What to do if your supplier in China fails to deliver?
Tags: Demand Letter, Doing Business in China, SMBs and SMEs
It can be very frustrating when your order of products has not left Shanghai port months after the expected time of arrival. You may have kept sending emails to the seller without getting any comforting response. You may get such a simple message as: We are operating at a fractional capacity due to Covid lockdown. When you face such a situation, the least you should do is to send him a demand letter with the help of an experienced lawyer.
Serious impacts of China’s zero-Covid policy on the global supply chain
Strict Covid restrictions continue in many Chinese cities, including some of the most important production and logistics centers. This has caused serious disruptions to the global supply chain.
Logistics abnormality, e.g., congestion at ports, has doubled the time of shipment from China to many countries, e.g. it takes an average of 111 days to ship from China to the U.S. This phenomenon will continue for the summer of 2022 and likely throughout this year.
SMEs get hit harder
Unfortunately, smaller-sized companies usually get hit harder. SMEs do not have the cash flow to be as resilient as the multinational corporates. In addition, the suppliers and distributors in China would more likely choose to perform contracts with large clients over some others. SMEs get “shoved to back of supply queue” when there is a scarcity of supply.
What to do if your supplier in China fails to deliver on time?
If you have made the advance payment, but the supplier notifies you the delivery will be late by months. Or you have signed a resale contract, but the supplier would not even reply to your emails because “there is nothing more [they] can do”.
As a long-term plan, you can consider reshoring, nearshoring, or other alternate options inside or near China. But what are the immediate actions that you can take?
Firstly, you should at least have an experienced lawyer prepare a formal Demand Letter. Secondly, you should also verify the current status of the supplier to make sure it is still in good standing and has not filed for bankruptcy. You can check out a previous legal blog on Trustiics to understand how you verify a Chinese company.
What is a demand letter?
The concept of a demand letter or letter of demand is simple. It is a letter from one party to another, demanding the recipient to take certain actions or cease certain wrongdoing. In North America, it usually includes detailed information such as the facts of the situation, the relevant law, and consequences. It aims to convince the counterparty to resolve disputes without resorting to expensive and time-consuming litigation.
How do demand letters work in China?
In China, demand letters that use the typical North American approach of “friendly” negotiation will not be as effective. In the Chinese legal world, demand letters usually are more direct, and to the point. They use clear and unambiguous legal terms, request immediate action, and emphasize the consequences of non-performance. It will describe the next step the recipient should take and the deadline of the expected remedial action. It tells your supplier how serious you are about their breach of contract.
Why should you have a lawyer licensed in China prepare the demand letter?
A formal demand letter prepared by an experienced lawyer will get the counterparty’s attention, and he gets the message that a lawsuit may be brought against him. As a result, he would try to take remedial actions to avoid such consequences. In addition, a well-drafted demand letter will extend the time limit for you to file a formal legal proceeding in the future. It is not a good idea to download a template or try to draft one by yourself. The supplier will likely ignore a template demand letter and even worse, start to prepare a strong counterargument.
Get a customized demand letter in five days
Trustiics offers customized demand letter service for situations like those described above. At a fixed fee, an experienced English-speaking lawyer prepares a “Chinese-style” demand letter for you in both the Chinese and English language versions in 5 business days. She will address the issue succinctly and spell out the consequences clearly for the other party. The lawyer’s service also includes follow-up telephone contact with the addressee to confirm their receipt and understanding of the demand letter. You can also have direct messaging with the lawyer during the process of service.