Due Diligence
December 2013

How to Avoid an Alibaba Scam

More and more importers are choosing to source products via the online B2B platform Alibaba, and with that comes an inevitable increase in the Alibaba scam.

A lot these scams would be easy to avoid if buyers were a little more aware of the issue and how to avoid it. With that in mind, we’ve prepared this list of 12 pointers for staying away from scams on the Alibaba platform.

1. Consider Alibaba’s Business Model

The first point is not a technique but a reminder. When using Alibaba, it’s wise to remember that Alibaba’s customers are actually the sellers. They are the ones who pay Alibaba to use the platform, and they’re its main source of revenue. As a buyer, you are in fact an opportunity that Alibaba is offering to the sellers. Alibaba does of course need to look after buyers and make sure they keep coming back by offering a good service, but ultimately, you are not a customer of Alibaba; the seller is.

Keeping this in mind should keep you a little bit warier of the sellers you find on Alibaba. If you consider that Alibaba is constantly trying to find a balance between maximising profits from seller fees and maintaining an adequate level of safety, it becomes much clearer that you shouldn’t trust sellers too easily.

There are other China sourcing websites you can consider using.

2. Avoid Free Account Members

This is a very simple rule to enforce for yourself, and does a nice job of reducing your exposure to an Alibaba scam. If a seller is serious about offering quality services or products, they will be willing to pay fees for a Gold account demonstrate their commitment. Further, free accounts are not checked or verified in any way. Anyone with a computer can set one up and start offering “products” to the world via Alibaba.

In short, free accounts are such a low-effort tactic that operating them implies the seller is either uninterested in offering something of quality, or is a scammer hedging their bets with free accounts.

3. Avoid Big Brands, Especially Electronics

The majority of scams we hear about on Alibaba and other China sourcing platforms come in the most basic form of scam out there. A seller promises something, accepts payment for it, then doesn’t deliver what was promised. This scam is as classic as they come, and it’s still being used today because it still works. It is the #1 Alibaba Scam.

Branded goods are by far the most common product in these scams on Alibaba, especially branded electronics. This may be because the brand carries persuasive power that the scammer can hijack in order to generate ‘sales’. They know that a brand attracts higher prices (or suggests a better bargain) simply because of the name, and it’s very easy to advertise the name. Electronics are attractive to scammers because of their high value and popularity.

This type of Alibaba scam can be avoided by simply considering whether or not something is too good to be true. In particular, always bear the following in mind:

  • Big brands do not sell their products on Alibaba. If they do, the minimum order quantities are enormous.
  • You are not unique or smarter than anyone else for sourcing on Alibaba (this needs saying in some cases, unfortunately!). If these branded products were genuinely available at this price, everyone would be selling them at the more competitive price.
  • The fact that many branded electronics are produced in China does not mean that manufacturers there are authorised to sell the products themselves.

In short, whilst it’s possible that branded goods on Alibaba are genuine, brands should at the very least set alarm bells ringing for you, and branded electronics should set an air raid siren going!

4. Know What ‘Alibaba Gold Member’ Actually Means

We mentioned above that free accounts on Alibaba should be seen as a quick filter for low-quality or suspicious offerings. However, that doesn’t mean that all paid accounts are trustworthy. Whilst it’s wise to limit yourself to Gold Member accounts only, remember that this status is achieved on Alibaba by:

  • Paying a recurring fee, and
  • Passing an onsite inspection

The fees are quite high, eliminating the lower end of offerings, and the seller does have to demonstrate something resembling a site where they could produce the goods they offer. This does go a long way to eliminating scammers, but does not guarantee a professional service or quality products. Technically you haven’t been ‘scammed’ if you receive lower quality products than you were expecting, but it can be just as damaging to your business. Again, the general point remains the same: exercise caution no matter what, and don’t be overly trusting.

5. Look at The Age Of an Account

Alibaba does work constantly to try and eliminate scammers and fraudsters, so it’s fair to say that the longer an account has been running for, the less likely it is to be an Alibaba scam. In other words, scam accounts run a constant risk of being identified and banned, so the longer they operate, the more likely this is to have happened.

By only considering accounts older than a certain length of time, you can reduce the likelihood that you’re dealing with fraudsters. Imposing a minimum account age of two years should eliminate a lot of dodgy sellers from your shortlist. Again, though, it’s not a guarantee; always exercise caution.

6. Do Some Basic Research Online

Following the above steps should already have gone some way to helping you avoid the Alibaba scam in most cases.

Once you’ve imposed those rules and checks, you’ll end up with a list of suppliers who seem to meet the most basic requirements. It’s now time to put a little bit more effort into checking them out.

The easiest thing you can do is to just search around for them and their products online. Do they have a website? Social media accounts? Are people saying things about them online? This may sound obvious, but it’s clear that a lot of buyers still aren’t doing this kind of basic homework, because Alibaba scams keep finding new victims.

7. Check Fraud and Scam Listings For an Alibaba Scam

A more specific kind of research you should do is to check with websites that maintain lists of known or reported scammers. Submitting a company’s name to this list is often the only recourse that victims have, so if a scammer has acted before using the same name or another identifiable detail, there’s a good chance they’ll end up on one of these lists. Don’t become the next victim – check the lists and forums. Here are a few to get you started:

Also check with government agencies in your country that are responsible for import and export. They will often provide warnings about common types of scams and emerging forms that they are encountering in their work. Once again, just because these resources don’t seem to indicate that a particular seller or offering is a scam, you should still proceed cautiously.

8. Consider The Payment Option Being Requested

Scammers want to get your money, but they don’t want to be traced and get caught; certain payment options make this much easier for them. Western Union and bank transfers are favorites of scammers because they can often avoid being traced by these methods. Upfront payments in full are also demanded by scammers for obvious reasons. These payment methods and arrangements should give you reason to be particularly cautious. Read more about payment options on Alibaba.

9. Make Background Checks

If everything about a seller seems to check out so far, it’s worthwhile making a background check into the company. These are fast and inexpensive, and will reveal a lot about the company in question.

China Checkup provides a range of convenient and affordable Chinese company verification services. These checks use official registration records to verify that a Chinese company is legally registered, and to confirm its details.

10. Ask for and Verify Documentation

Asking for documentation from a Chinese company serves two purposes. Firstly, it can be a way to quickly reveal untrustworthy companies if they refuse to provide documentation or put up resistance to providing it. Legitimate companies will be perfectly happy to show their documentation. Secondly, you can verify the documentation you’ve been shown. If any of the details don’t check out, that’s also an indicator that something is amiss.

Key documents to ask for are a business license, and potentially a bank account license for the account you’re being asked to pay into. See also: 7 China Supplier Documents You Should Always Request.

Remember that verifying the documentation is at least as important as asking for it. Pretty much anything can be and is faked in China, including ‘official’ documentation. Until you’ve independently verified it, documentation is effectively worthless. China Checkup can verify documentation you’ve been given by a Chinese company – read more.

11. Ask for References Outside of Alibaba

A very powerful method for avoiding an Alibaba scam and low-quality companies in general is to ask them for references of other companies and customers they’ve worked with in the past, ideally in your own country. Contact these references independently and research them online.

This tactic can be very powerful because it’s generally quite hard for a scammer to fake, especially if the references are located in your own country. Lower quality companies will also have a hard time giving you good references if they’ve failed to deliver quality products in the past.

It’s quite reasonable if a company can’t just hand it’s client list to you, but equally it’s quite suspicious if there isn’t a single name they can refer you to. As usual, legitimate companies will be happy to comply; objections are a warning sign.

12. Be Prepared to Walk Away

Even where doubts exist, many are caught out by an Alibaba scam because the allure of a great price proves too high to resist. Everyone loves a bargain but the feeling of having been scammed stays with you a lot longer than that of saving a few dollars.

If you are having thoughts such as “The risk is worth it if we can get them that cheap” or “They seem really nice on the phone so I’m sure it’ll be OK”, it might be time to reconsider and walk away from the deal.

Verifying Alibaba Suppliers

To be cautious especially when you have a block trade is basic instinct. Our Company Verification service can help you verify the suppliers in a quick and easy way.

 See Also

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