When running background checks on Chinese suppliers, is cooperation still possible when the vendor is a Chinese self-employed business?
Question
I found a supplier with a very advantageous price on 1688. After checking the company's credit report, I found that the other party was an "individual industrial and commercial household" rather than a "limited liability company." I am worried about the ability of such entities to perform contracts and resist risks. What is the difference between individual industrial and commercial households and limited companies as suppliers? Can we continue to cooperate?
Answers (1)Write Your Answer ↓
I personally do not recommend long-term cooperation with suppliers of individual industrial and commercial households.
I understand that registration of individual industrial and commercial households in China is simple, low-cost, and convenient to cancel. Individual industrial and commercial households are mainly concentrated in peripheral life services, such as catering shops, barber shops, physical supermarkets, physical hardware shops, etc.
The operation scale and stability of individual industrial and commercial households are far lower than that of limited liability companies. The establishment of a limited liability company requires the company's articles of association, shareholders 'meeting, financial system, and an annual industrial and commercial annual report. Moreover, the number of social insurance participants is zero for the vast majority of individual industrial and commercial households.
Self-employed businesses are not equivalent to scammers. They frequently sell products at lower prices because they carry less operational overhead than formal companies.But if you want long-term cooperation, you should put "stability" first. Moreover, I believe that a supplier that is proactive and wants to become bigger and stronger will register as a limited liability company rather than an individual industrial and commercial household. Normal suppliers want customers to see their compliance and strong credibility.
People Also Ask
What are the main risks when doing foreign trade business with a Chinese individual industrial and commercial household (self-employed vendor)?
The biggest risk is the lack of separation between the operator's personal assets and business assets. In case of quality disputes or contract breaches, pursuing liability becomes difficult after the business license is cancelled. Also, verify whether the receiving bank account matches the licensed entity.
What due diligence must be performed when cooperating with a Chinese self-employed supplier?
First, verify the authenticity and business scope of the business license, then check the operator's personal litigation records. A site visit or video tour of the workshop is recommended. Specify dispute resolution terms in the contract and avoid full advance payment.
Is it still advisable to work with a Chinese self-employed supplier for large-value orders?
Self-employed vendors are not recommended for large orders due to elevated risks. If cooperation is unavoidable, split payments, conduct pre-shipment inspections, and add a clause in the contract making the operator personally jointly and severally liable for guarantees.