Dealing with Chinese suppliers that don’t have import and export rights

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Our partner in East Europe recently ran into a problem, he bought from a Guangzhou-based company, the supplier don’t have import and export rights(or import and export certificate) to deal with the exportation directly.


We have helped our partner to verify the supplier, that factory is small but decent, they are providing machinery products to a lot of famous Chinese companies, but our inspector noticed that this company don’t have import and export certificate, we mentioned this fact in our report, urge our partner to write the payment information of export agent company onto their contract with the supplier, which they did.


We know that quite a large quantity of Chinese suppliers, especially small and medium sized ones, don’t have import and export certificates, they are exporting through big import and export companies(factories pay 2 to 3% commission to the export company, so they can use the name, bank account to export). In the past, Chinese government set a very high threshold for companies to apply for import and export certificate, for example, only companies with registered capital more than 300,000USD are eligible to apply for import and export rights, nowadays, every companies(even individual companies with a few thousand USD registered capital) can apply for import and export rights.


But why are so many factories still don’t have import and export rights and export through export agent? Exportation is too complicated for many small sized factories, they have to deal with tax rebate, documents issuance and preparation like certificate of origin, bill of lading, L/C invoice, packing list, they have to deal with customs clearance, they will need to hire some senior accountants and experienced office workers to do the exportation themselves. Like I have mentioned, small factories mostly locates in rural areas where it is hard to recruit high quality human resource.


So small factories owners are more than happy to outsource their exportation formality to export agents, pay them small percentage of commission and make their lives easier.


But our partner came across the extreme cases, the supplier even don’t know how to export, they said they used to export through export company, but when we ask them to arrange customs clearance, they are clueless of what we are talking about, they called me to help, I pointed out that if they have exported through export agent, they could go to that company again, ask them to arrange for customs clearance at the cost of a few hundred RMB, which they did. Then after the products are shipped out, he don’t know how to make a commercial invoice.


This is really an extreme case. We have dealt with many factories that export through export agents, they at least know who to turn to and what we are talking about when we talking about documents and exportation formality. That is good enough. But our partner’s lesson tells us how important it is that you need to verify whether your supplier have the experience of exportation, whether they are familiar with export documents and formality.


Another issue is payment. When you are contracting with factory, but making payment to third party export company, you need to make sure that you mention this in the contract. Or rather, you could ask the supplier to send bank information document with their company stamp and signature.



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