[Ultimate Guide] How to Avoid Alibaba Scammers
One of the biggest fears new importers have is being scammed by a supplier out of hundreds or thousands of dollars. The idea of wiring a bunch of money to some foreign bank account in China to people they've never met or know barely anything about is scary.
The good news is that scams are extremely rare originating in China and can be avoided almost entirely with just a bit of caution. The bad news is that there are still countless people being scammed all the time, often by making careless mistakes. This article will make sure you don't become one of these people as long as you read it over before sending even a dollar overseas.
Scams are Extremely Rare in China (And Here's Why)
Outright scams are incredibly rare in China. You can debate the reasoning for this. Perhaps it's the strong Confucian value system in China or the relatively low overall crime rate. In my opinion, however, it's because of the simple fact starting a business in China is incredibly hard, yet the legal system is surprisingly strong.
China is ranked the #127th most difficult country in the world to start a business in yet it is the #5 easiest to enforce contracts. Someone who has gone through the trouble of starting a company isn't going to risk losing it to steal a few grand from some buyer on Alibaba. Mix in the fact that police and courts come down very hard on criminals (99.9% of all cases going to trial result in conviction in China) and China is arguably safer to do business with than many Western countries.
The chances of you paying for a bunch of goods to a company in China and never being sent anything is extremely small. However, receiving crappy products? This happens all the time.
Crappy Products and Other Order Problems? This is Not a Scam – This is Business in China
Receiving crappy products or other order problems are, for better or worse, not scams. Shipping poor quality products is not a crime that anyone is going to go to jail for in China. If it was, the prison population of China would be larger than the population of many countries! In fact, in the majority of instances of product and order problems not even contract violations have occurred as most new importers don't use contracts. A product or order problem normally looks something like the following:
- Golden Sample: Actual products purchased do not match the quality of the sample
- Material Substitution: Inferior materials substituted
- Missed lead times (i.e. 120 days instead of 30 days)
- Quality Fade: Quality deteriorates over time
The majority of the time these types of problems occur is at least partly (and more often, mostly) because of the importer. I'll be dedicating another post on how to solve these problems before they do happen and fix them when they have happened. I also give some near guaranteed strategies to avoid these types of problems from occurring in my importing course.
How to See How Much Your Competitors Are Importing from China
Want to see how much your competitors are importing from China?
Custom import records are public information in the United States and there are multiple tools that allow you to simply search for a company name and see exactly how much these companies are importing from China.
My favorite tool for this is Jungle Scout's Supplier Database tool which costs less than $50 a month (other more expensive options include Import Genius and Panjiva). These tools will neatly summarize all of the information included on a particular company's Bill of Lading information such as product type, quantity, and supplier name/address.
Most Scams Occur When Sending Money to a Non-Chinese Company or Individual
For the reasons mentioned above, a Chinese company is very rarely going to steal your money. If you are wire transferring money to a company in China, or better yet, paying by PayPal (many suppliers don't like PayPal though), you're almost certainly going to receive your products. Where people get into trouble is that they pay a non-Chinese company/individual (often in Hong Kong) or they send money via Western Union.
Why on earth would someone send money for a “Chinese supplier” to another country or pay via Western Union? For a couple of reasons. The first is greed and typically occurs when a new importer is trying to import counterfeit goods. (funny huh? Someone trying to do something illegal gets something illegal done to them). Alibaba even warns you when searching for a trademarked name now yet people still try and buy phony goods all the time.
There's almost never a good reason why you should be sending a wire transfer to a “Chinese company” but to a bank outside of Mainland China. There are some occasions when you will send money to a bank in Hong Kong but this is very rare and I strongly suggest avoiding doing it unless you first take some of the other precautions I outline later in this article. There is a lot of wire fraud going around right now that ends with banks in Hong Kong because of the relatively lenient banking regulations there. Plain and simple, don't send money to banks outside of China.
Supplier Email Hacking is a BIG Problem Right Now
A big source of scams in China right now is from email hacking. A supplier gets their email hacked and then this hacker sends emails to all of this supplier's existing clients informing them of “updated banking information” – oh, and by the way, this new bank information just happens to be in an entirely different country and different company name.
How could anyone fall for this you ask? Well, the hackers put A LOT of effort into each one of these emails by reconstructing invoices, matching a supplier's ‘voice', etc. Below is an actual email from a hacker I received a while back. It was very convincing and had I not been fortunate enough to read a warning about this type of scam just a couple of weeks before, I very well could have ended up wiring over $30,000 to a scammer's bank account which I would have had nearly 0% chance of ever getting back.
If you ever get an email from an existing supplier with a change of their bank information BE VERY CAREFUL. You must speak to your supplier through another form of communication and confirm this change. Hopefully you have your supplier on Skype, WeChat, or WhatsApp and can talk to them there (be careful though – these apps may have been compromised as well). It's also wise to confirm the identify of the sender by asking them a question only your legitimate supplier would know, i.e. “What hotel did you meet me at last year in Ningbo?”.
The Really Bad Evil Scams – Containers of Rocks and Non-Shipped Goods
It should be noted that China doesn't sit atop some fluffy cloud in heaven – there are bad people in China and outright scams do occur. Most of the scams either prey on extremely naive and greedy importers like I discussed before OR they are very complex scams.
An example of a complex scam is one where an importer agrees to pay the final 70% payment amount only after receiving a copy of the Bill of Lading. The Bill of Lading basically ensures a container has been shipped and also gives the total weight of the container and the products inside. The supplier loads the container with a rocks/concrete/other heavy objects to match the approximate weight that actual products would weigh. The importer makes the final payment and receives a container full of rocks.
Sounds scary right? Well, the good news is that a scam like this is normally only going to occur for a very large order ($50,000+) and can be avoided by simply doing a $300 pre-shipment inspection.
Supplier Runs Into Financial Difficulty
If you have been careful and made your deposit to a company in China and then all of a sudden get the dreaded non-response-to-all-communication-attempts there's a good possibility you haven't necessarily run into a scammer but rather you've run into a company going through financial difficulties.
For factories in China, running into financial difficulties is a big problem. Factories have high overhead and they have to pay 100% for all materials but normally only receive a 30% deposit from buyers which poses a big cash flow issue if a company isn't well capitalized.
This problem is most prevalent with smaller factories. What ends up happening is these factories start robbing Peter to pay Paul. So when you place a deposit, your money is actually going to fund the previous buyer's order. If you're lucky, someone else will come along after you and place a nice deposit and your order will start to be produced.
You can get a pretty good indication if you're in this situation if your supplier goes weeks without responding to you but then eventually does. If you think you're in this situation, the key is to make sure your order gets shipped before the company goes belly up (and it almost certainly will). The squeaky wheel gets the grease here—be persistent with emails and phone calls and try sending someone to the factory (again, a company like Asia Inspection can arrange this).
To avoid this problem altogether, try to deal with larger factories. You can normally get a pretty good feel for a company's size by browsing their Alibaba page. Good signs include Gold Suppliers for 5 years+, a large staff (specifically sales staff), and just an overall polished appearance.
The Ultimate Checklist to Avoid Scams
OK, so now you know that scams are incredibly rare but you also know what scams to look out for. Here's the ultimate checklist on how to avoid scams. Avoiding scams always starts before you pay any money.
- If you can pay via PayPal do it. Paying by PayPal (specifically a credit card and not bank transfer) offers you very strong protection. Many suppliers hate PayPal because of the ability for buyers to charge frivolous claims. If they do accept PayPal, most will charge a ~5% surcharge.
- If you are paying via wire transfer, make sure the payment is to a company in China, not an individual or company outside of China. Again, suppliers only accepting wire transfers is very normal and not a red flag in and of itself.
- Ensure the company is an Alibaba Gold Supplier. If the company bank information is in China and in a Company's name (not an individual) and they're a Gold Supplier on Alibaba, your chances of being scammed are very low. If the company bank information is in China but either they're not a Gold Supplier or they don't have an Alibaba page, do one of the following steps in #4 or #5.
- Before paying any deposit, either do a Factory Audit through Asia Inspection (most ideal and around $300), do a Company Background Check through Examine China (around $99) or AT LEAST talk to someone on the phone.
- If you didn't do a Factory Audit and you have some concerns about the company, do a Pre-Shipment Inspection before paying the final deposit.
Related Listening: E174: Avoid Being Scammed When Importing Products from China
What to Do If You Think You've Been Scammed
Do you think you've been scammed? Here's some steps you can take.
If It's a Product/Order Issue
If you're having a product and/or order issue (i.e. bad quality products, late shipments) you basically need to work it out with the supplier. In our course I go through strategies for dealing with such problems and I'll also go into this briefly in a follow-up post.
If You F***ed Up and Sent Money Outside of China or via Western Union
I hate to say it but your money is probably gone. You can post a warning to SupplierBlacklist.com to help others avoid problems in the future, but unfortunately you've probably experienced a bit of a costly learning lesson. The Police or your Consulate will likely be of no use.
You Sent Money to a Chinese Company and Have Been Straight Up Scammed
Did a supplier straight up not send your goods or sent you a container of rocks AND you have the identity of the company? If so it's worth it to speak to a lawyer such as the ones at Asia Bridge Law. The threat of legal action (and potentially jail time) can be very effective in China when you know who has scammed you. Debt collectors, who most law firms can assist you with, also tend to be much more effective in China than in Western countries (and you can use your imagination as to why they are more effective).
Your Supplier Has Run Into Financial Difficulty
The key is to make sure the supplier ships your products before they go bankrupt. Harass your supplier as much as possible and send a real person to their factory if you can.
My hope is that this article can instill confidence in new importers not to be afraid of importing from China as scams are incredibly rare. The truth of it is, by simply being careful where and to whom you send money to, you can eliminate almost all of the risk of having money stolen from you in China. Ensuring you receive quality products on time however is a whole other story and one in which I'll go into in the next part of this article.
Have you been scammed or almost scammed? Or are you worried about the legitimacy of your supplier? Comment below and I'll be happy to share with you any thoughts and experiences that I have.
One of the payment options not discussed or listed, is the ‘Trade Assurnace’ program within Alibaba.
Alibaba, essentially holds the payment until goods are confirmed as received, by the Buyer/Importer – he/she then clicks on a ‘Confirm Button’ (or something similar) – and Alibaba then releases the ‘Held’ monies, direct to the Supplier. Cheers!
Thanks for the suggestion – I’ve admittedly never used the Trade Assurance. Do you know if there is a dollar value limit?
I don’t think so – I used trade assurance to purchase samples (which was around $100 including shipping). They do charge you 2ish% since you are using credit card.
David, I’ve just discovered your site, at a time when I want to start an additional side business that will involve my first effort at shipping product from China. What a goldmine of information! I just wanted to thank you for the quality content/info and I will look into your course offerings mentioned in the article above. Once again, thanks for the incredibly useful info!
If the supplier says that they want an answer from me, asap, and emails me to my email address several times, (which they must be able to do because I am a verified alibaba member, as I didn’t give it out) and also calls me directly on my phone, is that is a clear sign of a scammer? I contacted a few companies in alibaba asking various questions and a few have gone a bit over board in replying. It’s my gutt instinct that the over eager ones are scammers, also asking me to skype, giving a personal email address, asking to use whasup without first exploring any type of early development stage, I get suspicious.
I replied and told them I only will correspond on alibaba, it’s too confusing to email and use the ali inbox, because everything needs to be in one place, but they ignore that, and continue messaging me, telling me that they have emailed me several times with no reply.
I also find others do not reply at all or take several weeks and only give a short reply. My gutt tells me that they are dealing with larger companies and are probably real. I’ve asked some of the alibaba suppliers if it’s normal for them to want to use email, and try to get businesses off of alibaba and they all say yes that is ok. but it’s not ok, to me, as Alibaba has safeguards as in gold suppliers, ratings, trade assistance and protection for buyers. I have asked some if they are able to take paypal, some do not answer the question and others say paypal is ok, but you need to pay 5% extra as it costs them extra to setup, which is fine, and tells me that they are legit.
What is the best way to have these suppliers checked out? Where can you go to get a “Real Agent” to do the footwork for you in order to help you find a “Real” Company. I have a contracts with some very large franchises, as I design products, but I am reluctant to trust the unknown, especially when they seem desperate to make a sale, and they seem to be the only ones who’s attention you can really get.
I can’t broadly categorize what makes a scammer but a lot of Chinese sales reps are ambitious and have strict sales targets. Best thing you can do is order small before committing to a larger order. You can also type their company name into portexaminer or panjiva to see if they have a long import history.
Thanks Dave. I am lucky to have read this hours before I concluded on my transaction else I was getting scammed. God bless you for the wakeup call. This is pretty helpful.Dave kampala, Uganda.
Glad it helped :)
I’m new to the business, in fact , this has come to be my first time but I still have a big problem on how to start; what involved and how it is involved, best way to go with it without fallen into scammers.
Follow the advice here :)
Hello I think I got scammed from alibaba I ordered 6 laptops first the guy said he sent me 60 laptops used globalexcalog.com for shipping which is copyrighted in 2019 and only contact information is an email address also he asked for 350 $ to release custom hold I paid that and now asking for $500 for a mogu fee so this has to be a scan and not send him anymore money right?
Doesn’t sound good.
Hello sounds similar to my transaction. Have received any products yet?
I paid for an order that I placed via PayPal. I never received my order nor could get money from PayPal.
now I am unsure about engaging with Alibaba.
Sorry to hear! First step would be to dispute with PayPal.
Hello I was Scammed help me out please!
Sorry to hear that. What exactly happened?
Hello I ordered a product on alibaba the seller said he shipped the order and the seller told me the product is being held by the customs for insurance and that I should bring another one thousand plus dollars,I contacted the shipping company and they said the same.but when I ordered initially the supplier didn’t tell me I would need to pay for insurance .so do u think i have been scammed ?because I already told them I don’t have the customs insurance money as I already paid for the product and the shipping fee of the product.
Insurance is optional up to you and $1000 is an absurd amount. There might be some miscommunication occuring as to what the $1000 is for though.
Hey Dave i want to buy a graphics card from alibaba its called Super Quality GTX 1080 Ti 11GB and the store its called GLOBAL TECHNOLOGY LLC from USA and can you help me to check if he scams or no.
Sorry! I don’t do that.