Reduce Risk With Overseas Suppliers

Some of the risk in buying from overseas suppliers is ordinary: goods that do not meet the specification, cargo that arrives late or short, a document that is missing when customs asks for it. Some of it is deliberate fraud, which can sink a small business because the loss is usually the advance payment and there is nobody to chase. This guide builds a risk map for overseas suppliers and then goes through the controls that matter most: protected payment, independent inspection, a firm contract, the right trade term and insurance, and a protocol for bank details. It draws on the Embassy of India in Beijing's advisory for Indian SMEs, the Reserve Bank of India's rules for import payments and ICC material.

For how to check a supplier before you start, see how to find reliable suppliers in China.

A Risk Map

Risk	What it looks like	The first control
Identity	A fake or newly created company	Verify the company before you pay
Payment	An advance that is lost, or a bank account changed by email	A protected payment method, and bank details confirmed by a second channel
Quality	Sub-standard or wrong goods	A written specification and an independent inspection before the balance is paid
Quantity	Short shipment or a dispute over counts	Packing list, inspection and a weight check
Documents	A missing bill of lading or inspection certificate	Name the documents in the contract
Delivery	Delay or refusal to ship	Delivery dates, remedies and a force majeure clause
Transit loss	Cargo lost or damaged on the way	The right trade term and insurance
Compliance	Goods that cannot be cleared	A policy and standards check before the order
Dispute	No agreed way to settle a disagreement	An arbitration or mediation clause, and a record of everything

Payment: The Biggest Lever

Payment terms decide how much you lose if something goes wrong. The Embassy's advisory is direct on this:

For high-value contracts, use a letter of credit, or have both parties operate through an escrow account or a bank guarantee.
Do not pay any advance to a Chinese company whose credentials are unknown. If an advance is needed, use an escrow or bank guarantee route, and insist on the guarantee before paying.
Advance payment through bank transfer is discouraged unless the company's credibility is proved beyond doubt, and payment by telegraphic transfer should be avoided.
Make no payment to a third-party company or agent, and check that the account belongs to the company and not to an individual.
Release the balance only after checking the quality and quantity of the consignment.

The Reserve Bank's Master Direction on Import of Goods and Services, updated as of January 2026, adds rules of its own. For an advance remittance above USD 200,000 or its equivalent, it asks for a standby letter of credit or a bank guarantee, with a waiver up to USD 5,000,000 for an importer other than a public sector body that cannot obtain a guarantee from the supplier and satisfies the bank about its track record. Third-party payments are allowed only on conditions, including a firm purchase order or agreement and a narration on the invoice. Remittances against normal imports should be completed within six months from the date of shipment.

Option	What protects you	What to watch
Letter of credit	The bank's undertaking follows the credit's terms and documents	It works on documents, so the required documents must prove what you care about
Escrow or bank guarantee	Funds or a guarantee are held until the conditions are met	The conditions must be written clearly
Advance with a guarantee	The RBI conditions apply above USD 200,000	You still need a verified supplier
Unprotected advance	Nothing	The Embassy advises against it for unknown companies

The ICC Academy explains that most modern documentary credits are issued subject to UCP 600, and that a credit has its own terms and conditions that do not rely on the sales contract: the principle of autonomy. Because a credit works on documents and not on the goods, ask your bank how to draft it so that an independent inspection certificate is among the documents. The Embassy advises that a credit be opened with a provision to honour it on inspection of the inbound cargo at the Indian port and not on placement of the bill of lading only, and that a contract can provide for release of the credit only after an internationally accredited inspection agency verifies the quality and quantity at the destination port.

Quality and Quantity

The advisory recommends appointing a professional third-party inspection agency, carrying out a physical inspection of the goods at the point of loading in China, and having the quality and quantity of any product physically certified before the balance is paid. It also lists reported cases of sand, stones and bricks supplied in place of chemicals or metals, which is why the inspection must look inside the packages and not only at the labels. Our guide to quality control inspection before shipping from China explains how a pre-shipment inspection works.

The Contract

Turn the advisory's do's and don'ts into clauses:

A signed contract before any business begins, with an arbitration clause.
The documents needed for clearance, such as the original bill of lading and any pre-shipment inspection certificate, named in the contract. The Embassy lists suppliers refusing to provide them because they were not in the agreement.
A clause on price, because price increases after signing are a reported problem.
A definition of force majeure, including cost escalation from unforeseen supply chain disruptions.
A clause providing for mediation, which the advisory suggests placing under the relevant China Council for the Promotion of International Trade body.

The Trade Term and Insurance

The trade term decides who carries the risk in transit. According to the ICC Academy articles on FOB and on CFR and CIF, risk passes to the buyer on board the vessel at the port of shipment under FOB and CIF. Under CIF the seller must contract insurance for the buyer, but may choose limited cover under Institute Cargo Clauses (C) or a similar clause rather than the wider Clauses (A), and the seller does not promise that the goods arrive intact. Under CFR the seller owes no insurance, and the article advises the buyer to buy cover. So do not assume that the seller's insurance protects you. Check the cover and consider your own. See EXW vs FOB vs CIF.

Business team in a meeting around a table in a modern office — Agree who checks bank details, who approves payment and who handles disputes before the first order. Photo: Vitaly Gariev on Unsplash

Protecting Bank Details

The advisory describes cases in which a supplier's email account was hacked, or an employee asked for payment into a different account, and the money was lost. Its advice is to check the email address of the foreign company every time you correspond, to communicate bank account details through more than one channel, such as courier or fax, and never to trust email alone when confirming bank details. A simple protocol follows from that:

Treat any request to change a bank account as suspicious, however convincing the email.
Confirm the change by a second channel, using contact details you already hold and not those in the new message.
Check that the account is in the company's name, and that it matches the invoice and the contract.
Have a second person in your business approve the payment.
Keep the written confirmation with the payment record.

A Made-Up Scenario

A week before an agreed payment, a supplier's sales contact emails that the account has changed and asks that the funds go to a new account in an individual's name (all details are made up). The importer follows the protocol. The new account is not the company's, so the request fails step three at once. A call to the number already on file reaches a manager who knows nothing of the change. The importer pays nothing, tells the supplier's management in writing and keeps the emails.

If You Suspect Fraud

Stop any further payment and tell your bank immediately.
Keep every email, invoice, payment slip and message.
Write to the Embassy or the Consulate. The advisory asks Indian companies to seek the Embassy's help in cases of clear cheating or trade disputes so that the company can be entered in its database.
Take legal advice on your options under the contract.

A Supplier Risk Checklist

The company has been verified, and the bank account is the company's.
The payment method protects the advance, and the balance is held until inspection.
An independent inspection is arranged, with a written specification.
The contract names the documents, the dispute route and the price.
The trade term and the insurance are understood and the cover is adequate.
A bank-detail protocol is agreed inside your business.
The records are kept in one file.

Buy With Support From RR Brothers and Logistics

RR Brothers and Logistics coordinates documents and freight for purchases from China, and supports customs clearance in India. Send us your purchase details and we will review the logistics side of your order, including the documents it needs.

Frequently Asked Questions

The Embassy of India's advisory recommends a letter of credit, or an escrow or bank guarantee route, for high-value contracts, and advises against paying an advance to a company whose credentials are unknown.

Above USD 200,000 the Master Direction asks for a standby letter of credit or guarantee, with a waiver up to USD 5,000,000 for eligible importers that cannot obtain one from the supplier and satisfy the bank about their track record.

Treat any change of bank account as suspect, confirm it through a second channel using contact details you already hold, check that the account is the company's and have a second person approve the payment.

The seller must contract insurance for the buyer, but may choose limited cover under Institute Cargo Clauses (C) or similar. The buyer should check the cover and consider more.

The specification, price, delivery dates, the documents to be supplied for clearance, force majeure, an arbitration clause and a mediation route.

Stop further payments, tell your bank, keep every record, write to the Embassy or Consulate and take legal advice.

Sources

This article is general information, not legal, tax or customs advice. Rules, rates and procedures change; confirm current requirements with the relevant authority or a licensed customs professional before you ship. Regulatory references were checked against the official sources listed above on 26 October 2026.

Image credits: header photo by Lee Milo on Unsplash; photo by Vitaly Gariev on Unsplash. Used under the Unsplash License.

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How to Reduce Risks When Buying Products from Overseas Suppliers