Launched in 2015, Alibaba.com’s Trade Assurance program has all the potential to be a game-changer for China sourcing, especially for those buyers looking for an extra layer of protection when ordering over China’s largest business-to-business e-commerce platform. Whereas previously buyers on Alibaba.com had little recourse when a supplier failed to honor the terms of the sales agreement, Trade Assurance gives buyers a way of holding suppliers accountable and recouping payments that might otherwise have been lost as part of an unsatisfactory order. In this post, we’ll give an overview of Alibaba’s Trade Assurance program and a quick guide to getting the most out of it.
How it works
Alibaba Trade Assurance insures a buyer’s payment against missed shipment deadlines or a failure to meet established quality requirements. Qualifying suppliers are given the opportunity to participate in the Trade Assurance program depending on their previous sales volume, track record and verification of legal business status. This means that not all suppliers on Alibaba make the cut for Trade Assurance. When a supplier is able to offer Trade Assurance, it’s an indication of a certain level of proven reliability.
Alibaba will assign qualifying suppliers a specific coverage limit, or the amount Alibaba is willing to lay out on behalf of a supplier in case they fail to adhere to the terms of a purchase agreement. Suppliers who are in exceptionally good standing are able to offer higher Trade Assurance coverage amounts than newer or lesser established suppliers.
In the event a supplier is not able to ship an order on or before the agreed-upon shipping deadline, or if the quality of the products does not meet the terms of the sales agreement, the buyer can open a dispute with the supplier. The supplier is given three days to work out a mutually acceptable resolution with the buyer. If no compromise can be made during this time, the buyer is then able to “escalate the dispute,” or have Alibaba step in. Alternatively, the dispute will be automatically escalated after seven days without a response from the supplier.
Alibaba will listen to arguments from both sides as well as review the terms of the purchase agreement in order to determine whether the buyer is entitled to a refund. If a refund is warranted, Alibaba will pay it out upfront and then pursue the supplier for that amount.
When placing an order, buyers can opt for either pre-shipment coverage or post-delivery coverage. With pre-shipment coverage buyers will typically submit an initial payment upfront and then verify the quality of the production before it ships out. If at this point the supplier is found to have failed to meet the terms of the agreement, the buyer can withhold the rest of the payment and claim a refund for the initial portion paid. With post-delivery coverage buyers are required to inspect the production within 15 days of it clearing customs. If the contract is determined to have been breached by the supplier, the buyer must file a claim for the entire price of the order, or the maximum amount allowable within the coverage limit (whichever is lower). Any claims related to quality must be examined by a third party inspector approved by Alibaba.
What it doesn’t do
Alibaba’s Trade Assurance Program does not establish its own shipping deadlines or quality guidelines. Rather, it gives buyers additional power to enforce the terms of the contract both parties have already agreed to. This means that buyers must make sure to specify their expected shipping date and quality requirements in clear, measurable terms in the contract. Vague phrases like “prompt shipping” and “high quality materials” are extremely difficult to enforce. And because Alibaba makes its money off of user fees paid by suppliers, buyers should expect them to come down on the side of the supplier on anything that’s left open to interpretation. Be specific!
Trade Assurance does not necessarily cover the full purchase price of every order placed with a certified supplier. Coverage amounts are subject to Trade Assurance limits set by Alibaba for each supplier. If you’re looking to place a $10,000 order with a supplier who’s only cleared for $7,500 in Trade Assurance, the maximum refund you’ll be able to collect is $7,500. For this reason, buyers should opt for pre-shipment coverage, and negotiate payment terms so that the initial payment falls within the Trade Assurance limit, even if the total order will exceed the limit. With pre-shipment coverage, buyers should always inspect the goods before sending final payment.
Buyers should understand Alibaba’s Trade Assurance program as a helpful tool, not a miracle maker. When used wisely, it can make importing a much safer and smoother process. But it’ll never replace the hard work, careful planning and smart risk taking needed for successful overseas importing.