China trade credit

Do you run or plan to start importing from China but do not know whether your Chinese business partner is a legally registered company? This is a common problem when doing business with Chinese companies, especially when you do it through the Internet and use B2B portals like Alibaba.com. The question seems peculiar, but still not enough people ask themselves about it. Surely it would possibly avoid a lot of scams if the importer had access to this apparently trivial information about a supplier from China.

So how can you check if a Chinese company exists? Or how can you know about china trade credit?

It is worth to be sure that the company has a legal registration in China.

Entrepreneurs frequently ask for the company’s references, certificates, or financial statements, and at the beginning, it is good to start by checking if you are dealing with a legally registered company or with a cheater. The problem is that the importer believes that if a company has a website or an account on a B2B website, then certainly it exists and runs a legal business. Unfortunately, scammers frequently create invented names to give themselves credibility. It works. If you see that, on the website or in the e-mail signature, a name with the appendage “Co., Ltd.,” you assume that this Chinese company must be legally registered. This blind assumption can cost your company a lot of money. And unfortunately often you cannot do much about it.

The company was registered but the registration has expired.

Another common case is that the business license has expired. Sometimes it turns out that the company had a business license, but it was not renewed. Sometimes scammers use the license of another company that is no longer registered. You should not only check whether the company has a license but also whether it is valid. If not, then you should really reconsider whether you want to import from China using such a supplier. It is worth adding that the risk of fraud in this case increases drastically.
What can we do to protect our company from untrustworthy supplier?

First of all, ask our business partner to show a copy of the business license. With this document, you can check if it is valid and whether it actually belongs to the right company. Transferring other companies’ licenses does happen. You also must be sure that the document has not been fabricated in a graphics program (for example, in Photoshop). Every legally registered Chinese company has a business license, so do not believe in excuses (the most common are: the license is lost or the license is in a locked drawer and the person who has the keys is on vacation). In addition, for Chinese companies, the business license is their most important document.

Document Legalization: Jurisdictional Issues

Three Key Questions to Ask Before Getting Started on a Legalization Project

Where is the document from?
Where will the document be used? 
What type of document is it?
The answers to these questions can have a significant impact on how to proceed. Below are a few examples of how to approach a legalization project based on whether the originating and destination countries have signed onto the Hague Convention on Abolishing the Requirement of Legalization for Foreign Public Documents.

Example 1:  You need to use documents from Japan (Hague party country) in the U.S. (Hague party country) and in the United Arab Emirates (UAE) (non-Hague party country). What you need:  Japanese apostille for U.S. and Japanese authentication with UAE legalization for UAE.

 Example 2: You need to use documents from China (non-Hague party country) in the U.S. (Hague party country) and in Brazil (non-Hague party country). What you need: Chinese authentication with legalization at U.S. and Brazilian embassy/consulate inChina.

The type of document, in certain circumstances, can be very important. Sometimes documents such as passports, educational or personal documents must be sent to one consular office, while commercial documents must be sent to another. Certain consular offices may refuse to legalize certain document types altogether, but their sister offices may accept them. Different types of documents may also require different procedures (such as Algeria only requiring translations for a Power of Attorney) or different fees (such as a fee of $30 for Good Standings, and a fee of $600 for most other corporate documents at the Embassy of the United Arab Emirates).  And for many Arab countries, commercial invoices require an additional step of certification by the National U.S.-Arab Chamber of Commerce.



Procedures Can Vary Greatly Between Consular Offices for Same Country
Sometimes, the regions covered by different consular offices for a particular country overlap. In these situations, it is usually best to determine if there will be a benefit in working with one office over another. For example, when legalizing a document, some consular offices require only that a document be notarized due to the fact that the notary is registered within a specific territory. Conversely, sometimes it is necessary to have a document notarized, certified by a county clerk, authenticated by a Secretary of State, authenticated by the U.S. Department of State and even certified by a trade group before it can be legalized by the consulate. In some cases, going to one consular office versus another can make a big difference in terms of turnaround time, level of complexity and the cost associated with these projects.



Getting Accurate Information Can Be a Challenge
Most embassies/consulates post their jurisdictional policies and procedures online. The information on these websites, however, is often out of date and inaccurate. In some cases, the websites are not even in English. We have even seen one example of an embassy website containing a scam because it was set up to be editable by the general public, like a “wiki” site, but postings have clearly not been monitored. 

There are also books published on the subject of document legalization/authentication, but due to frequent changes in policies and procedures, these are often outdated, even with annual publishing. (It is not unusual for embassies in Washington, D.C., for example, to change their rules on jurisdictional policy more than once a year.) 

The bottom line is that if you are going to handle any legalization project, answer the three questions listed above and then start digging. Realize that the rules and procedures change all the time so you can’t assume something will be handled the same exact way as in the past. By doing your “homework” or working with a service company that is experienced in document legalization, you can help to minimize or eliminate delays and frustration.

Verify and evaluate suppliers in China!

In an earlier video, we talked about how to narrow down a list of potential suppliers to a select group of highly qualified candidates.

Now go ahead and contact this short list. This starts the RFQ (request for quotation) phase. The feedback from this initial contact should allow you to further narrow down the list to the top 2 or 3 based on pricing and non-price attributes.

The next step is to validate if the suppliers are legit. In my opinion there are two essential types of verification.

Type One is the Factory Audit. This is to verify that the supplier has a quality control system in place and they have the production experience to supply you with the goods they say they can make for you.

Type Two is an Operational Audit or Due Diligence. This is to confirm that the supplier has a good reputation and is financially strong enough to stay in business long enough to complete your order. In other words, they are not likely to disappear with your initial payment.

There are professional service providers available who conduct these types of verification at very reasonable prices. I highly recommend you engage professional support if you don't have the skill set in-house to audit factories in China on your own. Contact me and I would be happy to recommend the 3rd parties I use for verification. But for your reference, here are some other tools you can use on your own or in conjunction with those 3rd parties.

    It doesn't cost you anything to ask for references. If a supplier can't give you a few happy clients to visit with…this is a big red flag.

    Confirm that you have the right to visit the production line and check on your order. If they come up with a bunch of excuses why you can't visit, it either means they don't have the ability to produce your product and are scared that you won't like what you see if you visit or it could be as simple as that they are a trading company and worried you will cut them out of the supply chain once you realize they provide little value. Speaking of trading companies, sometimes, especially if your order is small, it makes sense to use them, but I hate trading companies that say they are the factory when really they are just brokers.

    Ask to see the suppliers Quality Control Manual. If they don't have an ISO compliant, written quality management system…run away. If you want to see what a Product Quality Manual looks like, you can check out china company verification at the link below:http://www.cnbizsearch.com/search/cc/

Having verified that your suppliers are legit, the next step, and our next video, deals with negotiating the price and then moving into production.On that note, as always, I sign off-wishing you successful sourcing in China! And if you found the information in this video useful, consider returning the favor: subscribe to my YouTube channel, hit the "like it" button and post some comments. Or check out my blogs and monthly newsletter. If you have any questions, feel free to reach out via Linkedin, find me at the China Sourcing Academy or visit my company's website.

Practical guide on how to verify chinese company?

Thanks to ecommerce, companies in US are able to sell products/service to China, a country you have not yet visited, you don’t speak the language, you are not aware if the legal systems are similar, you don’t know and don’t have the resource to know if the counterpart Chinese companies are real.

So we face a question: How can I check Chinese company? How to check the legitimacy of your Chinese buyers/partners? Are they a real company.

Some facts:

China don’t have a organization like BBB(Better Business Bureau) in US, where you could check the legitimacy and background of a Chinese company.

Chinese administration of industry and commerce is the governing body that in charge of company registration. However, they don’t have a nationwide website or database system that open to public to inquiry the authentication of Chinese companies.

Sourcing China blog recently published an excellent article, sharing how to verify Chinese company without visiting their premise. Here are some tips on their blog,just for chinese authentication:

1) Do they have company bank account

Only legally incorporated companies can have business bank account. If the Chinese company insist you to pay their personal account only, be cautious.

2) Visit local AIC websites

Even though the national AIC don’t have a nationwide system allow you to check the legitimacy of Chinese company. However, some(not a lot) local AIC do allow you to use their websites to check the legitimacy of Chinese company.

3) Websites and Email

If they don’t have websites, use public email account like 163, sohu, sina, it is negative.

4) Hongkong offshore company

Be cautions doing business with Hongkong company, but operates only in mainland China. They are shell company. Read this article to learn the risk.