Purchasing Terms or agreement for a Chinese manufacturer
I have a supplier in China that I have not ordered from before, but I have a high level of trust in, based upon our relationship developing samples for several products. My first order will be for FOB Shanghai, and I'll have it shipped to the US via Ocean Freight with my shipping agent. For my first purchase with the manufacturer, I plan to pay via wire transfer (30% at purchase, 70% after inspection), but I don't know what basic purchasing terms or agreement if any I should use. Does anyone have any advice on standard practice in this area or even an example of a appropriate document?
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Answers
Mike I have bought many many items from China over the years. Since you have trust with your existing supplier there shouldn't be too many worries. The terms you mention are typical for trading however your interpretation may not be correct. Usually it's 30% deposit upon placing the order and the balance paid when they produce the bill of laden. This means they will produce the goods with 30% down and deliver to the vessel, ie.,FOB. Once the goods have shipped the captain will issue a bill of laden stating the goods are on board. You must pay the 70% and your supplier will issue a release. (Ask for an express release) You mention you are uncertain what terms you should use. Let me say the terms will be what the suppler states not what you would like, however they should be the same or similar to what I have outlined. Normally the supplier will issue a pro-forma invoice stating the terms, you then accept them with your deposit. Having said all this I find after all these years I still must keep my guard up, it is difficult to place 100% trust in the Chinese and expect to be satisfied all the time. I find they will ship your goods, meaning they will not totally rip you off but the goods may not be exactly what is specified in the offer. I do not know what you will need to import into your country but you should require the original invoice, packing slip and the B/L as a minimum.
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Rob, I really appreciate your insight and info. Any advice on how to keep your guard up, with respect to getting production product that is per specifications and the quality of the samples, especially for custom products. Due diligence up front on the company? Tight product specs? Product inspections during and at the completion of manufacturing? What's customary and advisable? I'm trying to strike a good balance between trusting and verifying.
Mike you need to have someone on the ground over there or make the trip yourself. I can forward the contact I have if you like. Another method is to check out the company with the likes of Alibaba, seek those with the Gold Status however, this will only give an indication and is no guarantee of satisfaction. I think they pay more money for this service. If you make the trip yourself be aware of the switch with counterfeit money. You give the cab driver a large bill only to find it is too old and he asks for another. He then keeps your bill and gives you the old (bogus) bill while you give him another good one. Insist the driver deliver you directly to the front door of the hotel and ask the doorman for help if there is any confusion. Like I say you always have to have your guard up. By the way be sure to get the address of the hotel (written in Chinese) when you go out for the day as the cab drivers do not read, speak or understand English. You could find yourself totally lost and unable to communicate.
Rob, thanks a million for passing along your experience! I'll also take you up on your offer to forward your contact. I'll contact you via the website you left on a previous post.