Merchants are legally obligated to obtain a supplier’s agreement if they are reselling goods through any channel. However, often times, the last thing on a merchant’s mind when thinking ahead to driving revenue is the chance of encountering a wholesale supplier scam — but it can, and does, happen. Wholesale supplier scams can occur in many ways, but the most important thing to remember is that your supplier is ripping off you AND your customers. Today we’re going to take a look at a few common types of scams and offer tips on how to spot and avoid them to protect yourself and your business.
Types of supplier scams
In the process of buying wholesale goods, there are a few key opportunities where suppliers can take advantage of your business to boost their own profits.
The dropshipping scam
Today, most wholesale suppliers also offer dropshipping in order to better accommodate the online channel and take advantage of demand outside their traditional stock and carry houses.
However, some suppliers offer to dropship in order to scam buyers — they accept their payment without shipping the orders. Here is how a dropshipping wholesaler scam works:
- A customer purchases an item from your website or online marketplace channel.
- Your wholesale supplier receives notice of the purchase and does not ship the goods.
- Your customer contacts his or her credit card–issuing bank for a refund, which results in a chargeback for your company.
- You pay chargeback fees, refund the money and continue to pay your wholesale supplier who is scamming you out of money.
When dropshipping suppliers fail to send out your goods, you not only lose the money you paid to the supplier for the goods but also the fees you paid for failing to ship.
The replica goods scam
In the replica goods scam, you sign a supplier agreement with a company assuming the goods they provide are authentic and legitimate — a commonly seen example is fashion accessories: Louis Vuitton, Prada and Dolce and Gabbana. However, what you actually receive are replicated goods that you then ship to your customers.
There are many websites devoted to educating consumers on differentiating between real and fake high-end global brands. Legitgrails even offers services that inspect and authenticate the products in question for you.
Once your customers receive their packages, they may identify the replica and contact their issuing bank for a chargeback. A worst-case scenario — your customer may sue you for fraud.
The “pay now, get later” scam
This scam preys on small business owners who are often just starting out or who may just be naïve. The way it works is that you issue a PO with your supplier for a new shipment of goods. However, the company says that you must pay first before they will ship. There may be a variety of “reasons” for this, such as the product being back ordered, and a pre-payment is required to get in line for stock. You pay the invoice, yet you never receive your shipment to refill your own stock.
Of course, one of the challenges with this situation is that it’s not entirely uncommon for real wholesale suppliers to ask for payment early. Many retailers don’t have the option to fight Net-0 payment terms and, in reality, won’t know it’s a scam until it’s too late. Just try to make sure that, at worst, you get a shipment confirmation before you pay an invoice.
Spotting wholesale supplier scams
Now that you understand the different types of scams, it is important to learn how to spot them. Below are red flag signs that will help you avoid falling victim to scam artists.
Communication red flags
Being able to easily communicate with your wholesale distributor is a key part of doing business. You want to be able to quickly reach them if an issue occurs so that your orders can proceed.
For that very reason, suppliers who scam often have poor communication practices. They need to make it difficult for you to contact them so that they can scam you without consequence. Here are a few communication red flags to look out for:
- The supplier does not have any contact information on their website, making it very easy for them to disappear with your money and leave you with no way of contacting customer service.
- Similarly, the wholesale supplier may also provide phony contact information, which will also leave you with no method of contact.
- When you contact the supplier, the person who answers does not state his or her name or the company name, making you feel like you are calling an individual’s private number and not a business, which you probably are.
- Without notice, you can no longer contact your wholesale supplier. It is as if the company no longer exists or never existed in the first place.
- You are always dealing with intermediaries rather than the formal points of contact.
Avoid suppliers with poor communication skills, as this is often a clear sign of a scammer.
Business practice red flags
Even the most skilled scammers will show small signs of fraudulent activity when doing business with you. Stay aware of these common ways that scammers deviate from standard business practices:
- The wholesale supplying company does not require your business ID or tax ID number to conduct business with you. Legitimate wholesale suppliers use the number as a sign that the buyer meets government business standards and is trustworthy, while a scammer doesn’t care.
- The company denies your request for samples of products or starts acting strange when you ask for one. This is often a sign of a replica goods scam or some other issue involving low-quality goods.
- Your wholesale supplier offers unbelievably low wholesale prices — so low that it seems as if the supplier probably won’t make any money from your purchase. Instead, they’ll make money by scamming you when you purchase goods.
Watch out for suppliers working around standard business practices to avoid potential scammers.
Verifying your wholesale supplier
Fortunately, there are a few ways you can verify that your wholesale supplier is legitimate. Do your due diligence by investigating their website, communication, and business practices. This will allow you to determine whether they’re legitimate or a scammer.
Check communication
A primary way of checking a supplier is verifying their contact information. Since many scammers make communication difficult, being able to contact a supplier is a sign of credibility.
- Identify the supplier’s full business name and contact information on the website. Note whether the information is transparent on their website or if it’s difficult to find.
- Call the supplier to see if they answer. If the listed phone number is out of service and you’re unable to contact them, don’t place an order.
Secure and trustworthy suppliers are open with their communication and maintain public records of their existence to foster long-term business.
You can verify the identity of a wholesale supplier on LinkedIn or other social media platforms. You can also look up the company on reputable wholesale websites. Or you can check EDGAR, the SEC’s database of corporate filings at a state level, for company registration info. If the wholesale supplier claims that they’re based in Georgia, there should be a record with the Georgia Secretary of State for that company.
Check business practices
Before you place a significant order, verify that the supplier has solid business practices and won’t scam you in payments or shipping goods. Start with creating a quality control inspection process for every supplier you’re considering.
As an example of quality control, you might immediately delay using dropshipping services from a wholesaler that may be prone to replica goods. Instead, you could start by sending the goods to your own warehouse first and establish some rapport before you decide to use their dropshipping service.
In addition to checking goods, you will also want to inquire about different payment methods for the merchandise. Most scammers prefer Western Union or even Bitcoin, as the payments are untraceable (although Bitcoin has become a more widely accepted payment type recently). However, if the supplier accepts credit cards or, better yet, checks, then it likely has a merchant account from a legitimate payment processor that has already verified the business.
Check business reports
There are plenty of reports for tracking scammers that you can use to check your supplier.
Research the company for wholesale scams on sites such as Better Business Bureau (BBB) or Ripoff Report. The BBB can help verify the legal status of the company and will provide information on any claims of fraud.
Complaint websites like these will show you complaints made by others on these public forums. Taking these steps will allow you to ensure that the supplier is real and trustworthy or will let you detect a scammer before they can take advantage of your business.
Preventing future fraud
If you are scammed by a supplier, don’t immediately assume you’ve lost. There are several actions you can take to potentially reverse the fraud and prevent the scammer from hurting others in the future.
Reach out to your marketplace
If you used an official marketplace to find your supplier — such as Alibaba or eBay Wholesale Lots — you might be able to reverse the issue. Many of these sites have rules to protect buyers against scams if they report the fraud.
Before reporting the scam, it’s best to familiarize yourself with your marketplace’s official rules.
- Alibaba’s Rules for Transactions
- eBay’s Money Back Guarantee policy
If you’re using another marketplace, simply search on Google “[your marketplace’s name] fraud policy” to learn about what they define as scamming.
Once you’ve familiarized yourself with your marketplace’s policies, you can determine whether your issue qualifies as a scam, and you should be protected. If it does, report the scam to your marketplace so they can take action.
- How to file a complaint with Alibaba
- How to report a seller issue on eBay
To find another marketplace’s reporting process, search in Google “[your marketplace’s name] report fraudulent seller” to learn how you can take action against your supplier.
Reach out to the manufacturer
If your fraudulent supplier is a wholesale distributor rather than the manufacturer, one course of action might be reaching out to the actual manufacturer of your goods. While it’s unlikely that the manufacturer will reimburse you for your losses, contacting them may help prevent the supplier from scamming future buyers.
Why? Manufacturers want to ensure that their distributors are conducting reliable, high-quality business. Otherwise, those distributors are likely to lose customers, be unable to buy more supply and hurt the manufacturer’s business.
With that in mind, manufacturers should be eager to hear about your experience with a fraudulent distributor. Notifying them may start a conversation between the manufacturer and distributor if they are directly linked without other distributors in between. If enough complaints have been filed, it may even prompt the manufacturer to cut off their supply to the distributor.
Report supplier on major forums
To protect other buyers, you can also report fraudulent suppliers on ecommerce forums.
There are a few forums that are specifically dedicated to reporting scammers.
- Econsumer.gov is for reporting international scamming incidents. There’s a category for ecommerce to report fraudulent wholesale suppliers.
- Supplier Blacklist is an international, user-generated blacklist of fraudulent suppliers.
You can also try posting on industry-specific forums, but be sure to carefully check their rules. Many forums, especially ones associated with marketplaces, prohibit specific seller complaints as spam.
Sharing your experience on forums most likely won’t lead to reimbursement, but it will protect buyers from being scammed by the same fraudulent suppliers in the future.
Stay watchful to avoid supplier scams
Apply these standards for handling scams, and you’ll be prepared to protect your business against fraudulent suppliers. If something seems suspicious or odd, always investigate it. Checking requires time and effort, but it’s better to ensure the supplier is credible than risk dealing with a scam.
For more information on reporting a wholesale supplier scam, check out Wholesale Forum.
The post Spotting a wholesale supplier scam appeared first on GoDaddy Blog.
Source: Go Daddy Garage
Republished by Blog Post Promoter