China Sourcing Scams: How do I get my money back?

Importers and experienced sourcing agents say there is no recourse for importers who lose money through scams with Chinese suppliers.  Generally speaking this is true, and buyers should always beware. But, according to this article from China Importal, some Chinese lawyers claim that, under certain circumstances, you can get your money back. We also wrote about this topic recently. See – China Sourcing: Embezzlement and Fraud.

There are many situations in which importers could lose money as a result of not getting the goods they ordered. This article discusses some possible recourses for different and specific circumstances.

Bad quality

This, generally speaking, is not considered to be a scam or a fraud. It is an error, a mistake, or a failure of the vendor to perform as expected. It occurs when an importer has paid a supplier, and what the supplier delivered was not the promised or expected quality. For the importer to secure compensation, he or she must thoroughly document what went wrong.

The methods typically include:

-Use a third-party quality inspector to provide a professional and impartial analysis of the defective merchandise.
-Notify the supplier in writing of the details of the issue, including a valuation of the damage.
-Seek an amicable resolution with the supplier and ask them to offer a solution for the bad quality.
-Confronted by evidence, good faith suppliers may admit it is their fault and offer a solution, typically variants of:

-Discount on the goods in question
-Discount on future orders
-Re-doing the order

**Note: They rarely offer reimbursement, partially because the reimbursement is nearly always more than what the buyer paid for the goods (i.e., There are additional direct costs, such as freight and inspection fees.)

If the importer cannot reach a resolution with the supplier, they can consult a local lawyer. The lawyer would likely begin by issuing a demand letter, and then begin litigation based on breach of contract.

Fraud

Fraud occurs when an importer wires money to a supplier, and the supplier either delivers fake, cheap goods (i.e., To collect on the bill of lading) or disappears completely. In this case, the importer should work with local police – from the county or district. The police would then work to find the supplier.

This process also requires the importer to thoroughly prepare, this typically includes:

-Provide all documentation
-Describe the events and provide evidence of wrongdoing
-Find reliable local legal counsel

Once the supplier is found,* and they are confronted by the police they will likely vigorously defend themselves and, maybe, negotiate. Importers should prepare well for these negotiations and have documents readily available to defend their case.

*Note: This option assumes the supplier can be found. This is not always the case.  

In conclusion, lawyers will tell you that there are solutions.  And, indeed, in some cases there are.  But because it is so costly, in terms of executive time and in legal fees, and because the outcome is so uncertain, most importers will not seek legal recourse unless the transaction is large, typically in excess of $100,000.

And, to add insult to injury, even if you do get your money back, you still lose: you did not have the goods to sell – and make a profit (you can never claim consequential damages), you wasted a lot of time and grief, and your reputation with your customers may have suffered.

So buyer beware.  The real solution is prevention.

-Do your homework and carefully pre-qualify suppliers. Websites such as China Checkup can help verify China Sourcing companies.
-Make sure your quality requirements are super clear and confirmed by the vendor.
-Make sure the quality has been properly verified BEFORE the goods leave China.

Having feet on the ground may make all the difference to help prevent these issues before they start. What methods and procedures do you use to mitigate these types of risks?

By Jocelyn Trigueros

Editor’s Note: This blog was originally published in September 2019.