How to verify a Chinese factory before you order: a checklist for Australian buyers

Most problems Australian importers have with Chinese suppliers are not fraud. They are a trading company presenting as a factory, a factory that subcontracts without telling you, or a supplier that is real but too small for the order. All three are avoidable with checks that take a few hours. Here is what we do before a factory visit goes on a client’s schedule.

1. Business licence

Every Chinese company has a business licence (营业执照) with a unified social credit code, an 18-character number. Ask for a copy. Then check it on the National Enterprise Credit Information Publicity System (gsxt.gov.cn), the government register. It shows the registered name, legal representative, registered capital, business scope and whether the company is in good standing.

What to look for:

• The business scope should include manufacturing (生产) of your product category, not only trading or sales (销售, 贸易).
• The registered address should be in an industrial area, not an office tower in a city centre.
• The registered capital should be plausible for a factory; a few hundred thousand RMB is a trading company, tens of millions is a factory with equipment.
• The licence name should match the name on the quote, the bank account and the contract. Mismatches are the single most common warning sign.

2. Export records

A factory that has exported before has a customs registration and usually appears in shipping data. Ask for a recent bill of lading with the buyer details blacked out, or for the names of two export markets they ship to. Trading companies can produce these too, but a factory that cannot produce any has probably not exported directly.

3. The site visit

Nothing replaces walking through the building. On a visit, you or your coordinator look for:

• Production lines running for your product category, not just a showroom.
• Raw materials and work in progress on the floor, not only finished goods.
• Headcount that matches the claimed capacity. A factory claiming 500 workers with 40 cars in the car park and 60 people visible is subcontracting.
• Quality control: an inspection area, test equipment, rejected pieces set aside.
• Certificates on the wall that match the ones they sent you (ISO 9001, BSCI, product-specific test reports).
• Who answers technical questions. If the sales manager has to phone someone for every detail about tooling or materials, the production is elsewhere.

If you cannot go, a third-party inspection company (SGS, Bureau Veritas, Intertek, QIMA and others) will do a factory audit for a few hundred US dollars and send a report with photos.

4. Production evidence for your order

Before you pay the balance, ask for photos and video of your actual goods in production and finished, with the date visible, and a pre-shipment inspection by an independent inspector if the order is large enough to matter. The cost of a pre-shipment inspection is a few hundred dollars; the cost of a container of wrong goods is the container.

5. References

Ask for two overseas customers you can contact. Serious factories have them and will share them. Then actually make the call.

6. Payment terms as a signal

Standard terms are 30 percent deposit, 70 percent against the bill of lading or after inspection. A supplier who insists on 100 percent up front, or on payment to a personal account, or to a company whose name does not match the licence, is either not the factory or not safe to pay. Pay by bank transfer to the company account on the licence, never to a personal Alipay or WeChat.

Australian compliance

Verification is not only about the supplier. Toys, electrical goods, cosmetics, children’s products, furniture and anything with a battery have Australian standards and in some cases mandatory certification. Ask the factory for existing test reports to Australian or equivalent standards, and budget for your own testing on the first order. The ACCC product safety site lists the mandatory standards.

How we do it

For client factory visits we run checks 1 and 2 before the trip, do the site visit with a bilingual coordinator who has worked in manufacturing, and write it up the same day. For orders that follow, we can arrange pre-shipment inspection and receive the goods into our Melbourne warehouse. Talk to us about a supplier you are considering.