You have your price, negotiated terms, and have defined a production management and quality control strategy and are now ready to place your order. It is critical that all of the key specifications and terms negotiated are clearly documents in your purchase order. You should have everything issued in the local language and under local laws. Therefore, if placing the order with a Chinese factory, make sure your contract is written in Chinese and has been run by Chinese council (unless you are placing orders via a US trading company with local operations in the country where your order will be manufactured). In some countries, having the contract in local language and under local law is not as critical. However, it is highly recommended and in certain countries (like China) it is essential.
You contract should be clear and concise. If you can arrange for penalties to be imposed for late delivery, it is also recommended that you try and include this. However, many factories in China will not agree to such terms. It is also an unfortunate fact that those that do agree are usually the ones that are always on time – they don’t have any problem agreeing to these terms because they know they are run efficiently and will meet the timeline you have laid out. It is the ones that won’t agree that we usually need to worry about.
[custom_frame_left shadow=”on”][/custom_frame_left] For contracts signed in China, make sure they are “chopped” by the factory. A “chop” is a stamp/seal that is placed onto the contract. All legally registered companies in China are required to have at least a company official chop. The company chop is required on all official documents such as contracts, memos, bank account applications and labor contracts. Technically, anyone who is in possession of the company chop can legally bind the company and therefore the management of this chop is extra important.
The local Public Security Bureau (PSB) will issue the company official chop upon successful company registration with the Administration of Industry and Commerce. The PSB will then keep a specimen of the company’s chop for verification in case of dispute or suspected fraud. You can check with the PSB in the event you suspect foul play and verify that the contract being signed is in fact official.