Do You Have A Contract With Your Chinese Supplier?

Many importers forgo an official contract with their Chinese suppliers - some importers aren't even aware that drawing contracts up is an option! However, entering into a written agreement with your supplier can be beneficial for your business in many ways. Today's blog post is explaining the benefits importers gain through holding their supplier to a contract - and how it can protect your business.

Do you have a contract when you import from China?
We are not lawyers; we are a shipping company. While our ability to get your goods from China to the UK safely, simply and with no nasty hidden costs at the end is unrivalled, our legal abilities are most definitely rivalled. By everyone. By quite literally everyone. Your sassy niece could school us. You could likely defeat us in a court of law.
This post is not about providing you with legal advice; it’s about helping you to realise your options and minimise risk when importing from China.
That being said, this is all information that we’ve gathered from lawyers. While you can learn from it and use it, contact a lawyer that is comfortable working in China. They will have the experience and the in depth knowledge of the Chinese judicial system to effectively help you and enforce your contract.

When importing from China, finding a trustworthy supplier to produce high-quality products is your main concern. Your supplier determines the quality of your products and, as a result, has a large impact on how successful your business is.

The problem is that, often, you won’t know how reliable a supplier is until you use them. You won’t know what quality their final products are produced to. Even if you do manage to find a decent supplier, how can you ensure they stay that way? How do you make sure that your supplier maintains their quality and doesn’t become complacent and give in to the dreaded quality fade?

How can you hold a supplier to a certain standard? What leverage do you have, other than walking out and taking your business elsewhere?

Well, that is where a contract comes into play.

You can create a contract between you and your supplier clearly detailing your expectations and requirements – and, if they do not provide these services, then it’s a breach of contract and you’ll have the ability to take action.

What does a contract protect you from?

A contract protects you from whatever you specify. Whether this is last-minute price changes, unexpected delays for weeks on end or products that are the wrong colour – if you lay your requirements down and your supplier agrees to meet them, you are protected in the case that they don’t.

In some cases, some things that are out of your supplier’s control may change. For example, the cost of labour or materials may increase and then your supplier would be required to raise prices. Likewise, sometimes there may be genuine cause for delays or genuine mistakes made.
When conducting business with China, personal relationships are essential – whereas in the West, we tend to keep business and personal separate, in China they are very closely aligned. This means that having a good relationship with your supplier is essential for ensuring your business’s success. The reason we bring this up is because it’s important to be fair to your suppliers and, in the circumstances that genuine mistakes are made, it’s often not worth damaging your relationship with your supplier.

How to enforce a contract?

That’s the key factor here – is your contract enforceable? Without the document being enforceable, you may as well be writing a letter to Santa, telling him all the things you want for Christmas.

Image result for writing a letter to santa

Dear Santa, I want products that have all their necessary certification; that are fully functional and made of high quality materials . . . Oh, it would also be great if they were made on time. Being well packaged for protection during transit would be a nice touch too – and they have to be the right colour/design. Maybe a guarantee that their price won’t go up and that a certain volume of goods will always be available . . . oh, and I want a unicorn. A pink one. Pic Source: MagicFreebies

To ensure that your contract is enforceable in China, your contract needs to meet the standards for practice of law within China. A brilliant blog post detailing how to make sure your Chinese contract is enforceable is here, but here is the key point:

  • The contract must be governed by Chinese law. Having a contract that is valid in the UK does not mean that it’ll protect you in China. Although Chinese courts do recognize foreign law, it is much harder to win when you’re under foreign law and it will drag the process out a lot more.
  • To this point, there must be a written contract clearly stating and identifying the two parties and their obligations. Unlike in the UK or the US, it is not enough to be able to prove that the two parties are in business together – there must be a written contract.

It’s also incredibly important to make sure that you have a contract with the correct party.

You should contract with a company that has sufficient financial resources when things go south.  This seemingly simple principle is often overlooked because a lot of U.S. buyers contract with third-party sourcing companies unaffiliated with the CM that owns the factory.  When a product defect is uncovered, the U.S. buyer will only have legal recourse against the contract party and not the actual CM.” – 6 Tips for Agreements with Contract Manufacturers in China, CooleyGo

What Should You Include In Your Contract With Your Chinese Supplier?

Knowing that you should protect yourself with a contract is all good and well, but what do you put in it? Well, we’d suggest covering your back from as much as you can.

  • What materials you want used

One of the largest issues with quality you’ll find when importing from China stems from the fact that the materials used to make the products are sub-standard. Suppliers are known to substitute materials if they aren’t specified, or “fill in the blanks” when you don’t directly tell them what you want them to use.

  • The quality you expect

It’s well documented that Chinese suppliers are likely to just . . . cut a few corners here and there. To prevent them from doing this and compromising the integrity of your entire order, make sure that you specify that you want quality of a certain standard.

  • The price you want to pay per item

To avoid the price of your goods wildly fluctuating at you supplier’s whim, you can specify a unit price that you’d like to pay.

If you want to have a fixed price for the next two years, a volume discount or a specific cost reduction plan, or if you want to specify the pricing model based on the BOM or any pricing adjustment mechanism, make sure to include the relevant provisions in the supply agreement or a pricing exhibit.” – 6 Tips for Agreements with Contract Manufacturers in China, CooleyGo

  • Intellectual Property – if you have any

If you’re looking to China to get an original product that you designed manufactured, then this clause is something you will definitely need in your contract. It protects you against your designs being reproduced for other customers or sold to other factories by your supplier. It’s important that you protect yourself from this, as many suppliers will reproduce your designs without your permission – and without paying you any commission. Often, this is a genuine mistake.

Who draws up your contract?

Although there may be certain parts of the contract you want to draw up yourself and there will definitely be clauses that you will want to include that may be specific to you and your business, such as intellectual property, but you may want to consider asking your supplier if they would like to add any clauses into the contract either. This helps the entire transaction to be fairer and allows the supplier’s interests and needs to be heard too.

However, although you may be contributing to the contract, it shouldn’t actually be you that writes it. You should outsource that to someone that can write in Chinese – not translate it using Google Translate. Consult with a lawyer before you finalise anything – and maybe ask for their hand in drawing a contract up too.

Alibaba Trade Assurance Contract

If you use Alibaba’s Trade Assurance, you and your supplier actually enter into a contract. Under this contract, the seller is liable to be held to the Trade Assurance if they do any of the following:

  • Shipping goods out late
  • Producing goods of a low quality
  • Not shipping out products
Seller Obligations Trade Assurance Alibaba Contract

This is a snippet of the contract detailing what the seller’s obligations are and the situations in which buyer’s can make claims and receive compensation/refunds.

We’ve discussed Alibaba’s Trade Assurance before, but essentially it serves the same purpose as a contract – it’s a safety net. Although you don’t control Alibaba’s Trade Assurance contract and you can’t include clauses that you would be able to in your own personally drafted up contract (such as using specific materials), it does provide a good foundation and covers you against most prevalent issues.

In addition to this, when using Alibaba Trade Assurance, you don’t have to worry about making sure that your contract is enforceable in China as Alibaba themselves will enforce your contract for you. This means you don’t have to consult lawyers, pay for the contract to be translated and written up in Chinese or go through courts.

Trade Assurance is a great basic platform – almost a beginner contract, of sorts.

We hope that you found this information helpful. If you’re looking into sourcing from China safely, we have two more posts that you may find useful.


If you do import goods and you want them safely transported from China to the UK in the easiest way possible, feel free to get a quick quote or call us at 0203 384 0498.

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