Managing Sales Agreements, Deposit Payments & Batch Samples in China

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1. Sales Agreement

The Sales Agreement is the foundation for your first, and all future, production runs. The Sales Agreement has two main functions:

a. Define the product design, quality and functions (to avoid quality issues due to misunderstandings and the supplier cutting corners).

b. Creates a framework for increased efficiency

Let’s begin with the first part. At this stage, you should have at least an alpha or beta sample, and a product specification tweaked according to the manufacturer’s capabilities. All relevant specifications and file attachments must be listed in the agreement.

The second part is equally important, as you don’t want to renegotiate order terms every single time you make a purchase.

After negotiation, the Legal Representative (as specified on the Business License) shall sign the agreement, combined with the company stamp. Don’t accept digital copies.

2. Deposit Payment

Before your supplier does anything, you may transfer the initial deposit payment. In order to avoid payment fraud, you shall only transfer the funds to the bank account specified on the Sales Agreement. The beneficiary details must be correct, as the receiving bank in China will otherwise return the money. To avoid such a waste of time, you need to know the following

a. Beneficiary name

b. Beneficiary address

c. Bank Account Numbe

d. Beneficiary Bank Account

e. Currency

Right after making the payment, send a so called ‘payment proof’, which can be a transaction record from the business internet bank, directly to your contact person. Request them to confirm the bank account details in the ‘payment proof’, just in case your accountant missed something.

Note: The process above assumes that you pay according to Telegraphic Transfer (T/T) terms.

3. Mass Production

The mass production phase begins at the very moment the supplier confirms the arrival of the deposit payment. Time is ticking, and the supplier is now to execute the steps outlined in the production plan. The process varies depending on the product, but this is what it might look like:

  • Purchase Components & Material: 10 – 20 days (from subcontractors)

  • Process Components & Materials: 10 – 15 days (in house)

  • Batch Sample Completed: 1 – 3 days (Recommended for the 1st batch)

  • Assembly: 5 – 8 days

  • Packing: 1 – 2 days

While you should have received prototypes before you decided to go forward and place an order with the supplier, it’s still highly recommended that you, at least for the first batch, require the supplier to first produce a number of batch samples, for your approval – before mass production proceeds.

Note: The production plan assumes that all tooling (i.e., Injection molds) is already completed prior to mass production, as this is required to make pre-production samples.