6 Things to Confirm with Chinese Toy Supplier Before Massive Production

Chinese toy suppliers can help you facilitate order fulfillment. But before sending money, you need to pay attention to many important details in the order and reach an agreement with the them.

First, you need to ensure that, for example, second-hand toy suppliers do not divulge your product information and company business information. Second, your products can be delivered in time. Another example is that the defect rate of products can be controlled at a low level. And the payment terms and payment methods you get are correct, the best, etc. In the following content, I will show you how to confirm the following 6 things one by one.

Proforma Invoice

When you decide to place an order to a Chinese toy supplier, the first thing to do is to ask the supplier to send you a Proforma Invoice (PI). This is a preliminary bill describing all products and pricing information. Usually PI is also called sales contract, because most Chinese toy suppliers will not provide contracts. But if there is no reliable sales contract between you and the supplier to use as a basis, then you need to ask the supplier to provide all the information that can ensure that you receive the correct product in time.

So when you get the PI, please make sure it includes the product price based on Incoterms, the quantity of the item, product size and weight, color, material used, packing solution, shipping mark information, delivery date, shipping schedule, etc.

In addition to the product description, the PI will also contain the supplier’s bank information, payment terms, and the effective date of the price, because international exchange rates are now changing very quickly.

After checking the PI, if the supplier receives your deposit, they will start to prepare the material and start to produce the sample. The delivery time starts from the day they receive the deposit.

After production is complete, the supplier creates a Commercial Invoice (CI), which is the final version of the PI. After confirming the cost, you pay the balance according to the invoice amount, and then the supplier helps you ship the goods.

Under normal circumstances, you have to sign PI back to the Chinese supplier, and the PI back sign is called Purchase Order. After the PI is signed back to the Chinese toy supplier, this part of the sales contract is completed.

In addition, the invoice will also be used for import and export declarations. So please make sure the amount on the invoice matches the amount you paid. If you issue an invoice to the customs with an inappropriate amount just to pay less import duties, there is absolutely no need to bear this legal risk.

Non-Disclosure Agreement (NDA)

If your product is designed independently and you have the intellectual property rights to develop new products, then it is very necessary for you to sign a non-disclosure agreement with the Chinese toy supplier. Because Chinese toy suppliers don’t just cooperate with one customer, they cooperate with many customers. If their cooperative customers happen to be in the same country as you, and they happen to be your competitors, then your products are likely to be leaked and sold to other customers.

Most Chinese toy suppliers will not take the initiative to sign a non-disclosure agreement with you, because it depends on you whether it is necessary to sign an agreement. So you’d better prepare a non-disclosure agreement yourself, just in case. In this agreement, you can specify what information the supplier cannot share with others, such as product designs, or specify that the supplier cannot display your products for marketing purposes. You can also specify the amount of compensation if they violate it.

So can NDA effectively protect the confidentiality of your product and prevent others from copying your product idea?

Yes, NDA is a good way to ensure that the supplier will not copy and sell your product, or leak your product information from him. If your supplier needs to find another factory to manufacture your product or just a part of your product, they will also sign a follow-up non-disclosure agreement with each other.

Please note: Once your product is publicly available, anyone can see your product and fork it, which is beyond what an NDA can help. Therefore, the most effective protection for your intellectual property is to register a patent in the country where you want to sell.

Delivery Time and Lead Time

Lead time is the time it takes from when you place an order until when the product is ready to ship. Confirm with the supplier before placing an order, in case they change the delivery date temporarily.

Don’t just verbally tell your suppliers about your delivery time requirements when you’re on tight deadlines and can’t afford any delays. The best way is to specify the delivery date and shipping date in PI, so that if the Chinese toy suppliers deliver the goods beyond the specified time, they will receive a notice of liquidated damages. But the premise is that you have correctly written the delivery date into the PI, and the breach clause needs to specify the amount of compensation for failure to complete the production before the promised time point. If you forget to write down the detailed compensation terms, you won’t get a penny for the delay, just the lead time.

Then let’s talk about delivery time, which is the time it takes for the purchased goods to arrive at the place you want. If you want the goods to arrive within the stipulated time, you need to sign an on-time delivery agreement with the Chinese toy supplier or shipping company (if you use your own forwarder).

In actual business, the main purpose of signing an on-time delivery agreement is not to get paid when there is a delay, but to play a role in urging suppliers to deliver on time. An on-time delivery agreement is only valid if you can hold the supplier accountable, otherwise, it is just an empty promise.

So my suggestion is, for familiar Chinese toy suppliers that you have worked with before, you can limit them by stopping cooperation. It would be a great loss to him if he delayed the delivery and refused to pay any costs. For new suppliers, it is wise to keep some payment balance until you receive the product in a timely manner, even if it is not easy to convince the supplier to accept such payment terms.

Quality Rquirements and Solutions for Defective Products

It is normal to have defective products, but the defective rate should be controlled in a low range.

The defect rate varies from product to product, 5% is okay for most low-value common products, but the defect rate should be less than 2% for high-value products. So if you are a person who has high quality requirements, before placing an order, you should confirm with the Chinese toy supplier, what is the defective rate you can accept.

For a higher defect rate than it should, you have three options:

The entire batch of products are reworked and then inspected;

To single out the defective item and request a replacement at the supplier’s expense;

Claim compensation.

Therefore, you’d better clarify your choice of defect resolution and compensation requirements with the supplier before placing an order. Once you bring this up, a bad vendor will refuse further communication.

Payment Method

Most of the Chinese toy suppliers only accept payment in USD as it is the most stable currency. Below are some common payment methods.

wire transfer

Wire transfer is also known as T/T, bank transfer, you need to visit your bank or visit their website to arrange payment. Wire transfers typically take 1 to 7 business days to arrive, depending on the country and bank from which the money is sent.

Transfer fees range from $20 to $50 per payment, no matter how much you send. If you are unable to send money through your bank’s website, try a third-party wire transfer service such as Veem.com, transferwise.com.

Western Union

West Union can be used when you cannot wire directly to China from your bank account. It is suitable for sending money under USD 5,000.

However, neither wire transfers nor Western Union have a third party to secure the transaction. That is, if the supplier doesn’t ship it to you, or gives you a poor quality product, you won’t be able to get a refund. That’s why you should verify the supplier before sending money.

Paypal

PayPal is an effective way to secure transactions, but it has a processing fee of about 4%, which is a lot of money on orders over $3,000. Not all Chinese suppliers accept PayPal payments because they are afraid that buyers will be scammed, such as requesting a refund after receiving the product

PayPal requires tracking records to determine if the item was delivered. Most Chinese suppliers will not accept PayPal if you have to use sea or air shipping with no tracking system. Therefore, if buying from Alibaba suppliers, you can place your order through trade assurance to minimize your risk.

Also, if you want to pay by credit card, then you can use Paypal or Alibaba Trade Assurance, T/T or Western Union does not accept credit card.

letter of credit

Letters of credit are not for most of you who are new to the import and export business. It works like this, you don’t need to pay the supplier up front, your bank guarantees that the supplier will receive the payment when the goods are shipped or arrive at the port of destination.

This payment method solves the trust problem between buyers and sellers, and can also help the buyer relieve cash flow pressure, because he does not need to pay any money for the supplier to start production.

Payment Terms

If you want to grow your business quickly, payment terms are key as good payment terms help a lot with cash flow.

A trading business is essentially like investing money in a batch of products, and after waiting months of manufacturing, shipping and selling, you take the money you get from the profits and reinvest it in buying more products.

So, once your business is on track, having consistent cash flow is crucial. There are 3 main payment terms as follows.

30% deposit, 70% balance against bill of lading

In export trade, the most common payment method is to pay a 30% deposit first, let the supplier start production, and the 70% balance against the bill of lading. This means you don’t have to pay the balance until the goods arrive at your country’s port. After you pay the balance, the supplier will send you the bill of lading, and you will take it to the customs to pick up the goods.

30% deposit, 70% balance before export

Most Chinese toy suppliers accept this payment term: 30% deposit to arrange production first, and 70% balance to be delivered before the goods leave China. Manufacturing usually takes a month, and shipping from China to the US takes 30 to 40 days, which means you’ll be paying a lot of money a month or two in advance before you sell anything.

No deposit, full payment against bill of lading

If you have a very good relationship with the Chinese toy supplier, then you can start production without even paying a deposit, just pay the balance against the bill of lading.

In the End

The above is the whole content of this article, I hope it will be helpful to you after reading it. If you have any questions, please contact us.