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If you are in the import export business you have to protect yourself against the risk of international trade fraud and fake suppliers.
The number one rule in any business deal but particularly in international trade is if the deal appears too good to be true it probably is.
You can protect yourself against the financial risk of non-delivery from fake suppliers, substandard or late delivery of goods by structuring your financial relationships appropriately at the front end of the deal.
If you pay up front for the goods you are purchasing you are assuming 100% of the financial risk of the supplier not delivering the goods as specified in the contract.
A trade bill provides a low risk and cheap financing option. The trade bill has been a form of handling international trade payments between buyers and suppliers for over 5000 years. It is in effect a post dated promise to pay for goods and services received on a fixed date in the future. The trade bill is negotiated between the two parties without the involvement of a financial institution. A trade bill transaction shifts the risk of non performance to the supplier and can provide buyers protection from fake suppliers.
Documentary Credits (letters of credit) reduce the risk of non-performance for honest buyers and genuine suppliers. A documentary credit is where the bank gives a promise on behalf of the buyer to pay the shipper the value of goods shipped if required documents are submitted to the bank and the terms and conditions of the documents are satisfied. Typically the terms include: shipment dates that must be met, third party inspection certificates verifying the quality of the goods shipped, and verification all customs requirements have been met. The letter of credit assures genuine suppliers that the buyer’s company is a good credit risk. Genuine suppliers still assume the risk a government action, natural disaster or armed conflict may prevent payment.
While using a trade bill reduces some risk it doesn’t protect buyers against international trade fraud, forged or falsified documents. Many international trade companies prefer using documentary credits which shifts the risk of default or international trade fraud to the bank which is responsible for determining the documents are valid and the buyer’s company’s credit is good.
The buyer pays a fee for a letter of credit is based on the risk profile of their business and a commission based on the number and type of documents to be reviewed by the bank.
If you are a victim of an international trade fraud most countries have government agencies that are actively combating international frauds and scams. In the UK you can report trade fraud to the Serious Fraud Office and the Serious Organised Crime Agency. The International Chamber of Commerce also investigates reports of trade fraud at their Commercial Crime Services office based in the UK.
In the US you can report trade fraud to the Federal Trade Commission or the FBI.
In Australia you can report trade fraud to Australian Securities and Trade Commission.
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{ 5 comments… read them below or add one }
I think you should make http://www.isafetrade.com/supplier-reviews-manufacturer-reviews-scam-reports available for public viewing – similar to http://www.ripoffreport.com/
Interesting point and would love to see how you evolve the ‘risk management’ engine further.
Also, it may seem obvious to experienced buyers, but we frequently hear from buyers cheated while trying to buy iPod, iPhone, Blackberry, etc. directly from China. Buyers need to do know that they will probably always be scammed trying to buy brand-names directly from China. You will either receive cheap counterfeits… or nothing.
Go to http://www.isafetrade.com. This is precisely what we're here for–our mission is to bring trust to global trade. We have scam reports on the latest scammers on Alibaba, Tradekey, etc. We also provide supplier ratings and a supplier's trade history. The search functionality on our website is free.
Also, it may seem obvious to experienced buyers, but we frequently hear from buyers cheated while trying to buy iPod, iPhone, Blackberry, etc. directly from China. Buyers need to do know that they will probably always be scammed trying to buy brand-names directly from China. You will either receive cheap counterfeits… or nothing.
Go to http://www.isafetrade.com. This is precisely what we're here for–our mission is to bring trust to global trade. We have scam reports on the latest scammers on Alibaba, Tradekey, etc. We also provide supplier ratings and a supplier's trade history. The search functionality on our website is free.