Although it goes without saying that in every business transaction you must sign an agreement with your suppliers and clients, sometimes, due to different reasons – most often because of too much trust (unnecessary confidence), long-term relationship etc. – businesses ignore it – they simply go ahead and transfer money to their suppliers without signing any agreements, and, it is a matter of when that “long-term” client or supplier decides to take advantage of the situation. Unfortunately, this happens a lot more than you might expect.
“There are no friends in business”
Like the above saying, we should keep our businesses and personal lives separate from each other. One of our clients recently contacted us for legal advice saying that his long-term supplier from China had shipped wrong goods to his warehouse in Europe. The total cost of the deal was a bit more than $7500. He contacted the supplier back and demanded that they change the goods immediately. As expected, the supplier refused to do so. Obviously, our first question was if our client had signed an agreement with this supplier, but unfortunately, our client said he hadn’t signed any agreement because he trusted his long-term relationship, and anticipated that the business would go as usual. Except in this case, it didn’t.
Every serious entrepreneur – with or without experience – should think twice before trusting and wiring money without securing their position by an agreement, especially so, when they are dealing with suppliers or clients overseas. Why? Well because you’re separated by different jurisdictions, you are separated by time and distance – if the other party decides to break the verbal agreement or betray the “long-term relationship or friendship” you might have with them, there’s literally nothing to stop them. It is time consuming and will cost a lot of money to sue someone in another country. Also, if the total amount of the deal is relatively small, no serious lawyer will take your case. Why? Well, it’s too small for their time, and most of the courts in China will not consider those types of cases either. Unfortunately, that’s the reality, and whoever is betraying you, they know all about it, that’s why they are breaking the terms!
Solution is very simple:
Even if you’ve been dealing with your supplier or client for a long time – be it from China or other country – sign an agreement with them BEFORE you wire any money. Make sure the terms of the agreement are very clear on every aspect of the deal. Don’t be shy to include all the elements, numbers, colors, ifs and if nots – literally everything. Moreover, don’t forget to include a dispute resolution clause to your contract. Most of all, make sure the contract is drafted in the official language of your supplier’s country + English.
If anything goes wrong in your deal, you will have your contract protect your rights. You will have clear terms on how to resolve the situation. Very simple.
If you need any assistance in drafting contracts in Mandarin Chinese, our China licensed corporate lawyers can assist you. You can contact us here.