Nothing is to be taken for granted. No piece of information is too small or unimportant to be left out of the contract – be it a logo file, dimensional tolerances or more.
Further, promises and ‘confirmations’ made on Wechat, Skype or by Email are worth nothing. If it’s not in the contract, it never happened.
As such, the sales contract is primarily a communication tool.
The more (relevant) information you add to the contract, the lower the risk of misunderstandings and resulting quality issues.
3. List all product safety standards and regulations
Importing non-compliant products can result in financial ruin. To avoid such issues, you must list all applicable safety standards and other regulations (i.e., REACH or FCC Part 15) in the sales contract.
If it’s left out, you can’t blame your supplier for using non-compliant (i..e, toxic) materials and components.
And, do your research. Don’t just write that ‘the product must comply with all safety standards and regulations” in your country or market.
A few years ago, a customer in the home and furniture business did just that. And, while the supplier did know which fire safety standards to apply – they did not know about the regulations that apply to furniture for commercial usage (i.e., in hospitals and hotels).
The result was a batch of non-compliant bean bags.
4. Submit artwork, logos, datasheets and other file attachment
Even the simplest product might come with a long a list of file attachments. Design drawings, Logos, washing labels, material datasheets, technical standards, artwork – the list goes on.
Fail the quality control or the lab test (or both, and they will not get paid.
Yes, you will have paid the 30% deposit at this stage. And yes, the supplier could perhaps find another buyer for your products. And yes, there’s no way for you to get that money back.
But, the supplier still makes a huge loss, even if they steal your deposit payment (30%) and find another local buyer for the goods.
Local buyers will not pay as much as you (it’s ‘damaged goods’ after all), and the supplier’s profit margin is most likely below 5%.
Hence, the supplier has a very strong incentive to ensure that they get paid by their customers.
As long as you make it clear, that you will not, under any circumstances, pay the remaining balance until the quality control and lab test reports are back – you give the supplier a very strong incentive to comply with the contract terms.
It’s extremely simple, but it works.
Questions & Answers
Should I expect the supplier to present a contract template?
No, your suppliers can provide you with a basic Purchase Order template, at best – with terms that are exclusively to their own benefit.
As such, you must either use a sales contract template, hire a lawyer or draft a contract yourself.
What should I do if the supplier refuse to sign the contract?
Chinese suppliers are hard negotiators, and will do whatever it takes to ensure that they have an advantage. As such, you should expect fierce resistance, when presenting the contract terms to your supplier.
To deflect their attempts to not sign a contract (expect all sorts of reasons), simply refer to company policy or a decision from somebody higher up in the company. Real or imaginary.
In the end, most suppliers in China are find with signing a sales contract, and many will take you a lot more seriously.
They will handle your order with much more care, than those of other novice buyers that they could easily talk into giving up signing a contract.
How do I know that the sales contract is valid?
All pages, including attachments, must be signed by the legal representative and stamped, with the official company stamp.
The legal representative must use their legal name, in Chinese characters, and not a made up ‘English name’. You can use the www.gsxt.gov.cn to confirm the name of the legal representative.
Once signed and stamped, the supplier should send two or three copies of the contract, and all attachments, by post.
Sign each page (no stamp required) and return one copy by post.
What can I do if the supplier breaks the sales contract?
This depends entirely on when this happens. If the supplier violates the contract before you have made the balance payment, you have a strong card at hand.
Failed the compliance test? Remake, or you will not get paid.
But, once the supplier is paid, all bets are off.
China is not a lawless country. In fact, it’s legal system is more developed than most of our readers might assume.
Yet, taking legal action against a company or individual in a foreign country, is always a costly and time consuming enterprise.
Unless you stand to get compensation counted in the hundreds of thousands of dollars, the legal costs themselves will likely exceed what you could get from your supplier.
As such, the contract is instantly rendered a useless piece of paper, once you have settled the balance payment. At least for small businesses buying from China.
If you have the resources to take your supplier to a Chinese court, it’s a completely different story. But most of you reading this, do not have this option.
At best, suppliers will offer a warranty stating that they will offer ‘free replacements’ with your next order – and of course, adjust the unit price (upwards) for your next order accordingly.
As mentioned, the contract is only useful as long as the supplier has an incentive to comply with it. Once the balance payment is made, the supplier no longer has any incentive.
Further, keep in mind that replacements are not priced into the unit price.
I understand that this is a big problem for many importers, that are forced to offer year long warranties, while no support can be expected from their suppliers.
As such, you must tie the balance payment to the result of the quality control and lab testing.
You must also work with your quality inspection partner to figure out how you can simulate long term tear and wear of your products – as many quality issues may not be visible until after several weeks or even months of usage.
We help startups & brands get quality products made in China & Vietnam
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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