Verify a Chinese Supplier Before Paying: Payment-Safety Checks

How does payment fraud against importers work?

Payment problems with Chinese suppliers tend to follow a few patterns, and each exploits a gap between who you think you are paying and who actually receives the money.

• Changed bank details. A supplier's email account is compromised, or a near-identical address is set up, and a message shortly before the balance is due asks you to pay a new account. The FBI's Internet Crime Complaint Center calls this family of schemes business email compromise and advises verifying account changes through a second channel.
• Borrowed identity. Someone uses a genuine company's name, licence copy or factory photos, with bank details for an account that company does not own.
• Wrong counterparty. A trading company or unrelated entity signs and invoices while another firm takes the money. Not always fraud, but it breaks the link between the company you checked and the company you paid.
• Fake assurance. A website imitates an escrow service or marketplace payment page, so the money goes to the fraudster.

The UK government's Overseas Business Risk guidance for China tells businesses to be alert to fraud and scams, especially unprompted offers, to check that the other party is genuine, to use secure payment methods and to take extra care on online platforms. These patterns work when a buyer pays before the names match.

Does the contracting entity match the account you pay?

Compare four names letter by letter: the company on the sales contract, the company on the invoice, the company on the business licence or registry record, and the account holder on the bank details. All four should be the same legal entity.

Two cases need a firm rule. A personal account for a company sale is a reason to stop. A Hong Kong or other overseas account for a mainland factory can be legitimate when a group trades through a Hong Kong company, but then that company must be the seller on your contract, and you check it in the Hong Kong registry.

If the explanation is 'the account belongs to our other company', reply that you will pay once the contract and invoice name the account holder. A supplier who will not amend the paperwork has told you something before you have spent anything. If you cannot tell whether you are dealing with a factory or a trading company, see the comparison of sourcing agents, buying agents and trading companies.

What can you check in company registries, and where?

A registry check answers one narrow question: does a legal entity with this exact name exist, and what is its status? Ask the supplier for its business licence, take the exact legal name from it, and search for that name, not a brand or shop name.

• Mainland China. Companies are recorded in the National Enterprise Credit Information Publicity System, run by the State Administration for Market Regulation (SAMR). A legal-risk publisher reports that you search by the exact legal name in Chinese and that the record shows status such as existing, revoked or deregistered. Ask the supplier for its Chinese legal name, and confirm the current search method on the registry itself.
• Hong Kong. The Companies Registry's e-Search service lets anyone search the current data and document images in the Companies Register, including as an unregistered online user. The Company Particulars Report shows the registered office address, share capital, shareholders, current directors and company secretary, and a Document Index lists what the company has filed. The registry charges a small fee per report; confirm the current fee on its site.

Compare the record with what you were told: name and address against the licence, an active status, an incorporation date consistent with the years in business claimed, and the named director against the person who signed.

A registry will not tell you whether the company owns a production line, can make your specification, or employs the person emailing you. For that you need samples, a video walk-through of the production floor and an inspection before shipment. The supplier verification guide covers capability checks; LYBAM's supplier verification and quality control service is a project-based capability assessment, not a certified third-party audit.

How should you structure the deposit and the balance?

There is no universal split. What matters is the sequence: pay a small amount for something you can inspect, pay a deposit that funds named costs, and release the balance against evidence. The larger the first payment, the more risk sits with a counterparty you have not yet tested.

Ask what the deposit funds. A deposit for custom tooling differs from one for stock components, and who owns the tooling belongs in the contract (see the OEM vs ODM guide).

Pay by traceable bank transfer to a corporate account, and avoid cash, personal accounts and routes that cannot be recalled. For a first order with a new supplier, consider a smaller pilot run before volume; the MOQ negotiation guide shows how to structure one.

Trade assurance, escrow and letters of credit: what does each protect?

These are categories of protection, not endorsements of any provider. The descriptions of cash in advance, documentary collections and letters of credit follow the U.S. International Trade Administration's guide to methods of payment. Open account (goods delivered and paid for later, often after 30, 60 or 90 days) is what suppliers extend to proven buyers, so a new importer should not expect it.

Letters of credit in China follow the International Chamber of Commerce's UCP 600 rules, according to the U.S. Commercial Service's China guide.

Which red flags should stop a payment?

• The account holder is not the company on the contract, or is a person.
• New bank details arrive by email close to a payment date, or the sender's address differs slightly from earlier messages. The FBI advises checking that links and sender addresses match the real business and watching for misspelled domains.
• Pressure to pay today for a discount, leaving no time to check.
• No business licence, or a licence whose name does not match the contract.
• No live video call from the production floor, or nobody on it who can answer a specific question about your product.
• A registry status of revoked or deregistered, or a company much newer than the history claimed.
• A price far below every other quote for the same specification, or reluctance to put specification, lead time and payment terms into a signed contract.
• A request to move the payment off the platform where you found the supplier.

One flag is a question to ask. Several together are a reason to walk away.

How do you verify a change of bank details?

1. Do not act on the messageDo not pay the new details, and do not use any phone number or link in the message.
2. Call a contact you already trustUse a number from the business licence, the registry or your earliest conversation with the supplier.
3. Ask for the change in writingRequest a signed and stamped letter on letterhead and a bank letter confirming the account holder's name. A stamp image can be copied, so the phone call is what counts.
4. Compare the holder with the contractIf the new holder differs from the contracting entity, treat it as a new counterparty and run the checks again, or amend the contract.
5. If you already paid the wrong accountContact your bank immediately and ask for a recall of the funds. The FBI's advice is to act at once and file a complaint at ic3.gov whatever the amount; report to your own country's fraud service as well.

What must the contract and invoice say before you pay?

Use a lawyer for the contract itself. These are the commercial points to see in writing before a deposit leaves your account.

• Full legal names, addresses and registration numbers of both parties, in English and Chinese.
• The product specification by reference (drawing, specification sheet or approved sample), with one sealed sample kept as the reference.
• Quantity, unit price, currency and the shipping term with a named place. The International Chamber of Commerce publishes eleven Incoterms 2020 rules that allocate costs, risk and obligations, including export and import clearance, so name the rule and the place.
• The payment schedule, each trigger, and the bank account by exact holder name.
• Lead time and the remedy if it is missed; inspection rights and what happens if goods fail.
• Ownership of tooling, artwork and designs you paid for; governing law and where disputes will be settled.
• Signature and company chop. The UK government's China guidance says the holder of an official chop can bind the company, so ask who holds it and keep a copy of the sealed contract.

If your brand will appear on the product, consider registering the trademark in China early. GOV.UK notes that China uses a first-to-file system and recommends that internationally active companies register their rights there as early as possible.

What should you ask your sourcing partner about payments?

• Which legal entity will I sign the sales contract with, and which entity receives my money?
• Will payments go to the factory, to you or to a third party, and can I see the account holder's name before I pay?
• Can I see the business licence and registry record for every entity involved?
• What evidence sits behind each payment trigger, and who confirms a change of bank details?

LYBAM GLOBAL LIMITED is a Hong Kong and Shenzhen-based sourcing and product-development company, and the founder brings 17 years of direct, hands-on import experience from China to every sourcing project. Put these questions to any partner, including us, and judge the partner by how specific the answers are. How a project runs shows where samples and agreed inspection steps fit.

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