning defective items to your supplier.

In this article, you will learn how the entire process works:

• How to report defective products to your supplier
• Why you should not even ask for a refund
• How to write a ‘product remake action plan’
• How to incentive your supplier to remake or repair the defective items

1. Check your products and report defects immediately

Defective or damaged products must be reported immediately. Preferably within 48 hours of receiving the shipment. The longer you delay, the harder it will be to support a claim that the supplier is responsible.

You don’t need to do a visual check on every single unit, but check at least 10% of the quantity.

If you find any quality issues, that are not in line with the pre-shipment inspection result, you must provide the following:

• List of defects
• List of defective units
• Value of defective units
• Images
• Video

This must be sent by email to the supplier immediately.

Now, keep in mind that I always assume that you have ordered a pre-shipment inspection, and yet discover additional quality issues. An inventory check-up is not a substitute for a quality check.

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2. Identify the cause and suggest solutions

If your shipment is damaged, you should file an insurance claim – not bother your supplier with it. And, if you didn’t’ buy shipping insurance, you will take the loss.

However, if you can show that the issues are caused by the supplier, then you have a case.

As such, you must differentiate between quality issues caused by the supplier, and transportation damages, that will be covered by the insurance.

You should also take an extra step, and suggest a solution for your supplier.

A few examples follow below:

3. Write down an action plan

Now that you have identified the quality issues, you need to decide how the supplier should compensate you. They may or may not comply with your ‘suggestion’, but you must still take the initiative.

Don’t expect them to issue a refund. Most contract manufacturers have very slim profit margins, often lower than 4%.

A full refund could wipe out months of profits. And, in the end, you can’t force them to refund you anyway, so there’s no point in considering that as an option.

So, what’s options do you really have?

Option A: Remake

Remaking the defective units is the only option in many cases. However, the supplier will most likely require that you return the defective units for an assessment. Remaking the goods also takes a few weeks, at a minimum.

Option B: Repair

In some cases, the products can be ‘fixed’. For example, the supplier can replace a component, or remove defects. That said, you must return the goods to the factory, and they’ll need at least a few weeks to repair the units.

Option C: Discount at next order

This is the easy way out for both parties, as there’s no need for returning the goods to the factory. But, you can’t be sure if the supplier will actually honor their promise to deduct the value of the defective units when you place the next order.

4. Give your supplier strong incentives to cooperate

Keep in mind that you have no actual way of ‘forcing’ the supplier to compensate you. Sending angry emails, or stressing the importance of ‘principles’ don’t work when dealing with Asian manufacturers.

They are driven by pragmatism, not principle.

Instead, you need to understand the suppliers motivations, and fears:

a. The supplier may have spent months making product samples for you. They clearly want more than one order. The prospects of receiving future orders, may be enough to incentivize them to remake the goods.

Well, at least as you don’t ask for a refund, or compensation for quality issues that are caused by you, not by them.

b. They don’t want this situation to be made public, or reported to Alibaba.com or Globalsources.com. However, that assumes they have an account at either of these B2B directories.

Keep in mind that you can only report a supplier if you can prove that they caused the quality issues, and refuse to compensate you.

Rather than sending a hundred angry emails, you should try to maintain a positive (yet serious) tone. Be firm, and demand a quick resolution to the situation – but discuss planned future orders and products at the same time.

If you don’t, they might just stop replying your emails, and there’s little you can do about that.

This is international trade, and the customer is not always right. Consumer protection laws don’t apply, and you have no legal right to return products, or get a refund.

This is the risk that comes with working with a developing low cost country.

5. Expect to pay the return shipment cost

Most scenarios require that you return the defective items to the factory, so that they can examine and remake.

Even if the quality issues are caused by the supplier, you should not expect them to pay for the return freight. Factories don’t price in return shipments.

But, you can ask them to pay for the shipment back to your warehouse.

6. How product returns affect import duties and other taxes

Returning products to your Chinese factory also has implications on import duties and taxes.

At this point, you’ve already paid the import duties.

Once you receive the goods, you might be asked to pay them again. That said, you can get a refund on import duties paid for returned goods. Or, even avoid paying them in the first place.

Then there are the China import duties.

When you return the goods to your supplier, they may be asked to pay import duties.

But, sometimes the courier charges the sender, rather than the importer. Recently I dealt with a case involving a return shipment to Shenzhen.

Rather than charging the supplier in Shenzhen, DHL (their air courier) sent the invoice to our customer.

Confirm the following before returning the goods to your supplier:

a. Who will pay China import duties?

b. What is the declared value?

c. Which company / address shall receive the return shipment?

7. Get to work as soon as the supplier receives the returned goods

It should only take around 10 days to deliver the goods to your supplier, including time spent on customs clearance procedures in China.

Once the supplier receives the package, they need to examine the defective items, and confirm how they will remake or repair the products, and present a timetable.

Remaking products is certainly not a top priority for most suppliers, so expect that you’ll need to keep pushing them.