Fake vs Real, How to Protect Your Money Bag?

A certain auto parts factory signed a US$700,000 order with a new European client. Relying solely on information from the client’s official website and a small advance payment, production was swiftly arranged. However, upon the goods’ arrival at the port, the client refused to pay the balance, alleging that the products did not meet the quality standards. Due to the exorbitant costs of cross-border litigation, the company had no choice but to resell the goods at a price far below cost, ultimately suffering a severe blow. Similar incidents are not uncommon in foreign trade practices, and in recent years, related disputes have risen noticeably, posing a serious threat to companies’ financial security and the reputation of long-term cooperation.
 
Therefore, in foreign trade cooperation—especially when engaging with a buyer for the first time—it is crucial to conduct thorough due diligence. The methods for identifying and mitigating risks can be detailed in three stages: preliminary screening, in-depth investigation, and subsequent dynamic monitoring.


 
1. Preliminary Screening: Internet Information and Basic Data Verification
 
Website Domain Registration Check  
Verify the domain registration information of the buyer’s website. If the registration period is less than one year and no specific product information is displayed, it warrants high vigilance.
 
Social Media and Professional Platform Verification  
Utilize professional social networking sites such as LinkedIn to verify the identity of the procurement manager and the purchasing director. Check if their profiles are active and contain updates relevant to the business, thereby assessing their professional background and actual operational status.
 
Customs Import-Export Data  
Examine the customer’s past procurement records, the list of cooperative suppliers, and commonly used port information. This initial check helps evaluate their business activity and history of transactions.
 
2. In-Depth Investigation: Multi-Dimensional Data Comparison and Risk Index Evaluation
 
When entering the negotiation phase, it is essential to conduct a more detailed background check from the following aspects:
 
Third-Party Credit Report  
Consult reputable agencies such as Dun & Bradstreet to review the “Payment Index.” A score below 50 indicates a high risk of delayed payment.
 
Bank Statement Verification  
Request that the client provide bank statements from the past three months. Focus on any unusually large transfer transactions to uncover potential hidden risks in cash flow.
 
Litigation Record Inquiry  
Use databases like the ICIS or similar channels to search for any history of litigation or disputes involving the client, thus providing data support for subsequent risk management.
 
3. Subsequent Follow-Up: Continuous Monitoring and Dynamic Adjustment
 
For clients with established cooperation, companies should periodically conduct dynamic monitoring to ensure that no risk management blind spots remain:
 
Shipping Information Monitoring  
Regularly check with shipping companies to assess the client’s shipping frequency, which helps in evaluating the stability of their orders.
 
Ongoing Customs Data Tracking  
Analyze the client’s new cooperative supplier relationships, annual procurement volumes, and changes in import-export data. This macro-level review can reveal abnormal signals.
 
Industry Association and Policy Dynamics  
Subscribe to newsletters from industry associations in the client’s country, keeping a close watch on policy changes (such as tariff adjustments or foreign exchange control). This will enable timely predictions of any potential impact on the client’s payment capability.
 
Financial Health  
Monitor the client company’s financial audit reports, particularly the current ratio. If the ratio is found to be far below 1.5 times the industry average, it may be necessary to re-assess the cooperation risk.
 
Practical Due Diligence Communication Strategies
 
To naturally extract important information during communications, consider the following dialogue strategies:
 
1. Playing Dumb to Ask Questions  
Example: “Our finance department requires a color scanned copy of your company’s registration documents. Would you be able to provide them?”  
This approach appears official and rigorous while effectively verifying the client’s credentials.
 
2. Requesting a Factory Inspection Video  
Example: “Could you please record a video in landscape mode on your mobile phone, walking from the warehouse to the quality inspection area? We would like to review the flow design.”  
A video demonstration allows you to visually assess the client’s production process and quality control procedures.
 
3. Payment Test  
Example: “For the initial order, a 50% deposit is required, with the balance to be paid upon receipt of a copy of the bill of lading.”  
Establishing reasonable payment milestones can effectively mitigate the financial losses associated with credit risk.
 
4. Brand Agency Background Verification  
Example: “To ensure compliance on both sides, could you please provide the annual procurement framework agreement between your company and the brand owner?”  
Reviewing the procurement framework agreement helps verify the client’s authorization and brand agency credentials.
 
Preliminary due diligence in foreign trade cooperation is a prime example of “spending a little to save a lot.” One hour of thorough due diligence can often prevent a year or longer of subsequent disputes and financial losses.