The short answer
I get asked this question regularly, so here is my own answer rather than a checklist copied from somewhere. I sit on the selling side. That shapes everything below: I am the one putting my buyer's money behind a supplier I did not choose, so my risk is not an abstract concept. It is a claim, a damaged customer relationship, or a repayment I cannot make.
Leaving aside the risk of having to switch suppliers mid-stream, the most direct risk I actually worry about is a supplier who describes everything beautifully and then cannot meet the delivery requirement. Half true, half not quite.
Five things decide whether that happens to me:
- Is there a real legal entity behind the trade, in a jurisdiction that can be held to account?
- Can they evidence real production capacity - not just claim it?
- Is there independent inspection on both ends of the same shipment?
- Do I know where a dispute would actually get heard?
- Who is really carrying the payment risk - me, or them?
Two numbers frame everything below, because they are what I am actually working with: every product I quote has at least two qualified suppliers behind it, and my gross margin sits at around 10%. That second figure is why the fifth point is not a preference but a survival requirement.
1. A real entity, in a jurisdiction that can answer
What this actually buys you
My company is registered in Hong Kong. There is a registration number, there is a legal person behind it, and if something turns fraudulent there is a police force to report it to - one that takes commercial fraud seriously and has the reach to act on it.
That rules out the simplest scam there is: a company name that does not exist, attached to a bank account nobody can trace.
But existence is not competence
A real company can still be a bad counterparty, and a real company can still leave you holding an unpaid receivable. Filtering out the entities that were never real is the easy part. What follows is the harder part.
2. What I ask to see: the line, photographed
There is no production line certificate
I want to be precise, because this is the request that gets answered badly. Nobody issues a certificate for a production line.
What I actually ask for is photographs and video of the production line, and the specifications of the equipment on it - detailed enough that someone who knows the process can read the capacity off the images.
Every product I quote has at least two suppliers behind it
This is how my supply base is built, and it is worth stating plainly because it changes what happens next. For every product I quote there are at least two qualified suppliers. Both of them will send production line photographs and equipment specifications. Both of them will answer questions about the business.
That is the entry condition for being on my list, not a favour I am asking for.
Why that redundancy is functional, not decorative
A stock photograph tells you nothing. A supplier who can send me their own line, with the equipment visible and model numbers readable, has shown me something a middleman with a good catalogue could not fabricate on the spot.
Equipment count and type give away capacity. From a line photo you can roughly infer what that plant produces in a month. Then you test it against the volume actually required.
The reason I keep two suppliers is that I can send the same question twice. If one line cannot do what the other can, I have my answer before any money moves - and if one of them goes down, the customer does not find out from me.
The honest limitation
Photographs and video are evidence, not proof. A supplier can stage a line. What they cannot do is stage consistency across repeated requests, over time, against the volume you need. That is why I ask more than once, and why I cross-check against the delivery requirement rather than against the impression.
3. Two customs checks on the same shipment
At export
Chinese customs operates inspection recommendations on chemical exports. Those documents can speak to sample quality, because the sampling is random rather than staged for a particular buyer.
At import
On arrival, your own customs inspects too. That gives me a second independent read on the other end of the same cargo, from people with nothing to gain from my supplier's reputation.
What these numbers will and will not tell you
Be precise, because suppliers are not. Different testing times, different locations, different equipment, different people - you get a range, not an identical number. Consistency within a reasonable band is the real signal. Exact replication of every decimal is not something inspection can deliver, and any supplier who promises it is selling you something.
4. Where a dispute would actually be heard
I choose my jurisdiction deliberately
When a genuine quality dispute arises - and it will, at some point, if you are in this trade long enough - I want a forum that genuinely functions. Hong Kong's arbitration institution handles these matters, and the claim will not go unanswered because nobody reads the language or nobody will take the file.
That is not an administrative convenience. It is the difference between a remedy and a theory of one.
5. The payment trap nobody prices correctly
This is where I see the most damage done, and it is usually well meant
Open account terms - ship now, invoice later - are generally presented as the solution. They look generous. They are also, for a seller, the single most dangerous thing you can accept at scale. Let me show you the arithmetic rather than assert it.
Step one: the credit insurance number sounds like an answer
Export credit insurance from China will cover you for up to roughly 90% of the invoice. That number is real. Here is what sits behind it.
Step two: put that number next to my actual margin
I am in basic chemicals. My gross margin sits at around 10%. That is the honest figure, and it is not unusual for this trade. The business is not built on margin - it is built on a service fee for sourcing and handling something a buyer cannot easily source themselves.
Now put the two numbers beside each other. On a normalised invoice of 100, one serious default leaves roughly 10 unrecovered. That is precisely the gross profit on one order. One default costs me one order's profit. And when several customers are late at once, they do not queue politely - they overlap.
And the market has left nowhere to hide
Global commodity prices are transparent now, Chinese-origin product especially. Everyone has been in a price competition for years.
That matters here because at 10% margin, competing on price puts you on the floor already. There is no cushion underneath the margin to absorb a loss. A trader who quotes aggressively and carries open-account exposure is not being bold - the downside is already priced into the upside.
Step three: the clock is not yours to set
This is the part that catches people. How long a claim actually takes is different every time - it depends on the case, the paperwork, the counterparty, the forum. I am not going to put a number on it, because there is no single number that would be true. What is true regardless of the timeline is the window in which my working capital is tied up in a receivable I cannot collect, while my own suppliers, my freight, and my documentation costs all fall due on their own schedules.
That gap is where a trading company's cash flow dies. The insurance pays eventually. The bills do not wait for it.
Step four: supply chain finance is the same arithmetic with a deadline
The instinct is to fund the gap. That does not change the position; it moves the default risk to whoever funded it, and it does it on a schedule the goods cannot meet. A trader carrying open-account exposure this way is not managing through the cycle. The cycle manages them.
So this is why the terms get decided deal by deal
That arithmetic is the reason I do not hand out open-account terms by default. Not because a buyer should not ask for it - because at our margin it does not survive the cycle.
It is also why I will not tell you we run on one fixed payment rule, because we do not. What the terms turn out to be depends on the negotiation and on how the company reads that particular piece of business. Where both sides want the payment risk off the table, third-party escrow is one structure for it. For a Hong Kong operation, Tridge Pay is worth looking at - an escrow payment scheme operating under Deutsche Bank regulation. My own assessment is that it is a reasonably fair structure that minimises risk for buyer and seller together. The seller gets maximum assurance of being paid; the buyer is not exposed to losing an advance.
And the operating company sits in Hong Kong, under Hong Kong law - knowing full well that it is slower and more regulated than some alternatives. Part of it is fraud protection. The larger part is that in this structure I am accountable to a jurisdiction that acts. For a buyer, that is not a footnote: it means there is a counterparty with something to lose.
Scope note: I know Tridge Pay in the Hong Kong market only. I have not verified what equivalent arrangements exist elsewhere, and I would check locally before assuming it transfers.
What this does not cover
Supplier switching
Everything above assumes I chose correctly the first time. The risk of having to switch a supplier later - timeliness and continuity of supply - is a separate problem, with a different set of trade-offs. I am leaving it for its own piece rather than pretending it is covered here.
Related reading
- How to Verify a Chinese Chemical Supplier — Factories: the documentary detail behind checks 1 and 2.
- How to Verify a Chinese Chemical Supplier — Trading Companies: when the counterparty is a broker, not a plant.
- What to Do When a Chinese Supplier Goes Wrong: the step order once something has already failed.