Why it is essential to have a Purchase Contract with Suppliers in China.
- What are the benefits to have a China Sourcing & Supply Contract?
- So, does China have strong, enforceable laws for Contracts?
- My Supplier sends me a contract, is that OK?
- So, how much does it cost to create a China Purchase Contract?
- What is the difference between a good contract and a bad contract for China?
- So, what happens if my Supplier refuses to sign the contract?
- Over to you…
Since the outbreak of Covid, the supply chains of many firms that source from China have been dramatically affected.
Some might have noticed changes in the costs and delivery times of their goods. Others may have seen deterioration in the quality of goods they buy from their suppliers in China.
Today, many buyers are now looking for ways to try and bring some stability back into their China sourcing process.
Other readers may have a dispute with a supplier in China and are researching ways to seek redress from their Supplier.
If you are reading this blog, you might also be looking for solutions to any of the above scenarios.
If, after reading below, you want to use my services to assist you with this analysis, please get in touch with me.
What are the benefits to have a China Sourcing & Supply Contract?
There are both internal and external benefits to any company which has a China purchase contract in place for sourcing goods:
Internal Company Benefits of a China Purchase Contract
- You have a formalised document that outlines the specifications of your product.
- This document can be used to quickly and easily get quotes from other suppliers.
- It can help in communication and coordination between the various teams within your firm.
- It will provide information for other services such as Quality Control (inspector check sheets), Logistics (shipping and customs requirements, and Finance (payment currency and terms)
External Company Benefits of a China Purchase Contract
- You are increasing the protection of your company.
- Your Supplier cannot unilaterally make changes to your product without seeking your approval.
- You are less likely to experience delivery delays
- There is not going to be a request for price changes during the production of your order.
- You can offer reassurance to your customers that you have a good product.
So, does China have strong, enforceable laws for Contracts?
It depends. To attempt to have a legal case in China, you need four things:
- You must have a written contract between both parties.
- It should be written in Chinese.
- The contract must be written using Chinese law.
- The court listed in the contract should be in the location where the Chinese Suppliers business is located.
My Supplier sends me a contract, is that OK?
Many buyers think they have a contact when in reality, it is nothing more than a Proforma invoice. This approach is common practice with Chinese exporting companies.
- The language is only in English which makes it difficult to be enforceable in China.
- There is no reference to the appropriate courts in China.
If you require a review of your current contract, please do not hesitate to contact me.
So, how much does it cost to create a China Purchase Contract?
On average, a China Purchase contract costs €3,500 (28 hours at €125).
If you are buying different products from the same Supplier, this price may change as the number of hours required to write the contract will increase.
If you buy different products from different suppliers, you will require a new contract to be written for each Supplier.
What is the difference between a good contract and a bad contract for China?
There are several critical characteristics between a good contract that is enforceable in China and a bad contract.
A good contract should contain the following:
- The contract is written in both English and Chinese.
- It should be governed by Chinese law.
- The court of litigation should be at the location where the Supplier has its business.
- It outlines an arbitration process.
- There are detailed specifications of the product.
- Remedies outlined for breaches of contract.
So, what happens if my Supplier refuses to sign the contract?
A refusal to sign a contract is quite common with suppliers in China.
The first thing is to find out why the Supplier is refusing to sign the contract. Quite often, a supplier may not agree with a term in the contract. Here you can discuss the term with the Supplier and come to an arrangement.
Sometimes a supplier will want to change the contract completely. Here you must insist that the Supplier sign the contract. Some clients have often informed the suppliers that this contract is from one of their “major customers”, so to sell more of the products that the Supplier is making, the contract must be signed.
Suppose the Supplier ignores the contract and refuses to engage with the process of reviewing and signing the contract. Then, it would help if you considered this an indication that this Supplier is risky. If a supplier is confident of their products, they should be willing to sign a purchase contract.
Over to you…
If you are looking to have a contract written for your Supplier in China or need your current contract reviewed, don’t hesitate to contact me.
I am also happy to assist clients in drafting a purchase contract for suppliers in other countries.
Mobile- Messenger (Click to Connect)
Or at the following numbers:
(Europe/ Rest of the World) +353 1 885 3919
(North America) +1.518.290.6604
Or email me, Aidan Conaty
tcichina.co.uk | think China, think TCI