E174: Avoid Being Scammed When Importing Products from ChinaAugust 23, 2018 in Ecom-Crew-Podcast
If you’re new to importing products from China, wiring money to a supplier you’ve never met face-to-face can be a scary prospect. Well, you can rest easy because the likelihood of you being scammed out of hundreds or thousands of dollars is low.
But, resting easy doesn’t mean you can be totally lax or just partially involved. Scams might be rare in China but they do exist and in today’s episode, we’re going to talk about some of them.
To get you warmed up for the actual podcast, here are the highlights.
- Two of the most well-known scams in China is a phishing scheme where you end up wiring money to a different entity altogether and receiving a low-quality version of the product you ordered.
- Safeguard yourself and your business by getting to know your supplier. If it’s not possible to meet them in person, set up a video chat. By establishing a relationship with your supplier, you’re also building trust. Over time, you will eventually be more comfortable in doing business and reach a point where you can fully rely on each other.
- If you receive an email from your supplier informing you that their bank information has changed, don’t wire the money out immediately. Call the supplier to confirm that the email is legit.
- Communicate your expectations from the get-go. Tell the supplier that you intend to have an inspection for each shipment or order. Let them know what your tolerances are for manufacturing mistakes (e.g. 100 minor, 50 major, 2 defective). Make sure they understand that if they don’t meet these criteria, they won’t get paid in full.
- Another way to avoid receiving defective products is to provide your supplier with an actual sample. That way, they’ll know what materials a product should be made of and what it should actually look like.
- Don’t leave any room for interpretation. The provisions of the contract with your supplier should be clear and both parties should have a good understanding of the conditions within it. It’s also good to have a paper trail of your communications with your supplier so you have something to go back to should problems arise.
Don’t be afraid to assert yourself when the situation calls for it. Being clear about your product and shipping expectations will save you a lot of grief in the end. For a detailed guide of avoiding scams, check out Dave’s blog post that’s linked in the Resources section below.
Other Useful Resources:
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If you have any questions or comments, feel free to leave them below. Happy selling!
Full Audio Transcript
Mike: Hey guys, if you’ve been listening to the podcast for any length of time you know one of my favorite things to talk about is value first marketing. This is where you give your customers or your potential future customers a bunch of value for free, build a relationship with them in hopes that one day they’ll become a customer. And this is the same thing we’re doing at EcomCrew.com/free. It’s a new area we put together with three free mini courses on how to build an Amazon listing, importing from China, and selecting the right products, and a whole bunch of other stuff over here. So go to EcomCrew.com/free to sign up obviously for free for any of those mini courses today, and we’ll see you on the inside.
This is Mike and welcome to episode number 174 of the EcomCrew Podcast today I have my trusty partner in crime back in the house with me Dave Bryant from up in Vancouver, British Columbia. It’s always good to get him up on the show here, just a wealth of knowledge, and just a great guy to be with. This is going to be a prerecorded episode. By the time this comes out, we’ll probably be in Montreal together. We’re heading over to Montreal to get some EcomCrew stuff done behind the scenes.
We rented an Airbnb for a few days. I’m not sure the exact date this is going out, but it’ll be around that time of the trip. And it’s just a reminder that it’s always important to get away when you can for business, for pleasure, whatever it might be. We’re combining both actually with this trip. But getting out of the office and working on EcomCrew. It’s hard to find the time while we’re in the office to really get impactful stuff done. And I have a feeling on the heels of that trip; a lot of really cool stuff will come out of it.
So, any rate let’s get into today’s episode, which is how to not get scammed by China. And the reason we recorded this episode, one of the benefits of running the podcast now for quite a long while and the blog and EcomCrew Premium is we get to interact with a lot of people and we see the same questions popping up over and over again, the same fears popping up over and over again. And one of those is just worried about being scammed by China. And some of this I think, if you’ve had that question yourself, some of this may come as a surprise, because the reality is, I don’t want to give too much away here.
But the reality is, is that the biggest scam that people worry about, which is just someone taking their money, and never and just hiding at that point doesn’t happen that much over in China. But there are other scams to be aware of. So whether you’re just getting started thinking about importing from China, or you’ve been important for a long time, there’s some stuff in here probably for everyone. So you should listen through this episode. And if you even just get one tidbit that helps you, it could save you thousands, tens of thousands or even hundreds of thousands of dollars on potential scams. So without further ado, right on the other side of the intro, we’re going to hop into it with Dave Bryant about China scams.
Dave: This is Dave.
Mike: And this is Mike, and welcome to this edition of the EcomCrew Podcast. Dave, it’s good to have you back on my friend.
Dave: Thanks, Mike. How’s it going?
Mike: Pretty good, pretty good. We’ve been chatting about podcast topics over the last few days, because as we do two per week, we cover a lot of topics and it gets harder and harder to keep on coming up with fresh things. But the easiest thing to do was just to lean on the community questions and things that come in either through EcomCrew Premium or through our support box at [email protected]. And we’ve got quite a few interesting episodes lined up because of this.
And today’s is going to be kind of a combination of how not to get scammed in China and also how to develop good products and keep the quality up I think is probably the two themes here, because it was a couple of different questions that came up. And it seems like I don’t know what it is; this comes up over and over again. But you had written this article and we’ll link to it in the show notes. And I actually had not read the article until you sent it over to me. But I found it to be really interesting.
Right in the very beginning it says here, China is ranked the 127th most difficult country to deal with in terms of starting a business and all that, but it’s the 5th easiest country to where you can enforce contracts. I think that’s contrary to what people’s perception is of china.
Dave: Yeah, absolutely. I think that’s one of the misconceptions that people have, especially when they’re first starting to deal with China is that, oh god, I’m going to send all this money over to China. I’m going to wire it to some company and it’s just going to vanish, and I’m not going to receive any products. And as me and you both for sure know, that’s rarely the case. There’s definitely problems that you’re going to encounter when dealing with China, but having somebody steal your money, that for the most part is something that’s pretty easy to avoid. And I think we’ll kind of talk about some tactics that you can use to make sure that it’s almost a non factor when you’re thinking of dealing with China.
Mike: Yeah. So I mean I would — let’s kind of put things in perspective. Like you said, you’re probably not going to send a wire transfer there and end up in a situation where they send you nothing. But what could happen is they send you a bucket of bolts. You end up with something that’s not exactly what you what you thought you were going to order. So, I don’t know if you call that being scammed or not. But that’s one of the things we’ll talk about is certainly a concern. But yeah, flat out them taking your money, not going to happen. But there is one particular scam and I don’t know if we want to start off with the whole wire changing bank details scams, which are kind of in that realm right now.
Dave: Yeah, that’s definitely the most common one that people are going to encounter so I think it’s a good way to start it off. Well, I guess kind of start with the big scary stuff that could potentially happen. That’s pretty rare to happen but you got to keep your eyes out for it. And then I guess we can progress into the more prevalent problems which occur and that’s basically like you mentioned products arriving not exactly how you expected, either completely different from what you expected or just major quality issues.
Mike: Yeah, so what ends up happening, this wire scam will be a supplier that you’ve done business with before. And what ends up happening when you’ve done business with someone before, you become very comfortable with them and question nothing or less, at least. I mean, if they were to call me and say like, send me a check for $100 or whatever, I wouldn’t even ask them what it’s for because we have a relationship, and I would just do it. And it’s pretty similar with manufacturers, especially when you get in the cadence that we’re in and so much money exchanging hands.
But if you ever get an email from the manufacturer that says, our bank details have changed, this is like a massive red flag. And while it can happen legitimately, and it has happened to us once where like the bank information did change with one of my manufacturers, before you send that money to the new bank, you want to verify in like every possible way that it’s actually still the company. Because what ends up happening and this is crazy, and Dave again, put some awesome examples in this article that we’ll link to in the show notes of an actual email where this happens.
And basically, you’ll get an email saying, hey, thank you for your most recent order. The bank details have changed. Here’s the new information, and that’s a massive red flag. And if you think about your own business dealings, like how many times do you change bank accounts? I’ve had the same bank account since I started business, I don’t know about you Dave.
Dave: Yeah. There are the same way yeah.
Mike: So I mean it’s pretty in frequency. You get one of these emails, it’s probably a scam. And what ends up happening, I mean this is actually pretty darn creative and crazy that happens, but what happens is someone will hank – hank, I’m making up new words Dave, these are…
Dave: You’ve been there for a couple of days.
Mike: I know, I got too much on my mind. Someone will hack the suppliers email accounts and kind of just sit on top of it and wait for the perfect moments. So, they aren’t really doing anything with it until they see unsuspecting customer like us. And then they email them in the middle of the night while the supplier is not looking and say, hey, like the bank details have changed. They don’t even know that the email has been sent because it’s kind of hidden in their sent items and they hope that the money will be sent to the wrong place. And they can get 30, 40, 50, $100,000 whatever it might be depending on how big the order is by doing this. And once you send that money like you’re done, like you’re never getting it back.
Dave: Yeah. And it this is a really sophisticated scam where I almost fell for it about three years ago. The hacker, they’d actually registered, they’d gone through the effort to register a domain that was almost identical to my supplier’s domain. So my supplier’s domain was something like China Boat Products and they’d registered ChinaBoatProduct.com. And unless you had a really keen eye to spot that, it was really easy to overlook. And they had the email chain that I had had my supplier before.
They’d even like address me, hello Dave, how’s it going? It’s good to talk to you again. And it was just very credible by far the most credible email scam I’ve ever come across. And yeah, it’s a very sophisticated thing. When they get into those email, they will like you mentioned, they’ll sit on it for weeks or months waiting for that perfect opportunity. And when it happens, they are scoring big.
Mike: Yeah, and so I think the way to prevent this from you ending up in this trap, I mean, I don’t know about you but we have like direct contact all of our suppliers via like WeChat or WhatsApp, and even a phone number. So I mean we verify this, like I called the person on the phone and then also asked to speak to their supervisor who I also knew and verified that the bank darn details had really changed in our case. But I mean I would go through that level of additional effort to make sure that it’s not part of one of these phishing scams.
The other thing that you can — I think that probably would happen with almost all of these is the beneficiary name and or the country won’t match. And that’s another like big red flag. I mean one thing that’s really great about sending wires to China that helps protect you, and this is actually mostly because of the Communist Party and regime over there. But like the beneficiary, the account holder name has to match like perfectly to the character, like if you have an apostrophe out of place or an s missing off the end of it or an Ltd off the end of it, they’ll reject the wire, like it won’t go through.
So like it’s pretty unlikely that even though the email that you were just saying like China boat product, they probably didn’t go make a company name called China boat product. It was probably something else and that would be another like really big red flag.
Dave: Yeah and when you’re doing this too, nine times out of 10, the why they’re asking you to send the wired not to China, and the majority of the time they’re asking you to send it to Hong Kong. And Hong Kong again, it’s basically a separate country, two systems one country, but for all intents and purposes it’s a different country, and opening a bank account fraudulently in Hong Kong is a lot easier than in China. And for the most part, you won’t be asked to send a wire to China, that’s not legitimately to the actual supplier just for the fact that China has such tight controls of the banking that they can figure out who basically, made or requested that fraudulent wire.
So nine times out of 10 it’s going to go to another country, and the majority of the time Hong Kong. So that’s a big red flag, like if you’re all of a sudden being asked to send your wire to A, not the beneficiary that you’ve been dealing with normally, and B to a non Chinese country, even Hong Kong, that’s big red flags. And like Mike mentioned, reach out to the supplier by phone, by WeChat by email, at least do two types of communication to confirm that this has actually changed.
Mike: Yeah. Okay, so let’s talk about the more common things that happen again, just sending your money off and getting nothing is probably very low on the radar. But what can happen as I mentioned earlier, is sending your money, having something delivered that wasn’t what you expected. Typically, it’ll be similar to the product that you ordered in most cases, but much lower quality. So, if you ordered I don’t know the things that’s on my desk right now are our tactical gloves that are lined with Kevlar and they’re high quality material and everything.
But you can get gloves to show up that are not high quality materials, not line with Kevlar, made with a string instead of Velcro, whatever it might be. Those types of things are more common, but they’re also pretty easy to avoid by doing inspections and making sure that you have someone out there on your behalf looking at the order before it gets sent.
Dave: Yeah, absolutely. And I think the big thing when avoiding these types of problems, and this problem occurs all the time, I’m sure Mike you probably have a dozen stories about quality fade issues and just quality being off from what you expected. I know I definitely do.
Mike: Sure. Yeah, I mean I was going to get into that like what ends up happening over time, but yeah, it definitely happens for sure.
Mike: Yeah, and the thing is that you have to be able to identify what a good product is because if you don’t know what a good product looks like, if you don’t know that these gloves are supposed to be lined with Kevlar and have Velcro straps on them and be put in an nice box, the inspector is not going to know what a good quality product by your definition looks like, because normally these are very subtle differences. So, you have to be able to describe in full detail what a great quality product looks like, what are the materials that it’s consisting of, what types of accessories are with it, this, that, and the other thing of around 10 to 20 bullet points of what this product should look like.
And then you can do a few things. Number one, you can give it to your supplier and say, hey, this is what you need to make these gloves out of; don’t leave it for their interpretation. Second, you can give it to an inspector. And now they can look for these things, make sure those gloves are actually made of Kevlar and not some cheap polyester. And third, now you can actually use this as your checklist to identify when you get a sample or a trial shipment that these products cross off of those things, what you specified.
So, if you don’t know what a quality product looks like, though, your supplier is just going to leave it to their interpretation of what a quality product looks like and they’ll almost always side on the cheaper side of things as opposed to you who is going to have higher quality standards and your inspector will really have a tough time figuring out whether this is a good or a bad product?
Mike: Yep, definitely. So, one of the things you mentioned before is quality fade. That’s kind of an industry term, something I would never would have known otherwise of doing business in China. But what ends up happening — and let me tell a little story first, actually, of why this is because it’s very different than Western culture. I think in Western culture, we value long term relationships. You will make less money on an early piece of business to have long term gain. You want somebody to do a test order and you’d be thinking about the long term, and the relationship you have with somebody is really important. And building these long term relationships is like really important to the health and success of most western businesses.
But in China, like the culture there is very different. Nowadays it’s changing. But this is something; I’ve been over there now like six or seven times and I go to a lot of supplier dinners. And I like to talk about things that are outside of business and just out of curiosity about politics and culture and other things. And one of the things that kind of came up, I was talking about this where it’s just — I kind of had a feeling with some of the suppliers I was dealing with, where they didn’t really care about like the longer term.
And what I was explained is that this is again, it’s a communist culture. The people that are that own these factories for the most part are 45, 50 years old or older, they’re older people from one or two generations ago. And in generations past in China, you couldn’t think long term. It was all about like in the right now because like they could come in any moment and take whatever you have and you have nothing. So, it was all about like survival for today. So, like, everything was kind of that was their mindset.
Now that culture has definitely shifted over the last several decades, and the factories that we work with that have younger owners, one in particular that we have significantly younger than me. He thinks much more like a westerner like he totally cares about like our long term business and wouldn’t try to pull tricks or start to do product or quality fade because that’s not the way it is. But if you think about the right now, it’s always like what can I get away with today.
If I can replace this zipper with a zipper that cost a penny less like literally and they think about it in terms of pennies — that can replace a zipper with let’s say your YKK zipper with a generic zipper and it cost 1, 2, 3 cents less per product, to them that’s a lot of money even though that might only add up to a couple of hundred dollars over the total of an order. And they will continue to kind of chip away and do these things and not be worried about necessarily the repercussions of losing business because most of these factories, the world’s good right now and they’re less worried about that, and they have this constant mindset of this order and the right now.
And you’ve been over to China and you have a Chinese wife as well Dave, have you seen a similar situation yourself or am I completely crazy?
Dave: No, I think you’re definitely right that Chinese companies now are taking a more long term approach and it’s not just kind of one shot wonders that they’re looking for. And yeah they’re definitely taking a more long term approach. I do think though Chinese business culture definitely has a lower standard of quality than we do in the West. And that’s for a number of factors. And it’s not neither good or bad. It’s just their definition of high quality versus Western standards is totally different. We just have a higher expectation here in the West. But thankfully, a lot of Chinese companies do understand quality in the West but not all do it.
They are predominantly producing for Middle Eastern or African countries where, again, the quality standards are a little bit lower. Well, that’s just their mindset. Their definition of a quality product is completely different than it is for us. So, that’s where you just have to no matter how young or on top of their game you think the supplier is, I think just really have to be careful lining out what that quality product is going to look like. I don’t know, I’ve been screwed so many times where I’ve now just leave no room for interpretation.
Mike: Yeah, no, I think that that’s definitely like the big takeaway here. Leave no room for interpretation and never get complacent. So it’s you have everything spelled out, listed in your PO and in your email, your documentation. And we’ve been really lucky with this. I mean, we have had some quality feed issues, but like we’re on top of it with every order and we get everything inspected before, like every single order. We never get complacent where it’s like, oh well, we’ve been working with this factory for five years now, and it’s always been good, so we’re just going to save the $300 per order now on inspection fees.
We just don’t do that we, don’t cut that corner. And I think that’s why we’ve had better luck than most and whenever there is a quality issue, we just don’t let them get away with it. If it fails inspection, we make them fix it. And even if it’s really painful for us because the painful for us part comes in, it might take 2, 3, 4 weeks to fix it and we didn’t plan that into our inventory supply chain. But we make them fix it, we just don’t accept — we don’t pay them the 70% final payment until it passes inspection. And now, one of the things that’s on our purchase orders is we tell them if it doesn’t pass inspection they’re going to pay for the second inspection.
And that’s actually; it’s interesting that’s been a big motivating factor because that $300 to them is a lot of money. So, I think that they’re motivated to make sure it passes inspection the first time because they don’t want have to pay the $309 to get it inspected the second time.
Dave: Yeah absolutely. And that’s probably one thing I’ve learned from you. I think you’re a little bit more cutthroat than I am when it comes to enforcing those inspections and not letting quality or non quality items slip through. And actually, recently, last month, we had a supplier fail in inspection. It’s basically a threading issue. We told them two times prior. No, you have to make sure those no loose threads so you have to cut them all off. Make sure they’re double stitched.
And of course, some third time they did the same thing. And this time we said no, you got to fix this and like you mentioned, Mike, you’re going to pay for the second inspection too. And they weren’t happy. They did it but now I’m sure on the fourth order they’re going to make sure that doesn’t happen again.
Mike: Yeah, yeah, for sure. Yeah, I’ve seen this work really well. This has been kind of like our magic way of handling this although again, it does fail inspection quite often. And one of the things that happens I mean, I think that most of these inspection companies like almost try to fail it, like they’re kind of like looking to do a good job so that you got to be careful.
You don’t want to push back on manufacturers for like trivial crap or like one out of 1000 products has an issue. But at the same time, you got to make sure that you’re protecting your interest. And depending on the type of product and the brand you’re making, I mean for us, we’re in this unique position where all of our stuff, our company’s values and just our business model is to produce super high quality products.
That’s just that’s our thing. I mean, good, bad or indifferent. I’m not saying that if you produce an average product that you sell cheap because like there’s certainly a market for that and you’re happy having a product that’s three and a half stars or four stars because that’s all you can really manufacturer because I mean, everything is a give and take. You want higher quality it’s going to cost more, but then you got to be able to raise your price, maybe your market doesn’t support that etc. So, it’s like a three legged stool, you got to kind of balance everything out a little bit.
But for us, our thing is, we’re high quality, so everything has to be perfect, our customers expect it to be perfect. We rely so much on having a four and a half or five star product is our business model. And we let the manufacturers know that up front. We let them know by pushing back on inspections every time if they want to continue to have business with us or if they want to get paid. We actually had that come up once too. I’ll walk away from the 30% deposit knowing that they’re going to probably fix it, like you have a pretty good negotiating power because they want their final payment. That happened once where we had to kind of play real hardball.
But yeah, I mean I think that you just got to be careful and make sure you get the inspections done before you send that final payment. You should have no surprises when the items arrive to the United States. You’re looking at them for the first time. There should be no surprises at that point for you.
Dave: Yeah. And then I think that’s my personal biggest advantage of an inspection is actually having eyes and ears on the ground and getting given a PDF of 20 pages of photographs of my items, because your supplier can send you photographs. But that’s obviously you’re getting that from the source. I want independent eyes looking at it, taking photographs of what these things actually look like.
Mike: Yeah, another thing I just want to kind of mention real quick as well is you can’t use like hard and fast rules necessarily with some of this stuff. I think that there’s some sliding scale here of your risk tolerance, like what your financial position is, the size of the order, and things like that. So, I mean, if you’re placing $1,000 test order, you probably are going to be a little bit less, have a little bit less scrutiny on doing inspections and some of the things than if it was $100,000, or at least that’s how I operate. If it’s a test order, I’m probably in a mode of I just want to get this done quickly.
If I send $1,000 and I get a crappy product, then I just won’t order it from them or do business moving forward. But if it’s $100,000 order, like we just — one of our new product is like just under $100,000 for a brand new product. And we did a couple of different inspections. We had — first of all, we personally went there and visited the factory when we were there. And I realized that not everyone has that luxury, but had we not been in that position, I would have paid Asia Inspection to go out there and do a factory audit, and report for me first, just to make sure it was a legitimate factory, that I was sending $30,000 to a legitimate place because that was the deposit.
And then we obviously had our inspection before the things shipped. And we inspected — we did a two day inspection on that where we inspected a much larger percentage of stuff than we typically would because again, $100,000 order. So, I think that you got to be thinking about that and be cognizant of that as well, and not stress over some of the smaller details and focus on some of the bigger ones.
Dave: Yeah, you brought up an interesting point, so your first option for an inspection is using a third party inspection company like Asia Inspection. By the way EcomCrew.com/Asiainspection if you want to help EcomCrew out with a little kickback to flip there, but you’ll get an account manager that we use personally me and Mike and as well as our EcomCrew students. But aside from a third party inspection, sometimes the cheapest inspection that you can do is to actually fly over to China yourself, go visit the factory and check out your products, do “factory audit” yourself.
Flights to China now, you can get them a lot of times for under 1,000 bucks and an inspection is going to cost you normally three to $400. So yeah, it’s a little bit more money with the travel costs, obviously you have hotels on top of that and obviously time too. But putting your actual physical body in that factory, communicating face to face with factory managers, workers and sales people, that’s going to be the biggest ROI I think that you can get in terms of avoiding “crappy products.”
Mike: Yeah, and I mean obviously this is not a podcast about relationships in China, but I’ll mention it just real quick anyway. I’ve mentioned it on the podcast before but like there’s a very obvious marked difference of how a factory works with us like pre visiting them in person and post visiting them in person.
Dave: Incredible, isn’t it?
Mike: I mean it really is shocking, I mean it is not the way of the Western world. I mean like it’s kind of like a – it’s just kind of cool to like go hang out with the people you’re doing business with and they’ll treat you like a little better or you have like a little bit of camaraderie and it’s just like kind of cool to have that relationship. I mean it’s almost noveltyish. I look back to our time doing online poker for seven years and that was all Western companies. I mean, it was Canadians and people from the UK and Ireland and even India where it’s kind of in between Western, Eastern, or whatever, but I worked really hard on those relationships.
But after I met with people and we hung out you did various crazy things, I didn’t really notice a marked difference in like how they treated me or how things did work moving forward. But in China, it’s just like it’s obviously different. You go over there and let them get you drunk, and let them take you out to karaoke and things change a lot. I mean I can notice a big difference like the trying to cut corner stuff like kind of goes away, them trying to chip away you at pricing at every angle goes away, the speed of getting things done seems to happen quicker.
I don’t know, I don’t know what it is necessarily about that culture, but it’s definitely worth the investment if you can get on the plane. Between the cost of the tickets and your time, you can be like our buddy [inaudible 00:28:57]. You can go over there for 48 hours and tow back around; he does that a couple of times a year. It’s crazy.
Dave: I know it’s crazy. And if you’re not going to take the trip over to China, at the very least by kind of my hack that I’ll give you, add your supplier — your supplier is probably going to be a sales rep that you’re communicating with, add them to WeChat and do a face to face basically Skype call, but through WeChat. Just do a face to face conversation. Again, it’s just so many things get lost when you’re typing emails back and forth. And especially English is not their first language. So, they’re not getting all your nuances when you’re typing. So, just do a face to face conversation through WeChat at the very least. And man, are you going to save yourself a lot of angst?
Mike: Yeah, no doubt about it, definitely no doubt about it. All right, let’s throw another — we got another four to five minutes left here for the podcast to say another suggestion you want to throw out here?
Dave: Well, I think we’ve talked about what to do if you’ve encountered problems and we can go from the really negative end of the spectrum, what to do if you’ve actually sent money and you haven’t gotten anything, to what to do if you just get some poor quality products.
Mike: Okay perfect, so if you’re in a situation where you’ve sent money and they just disappear, I’m curious what your advice is there but I don’t know what the heck I would even do at that point except go cry somewhere in the corner.
Dave: Yeah, I was going to say go to the supermarket to get a box of Kleenex and then sob for the rest of the day.
Mike: Bottle of wine or a case.
Dave: Yeah, I mean, there’s really no rectifying that issue. If you’ve sent your money to Hong Kong or Nigeria and you’re supposedly dealing with a factory in Beijing, I think your money is gone. There’s not a lot that you can do there. So, that’s where avoiding that type of thing is really critical because there is no recourse afterwards.
Mike: I will say just real quick, we work with two suppliers whose bank accounts are in Hong Kong. So it’s not completely out of the ordinary for that to happen, but we go through a couple of extra hoops to make sure that we’re not sending it to the ether before we do send anything to Hong Kong. And again, if it’s going to China, and the beneficiary name matches perfectly, you’re almost 100% protected there. So, just kind of use that as your caution. And just don’t end up in this trap because if you do send money, once it’s gone, it’s gone.
So, let’s talk about the next thing which you can do about and I already kind of alluded to some of this, but let’s kind of get into some more detail. You have sent money and now you’re at a point where either you’ve done an inspection or the stuff has shown up and it’s not what you were expecting.
Dave: Yeah, so I think at this point, so if you’ve caught the problem before there’s any issues or before it’s actually shipped, there’s issues but it hasn’t shipped yet. At this point, like me and Mike have talked about, you can now ask your supplier to correct it. And don’t be afraid to really push the issue pretty hard. I know it’s for me at least, I sometimes feel really bad. Maybe it’s the Canadian in me but I feel bad asking them to go through all this work of fixing these products. But it’s just they’re used to it and they’ll do it if you push them hard enough. So, be a little bit cutthroat and ask them to fix it before it absolutely leaves that door, because once it does leave that door, yeah they’ll say we’ll help you on the next order but it’s way easier to fix it before it happens.
Mike: I’m actually shocked that we made it to 29 minutes through this so far and that just came up for the first time because that’s like they only know two words of English. It’s next order.
Dave: Yeah, yeah, I mean, it’s completely true but I think sometimes you can use that as adequate recourse. I don’t know, do you want to jump into it right now, the next order.
Mike: Well I mean their reply if something is not right is always to fix it or make it right on the next order. And again, I think it kind of goes back to that story I was telling earlier about how they’re more worried about today than the next order. So, they’re like if we get another order, then we’ll figure this out and put this in our profit margin than to fix this for you. So, it depends on where you’re at in the cycle of this. If you’ve already sent your final payment, you have no leverage, and the best you can probably hope for is to get it right on the next order and that’s fine.
And the thing that’s actually interesting is they almost actually always come through on that, because that’s actually come up a lot more when we were first getting started, and we were a little bit, naive and green behind the ears or whatever. And there were some issues, and lo and behold, they really did help us and help rectify it financially or however they did it on the next order. But like it’s hard once you sent the money to get them to do anything about it at that point, because like…
Dave: They are not sending you a refund check in the mail.
Mike: It’s never going to happen; I think a zero percent chance like literally. So that’s why I think the inspection part is so important. And that’s also why I think that letting them know right up front that we are going to do an inspection, these are our tolerances for — there’s three different like groups of minor, major, and like defective I think is the other the third category. These are like our tolerances out of 10,000 units or whatever, we’re going to allow 1,000 minor or sorry, 100 minor and 50 major and two defective issues or whatever the thresholds are we tell them that, and that we’re going to do an inspection and if it doesn’t pass, like you’re going to have to fix it before it gets sent out the door.
So like it’s going to be better for all of us, if you just get it right the first time. If you have that conversation, they seem to take it for the most part relatively seriously. I say most part because there’s always exceptions. But for us the most part, that’s been our way of taking care of that.
Dave: Yeah, absolutely. And if you’re in that unfortunate situation where you have the products, they’ve landed now at Amazon or your warehouse in America or whatever country you’re in, and you have some crappy products in there, I think you have to ask yourself two things then. First, are the problems fairly minor and do I still want to work with this factory going forward? Or are they so severe that I’m just going to take this loss because this factory I never want to deal with again, because I have zero confidence that they can actually produce good quality products.
If they are a supplier that you think can actually produce relatively good quality products, then ask for some concessions on your next order. I’m actually going through this right now. A supplier forgot to include basically a strap with one of the tents that we import. They totally just forgot to ship the straps. I don’t think it was anything intentional by them, but they forgot to ship them.
So in the next order, we’re asking for a $2,000 discount just through the cost that we had to actually repackage new straps with them, recall inventory from FBA, and just the inconvenience cost too. So even though our costs might have only been 1000 bucks, we’re going to get a $2,000 refund from them on the next order just because there was such a inconvenience along with actual material costs that we incurred too.
Mike: Yeah, and I mean, this is a good lesson learned here because like even experienced people like us end up in these situations. And you probably had an inspection but like, you don’t catch the fact that like a part is missing out of the box because that’s not necessarily what they were looking for. So like, I mean, what would you do moving forward to try to keep that from happening in the future?
Dave: Well, the future now obviously, on that checklist is going to say two straps, not one strap, that will be the main difference obviously whether it’s me or an inspection company or the factory, they’ll know, okay, they’re going to take a sample of 10% or whatever, and check to make sure that there’s two straps, not one strap. In hindsight, I mean yeah, that should have been included in our material checklist to begin with, but it was an oversight and yeah, we’re paying for it.
Mike: Yeah, we’ve had a couple of those oversight type things as well. And yeah, I think you learn with each one, but like you’re inspecting quality but not necessarily inspecting — you’re inspecting quality and also looking for defects, but like you’re not necessarily looking for as like is the package complete, if it has 12 parts and there are multiple parts in the box. It’s not something that the inspector is going to look at by default. That’s something you’d have to tell them to look for. Versus if you just set up an inspection, say go look at this thing and they send you a report, they’re looking for visible signs of defect versus is there something missing from the box?
Dave: Yeah, an inspection company is not going to know that you need to bungee set up on this tent and not just one.
Mike: Right yeah, excellent. Man, we always go over time. But is there any last things or do you want to wrap up this episode?
Dave: No, I think I’ll just conclude it by saying, don’t be too afraid dealing with China if you haven’t yet. It’s not as big and bad, and scary as everybody makes it out to be. It can be a lot more fun than dealing with Western companies actually, a lot of the times.
Mike: Yeah, I have a love hate relationship. I definitely enjoy it. And I think that the hate relationship part is just it’s a long way over there man.
Dave: I was going to say 10 years of marriage does that too.
Mike: Yeah, yeah 12.
Dave: Oh, 12, sorry.
Mike: All right my friend. Well, I appreciate you coming on today. And Until the next episode everyone happy selling, and we’ll talk to you then.
And that’s a wrap folks. I hope you enjoyed the 174th edition of the EcomCrew Podcast inching ever so quickly towards Episode Number 200 which is a cool milestone, looking forward to hitting that later this year. But until the next episode guys, I just want to remind you one quick last time here. If you can leave us a review on iTunes, we’d really appreciate it. I mentioned several times that iTunes really looks at reviews as a way for rankings, and the more reviews we get, the more exposure we get, the more motivated that we are to put out content like this for the EcomCrew Podcast.
And also just again as a reminder, EcomCrew.174 to get to the show notes for this particular episode. And signing off before heading out to Montreal as a prerecording for this episode, I want to thank everyone for their support of the EcomCrew Podcast. And until the next episode happy selling, we’ll talk to you then.
Michael started his first business when he was 18 and is a serial entrepreneur. He got his start in the online world way back in 2004 as an affiliate marketer. From there he grew as an SEO expert and has transitioned into ecommerce, running several sites that bring in a total of 7-figures of revenue each year.