Why verifying the business license is not enough to avoid supplier scams?
When doing business with suppliers, it's vital to ensure they are legitimate and trustworthy. One way to do this is to verify their business license. A registered Chinese supplier must have a company registration number (the social credit code). Using the social credit code to check the business license is easy and necessary.
However, relying solely on this verification method may be insufficient to avoid supplier scams. In this article, we will explore why verifying the business license is not enough and what other factors to consider when evaluating a supplier's legitimacy.
Company Registration in Cina is easy and low-cost
Firstly, registering a shell company without real business is easy, and the cost would be low. The company registration process in China has been streamlined in recent years. The registration process is fast and easy and primarily conducted online. Unlike some other countries, China does not require a paid-in capital at the time of registration. This means that entrepreneurs can start their businesses quickly (maybe within one day) and without significant upfront costs.
A real business license may be used for a fake business
Secondly, it is important to understand that supplier scams are becoming increasingly sophisticated, with scammers using real business licenses to deceive buyers using fancy pages on B2B sites. In fact, some scammers even create entirely fake businesses with real business licenses, convincing websites and social media profiles to appear legitimate.
A business license is not a guarantee for the supplier's reliability
Furthermore, more than verifying a business license is needed to provide insight into a supplier's reputation or history. A business license only confirms that the supplier is registered with the relevant government authority, but it doesn't guarantee that they are reliable or trustworthy. It's important to do additional research and due diligence to assess the supplier's reputation, such as checking for reviews, asking for references, and conducting background checks.
More comprehensive due diligence is required to avoid scams
A legitimate supplier should have a solid financial standing, and verifying their business license alone does not indicate their financial stability. It's important to ask for financial statements or other evidence of their financial standing to ensure they have the capacity to fulfill orders.
In addition to financial stability, assessing the supplier's production capacity and quality control measures is necessary. A supplier with a valid business license may not have the capability to produce the required products or meet the necessary quality standards. Before issuing the purchase order and making payments, it is essential to check for any adverse records on product quality, such as negative quality inspection results or law offenses relating to quality standards.
Conducting factory audits and verifying the supplier's certifications are also helpful in ensuring they have the necessary production capacity and quality control measures.
In conclusion, while verifying a supplier's business license is essential in evaluating their legitimacy, it should not be relied upon as the sole method of determining whether a supplier is trustworthy. It's important to conduct additional due diligence, such as assessing the supplier's reputation, financial stability, production capacity, quality control measures, and legal and regulatory compliance. By taking a comprehensive approach to evaluating suppliers, buyers can reduce the risk of falling victim to supplier scams and ensure they are working with reliable and trustworthy partners.
