Wary of Large Orders from China? Tips to Avoid Fraud

You should conduct due diligence in advance and make the installment payment arrangements reasonable.

Early last year, a Chinese buyer purchased 18 shipments from our Brazilian client for a total value of USD 2.2 million.

At the end of last year, the Chinese buyer told the Brazilian company that its sales in China were not going well and that it hoped to pay the Brazilian company in installments, with the payments to be made by the end of May. According to the installment plan, the first two installments were small, and the majority would be paid at the end of May.

By the end of May, the Brazilian company had received only a small payment from the Chinese buyer, and the buyer had stopped responding to the Brazilian company’s emails in a timely manner.

We contacted the Chinese buyer on behalf of the client. The buyer acknowledged the transaction and its arrears, but refused to continue to pay on the grounds of epidemic control in China.

Upon investigation, we found that the Chinese buyer had taken out a loan of approximately CNY 12 million from other companies by pledging the goods, which were then transferred through various channels. The Chinese buyer currently has no substantial assets.

In fact, the Chinese buyer has no fixed assets with a registered capital of only CNY 200,000 (about USD 30,000). Prior to this purchase, it had no experience with transactions involving similar goods or of a similar size.

The Brazilian company could have avoided this if it had taken the following two measures before delivering the goods to the Chinese buyer:

1. Conduct due diligence to determine the size of the company.

2. Make better installment plans to reduce the amount owed.

Photo by Crystal Kwok on Unsplash