Last night, I got a call from one of our overseas clients. Though he greeted me nicely, I detected something unusual in his voice.
It turns out that he paid 1.5 million to a Chinese company to buy masks. 20 days had passed, the Chinese company kept providing all kinds of tracking numbers from different delivery companies and yet, he didn’t receive any face masks till today.
He explained, this company was introduced by an agent, with whom he has been connected for more than 20 years. The agent told them that the company is a very big state-owned company.
I told him that if he can provide me with the company’s name (in Chinese language), I can check if the company is legally incorporated in China. However, the business card he sent over is only in English, which is not a surprise to me at all.
Finally, I tried to ascertain the Chinese company’s name in a blurry seal on the proforma invoice, which has a long squared shape instead of a round one, which is the regular shape of a company’s seal in China.
And again, not surprising, I can’t find the company in the government’s database, which means that they are not legally incorporated and/or existing in China.
After I notified my client of the result, he remained silent for a while before he finally asked me a question, which I have been asked countless times in the past decade: “Is there a way you can get my money back?”
It’s a pity to say, but still I have to confess, that often a lawyer cannot do much once the money had been paid out.
As we mentioned on other occasions, no matter how lucrative a project seems to be, take your time do your homework, as always. Before you make the payment, ask yourself have you done the following properly?
1. Due diligence
Though the term “due diligence” is self-explanatory, we still want to emphasize its importance.
Please note that no matter how the sellers or brokers introduce themselves on their website or their flyers, you actually know nothing about them. You need to do your homework: ask them to provide you with the copy of their business license or their company name in Chinese, and check it on the government database: National Enterprise Credit Information Publicity System. If you know any Chinese or if you have any Chinese friends, you will find this very helpful. Or you may hire a PRC lawyer to do that. The main purpose of doing it is to make sure you are dealing with a legitimate company instead of a fraudster.
2. License
Even if this company is confirmed to be a legally incorporated company, you still have to make sure that they are authorized to manufacture/sell the PPE. Ask the seller to provide you with the following documents, such as:
- a product qualification certificate;
- a quality inspection report;
- a medical device registration certificate;
- a manufacture license etc.
If they are trade companies or brokers, ask them for the respective POA from the manufacturer to sell the PPE. Don’t worry that your demand would scare them off. Your seriousness will only scare off people who are trying to cheat you, but not any serious businessmen. Once you get these papers, again, check them on the official website: MINISTRY OF COMMERCE OF THE PEOPLE’S REPUBLIC OF CHINA or National Medical Products Administration for confirmation.
3. Destination
For PPE procurement, the most important thing is to make sure it meets the quality standards and other requirements in the destination country or area. Licenses for the sale of pharmaceuticals and medical devices in North America are FDA certifications, while a CE certification is a license to sell them in Europe. Therefore, it needs to be determined in accordance with the specific regulations in the particular country or area (in some countries, both CE and FDA certifications are required). For example, for N95 masks, many hospitals in the United States need the seller to provide an FDA certification, but also an 510K registration, as well as an NIOSH certification to procure N95 masks.
4. Purchase agreement
Once you have gone through the above-mentioned procedures, then it might be the time to consider signing the purchase agreement. You may check our previous post: Tips on Preparing OEM Contract with China Factory for details.
5. QC before shipping
Despite all the above-mentioned efforts, you still have to undertake the quality inspection seriously, as PPE is crucial to people’s life, especially under the current situation. Our suggestion is: instead of doing QC after it arrives at the destination, do it before the shipment. The reason is simple: in international sourcing, all issues are more easily to be solved before you make the payment than after. If possible, do it during the manufacturing process and then once more before shipment. Why? Because the raw material is very important for the function of the PPE, you need to make sure the raw material and the process are up to required standards before the shipment instead of finding out that something went wrong in the last minute.
